Week 2 Equitable Interests and Priorities
Equity Acts in Personam
Although the maxim that ‘equity acts in personam’ stands as a general principle, modern equity also recognises equitable proprietary interests; that is, an interest in the property in question.
the fact that in some circumstances beneficiaries of a trust can trace property in the hands of a third party presumes an equitable proprietary interest on the part of the beneficiary.
Equitable proprietary interests are also recognised in statute. For example, the
Property Law Act 1974 (Qld) (PLA) section 59 requires that contracts for the sale of any interest in land be evidenced in writing.
How are equitable proprietary interests created?
Intentionally
By implication of law
Imposed by law
An example is an equitable interest that comes into being through the creation of a trust, where the trust is created by transfer of the property, or by declaration.
In both cases a person (or trustee entity) holds the legal title to property for the benefit of another; i.e., a beneficiary.
In a fixed trust the beneficiary or beneficiaries will hold an equitable proprietary interest in the trust property.
Automatic resulting trusts presume that the creator of a trust intended to retain equitable (beneficial) ownership in the property
If the trust has met its purpose and there is surplus property after the trust is terminated, that property will result back to the creator
In general, this occurs when the court of equity intervenes and identifies an equitable interest as the basis of a remedy for a breach of fiduciary duty, or a contribution to real property by a person whose name does not appear on the title of the property (and therefore has no legal interest to rely on):
The mechanism by which this is achieved is the imposition of a constructive trust.
Equitable Interest, Mere Equity, and Personal Equity
The phrase ‘equitable interest’ or ‘beneficial interest’ and ‘equitable proprietary interest’ all presume a split in property between the legal interest and equitable interest.
Where the legal and equitable interests in property are together or fused, the owner of the property is the absolute owner
: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431, 463 (Aickin J); Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 706 (Lord Browne-Wilkinson).
Examples of equitable proprietary interests
● The rights of a beneficiary under a fixed express trust;
● A restrictive covenant over land;
● The holder of an equitable mortgage; and
● The interest of a partner in partnership property
equitable proprietary interest’: an equitable right in property (note, when Radan and Stewart discuss this form of interest they use the phrase ‘equitable interest’)
mere equity’: ‘an ancillary right to a right to property’ e.g.
the right to set aside a fraudulent mortgagee sale: Latec Investments
the right to a constructive trust based on proprietary estoppel principles: Giumelli
‘personal equity’: gives a person the right to make an application against another person (but not against property)
express trust
example of proprietary interest - a fixed trust
3 parts
trust property
beneficiaries
trustee
hold legal title
the subject of a trust
object of a trust
In deciding whether an equitable interest is proprietary (i.e. the interest is in the property itself)the court will consider whether the interest is:
definable;
identifiable;
capable of being assigned; and
has some degree of permanence: National Provincial Bank Ltd v Ainsworth [1965] AC 1175.
Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265
Latec Investments is an important case for this week’s content in two ways:
1.It demonstrates how a court decides whether an interest is an equitable proprietary interest or a mere equity.
2.It involves a priority dispute in which the two parties claim an equitable proprietary interest in property.
Assigning property: assignment v disposition
Assignment
Disposition
The immediate transfer of a proprietary right from the assignor to the assignee: Norman v FTC(1963) 109 CLR 9, 26 (Windeyer J).
A broader concept, and its meaning is debated. Radanand Stewart refer to disposition as meaning the owner of property is no longer owner, though may retain a (legal) interest in the property.
Example: a declaration of a trust:See Radan and Stewart, 2019 [5.6]-[5.7].
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the assignment is of legal property (i.e. not equitable property) and
the assignment occurs via common law or statutory rules
There are common law and statutory rules for assigning legal property:
Legal chose in action (usually a debt) -Property Law Act 1974(Qld) s 199
Torrens system land –Land Title Act 1994 (Qld) s 181
Goods –Sale of Goods Act 1896 (Qld) ss 20-21
if the assignment of legal property at law fails for some reason e.g. writing requirements are not met?
The assignment of the legal property may be recognised in Equity
Assignment in equity occurs in three circumstances
1.Future property or ‘expectancy’
2.Failure to comply with the requirements of a legal assignment of legal interests in property
3.Where the assignment is presently existing equitable property:
See Property Law Act 1974(Qld) s 11
property not currently in existence, e.g. dividends prior to being declared to shareholders: Norman v Fed Comm Tax
property that exists but is ‘not in the hands of the would be assignor’ e.g. Sharon owns shares & Martin is expecting Sharon to transfer those shares to him as a Christmas present: see Bryan et al (2017) 137.
Assignment of future property will be recognised in equity if it is assigned for valuable consideration.
Is the property in question present or future property?:
Norman v Fed Comm of Taxation(1963) 109 CLR 9: R & S [5.58]-[5.62];
Shepherd vCommissioner of Taxation of the Commonwealth of Australia(1965) 113 CLR 385
This can occur where there is:
- Equitable assignment of presently existing legal property for consideration: Everett v Comm Tax (1980) 143 CLR 440.See R & S (2019) [5.86]
- Voluntary (i.e. no consideration -a gift) equitable assignment for presently existinglegal property that is assignable at law: Milroy v Lord(1862)
- Voluntary equitable assignment for presently existing legal property that is not assignable at law (e.g. part of a debt): Shepherd v Commissioner of Taxation of the Commonwealth of Australia(1965) 113 CLR 385; Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, 34 (Windeyer J).
Property Law Act 1974 s 200
of interest is section 1c
a disposition of an equitable interest or trust subsistingat the time of the disposition, must be manifested and proved by some writing signed by the person disposing of the same, or by the person’s agent lawfully authorised in writing, or by will.
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The Property Law Act 1974 (Qld) section 11 also applies in circumstances in which equitable interests are disposed by means other than assignment:
- By way of a direction by a beneficiary to a trustee;
- By way of a contract to assign an equitable interest; and
- By way of declaration of a trust (there is a lot of debate as to which subsection of section 11 applies in this context)
Equitable Priority Disputes
Equitable priority disputes occur when more than one party claims to have an equitable interest in the same property.
These disputes generally involve:
Party A gains an equitable interest in property;
Later, party B gains an equitable interest in the property.
The general principle:
‘where the equities are equal in their merits and in all other respects’ the prior equity in time will gain priority:
Rice v Rice (1853) 61 ER 646;
See also Latec Investments (1965) 113 CLR 265, 276 (Kitto J).
How do courts decide which party has the ‘better equity’?
How do courts decide which party has the ‘better equity’?
- The nature and conditions of each interest;
- The circumstances of acquisition; and
- The whole conduct of the parties.
Cases since Rice v Rice (1853) 61 ER 646 have demonstrated that the third of the above matters is the vital one
Some of the factors the court considers in relation to the whole conduct of the parties
Failure to caveat
Notice –whether the holder of the second interest had notice of the first interest
Established practice (e.g. in conveyancing)
Any conduct by which the first interest holder did not protect its interest
will not, in and of itself, postpone an interest: J & H Just Holdings (1971) 125 CLR 546
Remember the court will look at all the circumstances
AG (CQ) P/L v A & T Promotions P/L [2010] QCA 83.
Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265
- demonstrates how a court decides whether an interest is an equitable proprietary interest or a mere equity.
- involves a priority dispute in which the two parties claim an equitable proprietary interest in property.
Parties:
Latec Investments –registered mortgagee (lender of money)
Hotel Terrigal (HT) mortgagor (borrower) defaulted
MLC Nominees –later interest in the disputed property
Q to the court: did Hotel Terrigal (HT) hold a mere equity or an equitable interest?
High Court: HT held a mere equity; decision -in favour of MLC
HT –had a right to sue to have the transaction set aside (mere equity) –but MLC had a better equity
Kitto J –HT’s right was a mere equity. MLC prevailed as bona fide
purchaser of an equitable estate for value without notice
Beneficiaries under a Trust and Equitable priority Disputes
First equitable interest held by a beneficiary under the trust:
The beneficiary's interest will not be postponed based on the trustee’s abuse of his or her position as trustee
Laterequitable interest is obtained in circumstances where the trustee fails to obtain title documents to the property, and as a result a subsequent interest is created Shropshire Union Railwayswill not apply