Dear All,

 

A decision from the High Court of Australia this week considers aspects of Trusts, Debt and the possibility of an action for money had and received against a Trustee: Fischer v Nemeske Pty Ltd [2016] HCA 11 (http://www.austlii.edu.au/au/cases/cth/HCA/2016/11.html). The case concerned “the power of the trustee of a discretionary trust to advance and apply to two designated beneficiaries, by resolution and entry in the trust accounts, an amount of money representing the value of unrealised trust assets comprising shares in a company. Also in issue is the effect of a deed reciting the alleged indebtedness of the trustee to the designated beneficiaries in that amount and purporting to charge the shares in their favour.” (French CJ and Bell J, [1].)

 

A majority of the Court finds that the Court of Appeal was correct to conclude that the Trustee was indebted to the relevant beneficiaries. Various dicta are of note, particularly the discussion of the scope for the common law cause of action and whether it matters whether it is a “bare trust” or not. For example, Gageler J states at

 

‘[109] Those statements [from earlier cases] are consistent with the common law action being available in circumstances which encompass the case of an admission of liability to pay made by a trustee who holds trust assets on a bare trust in the sense in which the appellants use that expression. At the same time, they contain nothing to exclude the availability of the common law action in the case of an admission of liability to pay made by a trustee whose holding of trust assets is subject to an unconditional equitable obligation to pay the beneficiary the admitted sum. If the equitable obligation to pay the beneficiary the admitted sum is truly unconditional, the imposition of common law liability for an admitted sum in the latter case would not conflict with any equitable right or duty of the trustee.

 

[110] To acknowledge the common law action to be equally available in each case is consistent with the overarching statement of principle by Griffith CJ in R v Brown, itself a reflection of the exposition of principle by Lord Mansfield in Moses v Macferlan[115], that the action for money had and received "lay whenever the defendant had received money which in justice and equity belonged to the plaintiff and when nothing remained to be done except pay over the money"[116]. To accept the common law action to be available in the case of an admission of liability to pay made by a trustee holding trust assets subject to an unconditional equitable obligation to account to the beneficiary in the admitted sum is also consistent with longstanding practice in New South Wales, where the separate administration of law and equity continued until the last quarter of the twentieth century. In a text on common law pleading in the Supreme Court of New South Wales published in 1961, for example, it was stated in general terms in relation to the action for money had and received that "[a] cestui que trust or legatee may sue the trustee or executor under this count where the latter admits that he holds trust moneys or a legacy as a debt payable to the former"[117].

 

[111] That the common law cause of action can arise where the trustee holds the relevant assets on a bare trust is alone sufficient to demonstrate that the coming into existence of the common law cause of action is not inconsistent with the continuing existence of a trust under which the trustee remains subject to fiduciary and other duties of a trustee for so long as the trustee's absolute equitable obligation to pay the admitted sum of money to the admitted beneficiary remains unperformed. Obligations of a trustee which exist by virtue only of that office, having been described as applicable to a bare trustee, include the obligation "to get the trust property in, protect it, and vindicate the rights attaching to it"[118]. There can be no reason in principle why the availability of the common law action should be excluded in circumstances where some or all of those obligations are spelt out in the terms of settlement.’

 

The decision itself is of interest, but so is a nice exchange during argument, as shown in the Transcript ([2015] HCATrans 321), with a lesson for counsel and academics:

 

“MR HUTLEY:   … Now, I would just like to say something about the characterisation of a resolution to pay as being an equitable debt. 

 

            The term “equitable debt” has had a somewhat chequered career in the law and it becomes ever more chequered, but we have referred to the decision of Mr Justice Fry in Webb v Stenton (1883) 11 QBD 518 at 530.  This Court referred to that passage in Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at paragraph 43 with approval, albeit the statement has two limbs to it and the approval was to the breach of trust limb where the Court observed that so far as a breach of trust one can characterise a claim to seek the restoration of the trust as a claim in equitable debt and your Honour the     

 

FRENCH CJ:   There is a lot of recent discussion, I think, about the characterisation of so called equitable compensation as in fact recovery of an equitable debt.

 

MR HUTLEY:   Your Honour has recently reserved upon it on a speech which is on the High Court website.  We follow everything your Honours say with a sort of sycophantic obsession.

 

FRENCH CJ:   One has to be careful.

 

GORDON J:   We do not actually believe that.

 

MR HUTLEY:   It is - it is on the website.

 

GORDON J:   I said we do not actually believe what you just said.”

 

Best wishes,

James

 

--

James Lee

Senior Lecturer in Private Law

Director of Undergraduate Admissions and Scholarships

The Dickson Poon School of Law

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