The nature of equitable estates and interests

Property is divided into real property (interests in land) and personal property (all property other than land)

•    Personal property includes chattels real (which covers leasehold interests) and chattels personal, which covers tangible chattels (‘choses in possession’ such as goods) and intangible chattels (‘choses in action’)
•    ‘chose’ = thing

The law of real property differs from the law of personal property. We should not assume that the bona fide purchaser defence applies to all property law. E.g. If you buy a television and pay good money for it, and you do not know that the person selling it is a thief, you do not get good title to the television (nemo dat quod non habet – you cannot give away something you don’t have)

Consider a lender who lends money to a borrower. The lender has a chose in action to enforce the debt. The promise to pay money is an item of personal property. It can be traded like any other asset (the lender can transfer that debt to a third party). The lender can pursue that property (the debt) by the operation of the law

•    There is a difference between legal chose in action (a right that you enforce in a court exercising common law jurisdiction) and an equitable chose in action (a right that you enforce in a court of equity)

•    Indicia of “property”
o    There is a power to recover the property itself (not just a right to recover compensation). You have an entitlement to get the property back, not just money reflecting the value of that property
o    There is a power to transfer the property to another (either by gift or by sale)
o    There is a persistence of remedies against third parties who take the property. I.e. The receiver of stolen goods can still have the property taken from them and returned to the true owner. If the receiver of stolen goods has any claim, it is against the thief for breach of contract (an implied warranty in the contract of sale that the goods are not stolen)

•    A property right is effectively a right against the whole world, not just a right against an individual that has done you some wrong
•    A right against the world at large is an action in rem. A right against an individual person is an action in personam

•    Equity’s reason for existing in the first place is to ensure people do not abuse their legal rights and that they act in good conscience. Equity acts against a person’s conscience
•    An equitable right can be transferred and it can be asserted against a third party.
•    Equitable property rights are not the same as legal property rights. They suffer from a particular weakness. They are vulnerable to being extinguished by subsequent legal owners of the property in question

Baker v Archer-Shee
Facts:    Lady Archer-Shee was the sole beneficiary of a fixed trust. The trust consisted of personal property located in New York, and the trustee was an American trust company resident in New York. The property was generating income. Lady Archer-Shee did not actually receive any income from the trust, as she was resident in England, and the income from the trust was paid by the trustees into a New York bank account. The English taxation authorities said that she was earning income because the property in New York was earning income. She denied this and argued that she did not have a proprietary right. She argued that all she had was a personal right against the trustees to ensure that they properly administered the trust. She was arguing that this was the trustees’ property, and they were in New York and were not British taxpayers.

Held:    The House of Lords rejected her argument. The Court said that she did have a property right in the trust and its income.

The House of Lords said that she did own property (which was therefore liable to taxation). She did not merely have a personal claim against the trustees that they properly administer the estate.

The House of Lords said that as a sole beneficiary, she was the only person with an equitable interest in this property.

This case says that if you are the sole beneficiary of a fixed trust, then you do have a property right. Your right is equitable property. You do not just have a personal claim against the trustees.

•    What kind of right does a residuary beneficiary in a deceased estate have? Consider Livingston v Commissioner of Stamp Duties (HCA) and Commissioner of Stamp Duties v Livingston (Privy Council)

•    Note: A residuary estate is that part of the deceased estate which remains after the payment of debts and liabilities. A residuary beneficiary does not know what their interest will be until the property has been properly administered.

Livingston
Facts:    Mr Livingston owned real and personal property in Queensland and NSW. He died,
leaving his first wife, Mrs Coulson, a one-third interest in his residuary estate. Livingston’s trustees were situated in NSW, and Mrs Coulson lived in NSW. While his estate was yet unadministered, Mrs Coulson also died. The question was whether she already had a beneficial interest in the Queensland real estate on her death, such that the trustees of her estate would be liable to pay stamp duty.

Held:    The HCA and the Privy Council found that Mrs Coulson did not have any direct interest in the real estate in Queensland such that would attract the payment of stamp duty. The HCA and the Privy Council came to this conclusion on different bases.

HCA majority:

Kitto J:        “The interest of a residuary beneficiary in an asset of an unadministered estate…possess the most substantial connection with the place of the appropriate forum for enforcing the due administration of the estate.”

Here, Kitto J is acknowledging that the residuary beneficiary of an unadministered estate does have some interest in that estate. However, the nature of that interest is forcing the trustees to duly administer the estate.

Fullager J:    “The courts have consistently held…that the right of a residuary legatee or next of kin, before the administration of the estate is complete, is a right against the executors or administrators to have the estate duly administered and the residue ascertained and disposed of according to the will or according to law”

Hence, the ‘place’ of the property right is where the trustees are.

Here, Fullager J is saying that the place of the assets is in fact the place where the trustees are. If you have an unadministered estate, and no clear rights have been returned yet, and you have to determine where your property right resides, it resides where the trustees are located.

Privy Council (dismissed appeal, but on different reasoning):

Viscount Radcliffe:    A residuary beneficiary of an unadministered estate has no proprietary interest in any asset in the trust estate – only a ‘chose in action’ against the trustee to enforce proper administration.

“This dilemma is founded on a fallacy, for it assumes mistakenly that for all purposes and at every moment of time the law requires the separate existence of two different kinds of estate or interest in the property, the legal and the equitable. There is no need to make this assumption. When the whole right of property is in a person, as it is in the executor, there is no need to distinguish between the legal and equitable interest in that property, any more than there is for the property of a full beneficial owner. What matters is that the court will control the executor in the use of his rights over assets that come to him in that capacity; but it will do it by the enforcement of remedies which do not involve the admission or recognition of equitable rights of property in those assets. Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.”

•    Here, Viscount Radcliffe is saying that property is a unified concept.

Hence, while the trustee held the estate of Mr Livingston, he owed only a duty to perform his task properly. The right that a residuary beneficiary (Mrs Coulson) has is simply a right (a chose in action) against the executor to do their job properly.

When Mrs Coulson died, she had no equitable interest in the Queensland real estate. All she had was a chose in action against the executor. At the moment when she died, she did not have any interest (legal or equitable) in the property in Queensland.

Once the estate has been administered, then it means the trustees have finished their job. The beneficiaries then become entitled to their interest and they can enforce that against that property. It becomes a Baker v Archer-Shee situation.

Re Leigh’s Will Trusts
Facts:    Leigh owns 51 shares in a company, and is owed a debt by the company. Leigh dies, leaving his wife as sole executrix and beneficiary of his estate. She made a will leaving all shares and interests which she held in the company to X. She died before she had administered Leigh’s estate. The question was who gets the 51 shares and the company debt? X or her residuary beneficiaries?

Held: Applying Livingston, all the wife had when she died was a chose in action against the executor (since the estate was unadministered). However, here, she was the sole beneficiary and the executrix. The Court held that what she passed to the executors of her estate were all of the assets as the legal owner in her capacity as executrix, and all of the beneficial interest in the estate in her capacity as beneficiary.

The judge said (applying Livingston) that what she has as sole beneficiary is a chose in action against the executrix. But since she is also the executrix, she passes to the executor of her own estate all of the rights and responsibilities of the executrix as well.

Hence, she has effectively passed her property interest in accordance with her own will, so that X gets the 51 shares and the company debt.  

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