Published on 27/05/2007

Dealings with Property

(A)   Dealings with Legal Property
Legal Property

When does the common law recognise a transfer of the ownership of personal property?

•   Distinguish between choses in possession (chattels) and choses in action

•   A chose in possession can be transferred by
o   Gift, accompanied by delivery. There has to be a statement of conveyance that the property is being transferred with that act (i.e. You say “I immediately and irrevocably give this book to you” and then you deliver it)
o   Deed. A deed has to be signed, sealed and delivered. A deed is a formal document, and you can actually give your property away by making a deed without actually delivering the property itself. You may do this when you want to continue to enjoy the property but do not want to own the legal title (e.g. to satisfy creditor’s debts).
o   Sale. You can sell the property. The time when title passes will be determined by the contract of sale. Title usually passes on payment of the purchase price. There is no need for delivery.

•   What about choses in action? (i.e. the debt owed – “I own you $100”)
•   Here, you have the benefit of the debt, and you decide to sell that debt to someone else (factoring) to allow you to obtain ready cash
•   Historically, the common law refused to recognise assignments of choses in action.
•   Equity would, however, recognise an unequivocal statement of irrevocable assignment. Equity said that so long as we can prove that there was in fact an immediate and irrevocable intention to assign the debt, then we will enforce that assignment in equity (equity steps in to bind the conscience)
•   Laws were passed to recognise the legal chose in action. The Judicature Act 1873 s 25(6) enabled legal assignment of choses in action. A chose in action can be transferred (or assigned) by compliance with s 12 of the Conveyancing Act 1919 (NSW) (unless special legislation applies, eg company shares are assignable under the Corporations Act 2001; copyright is assignable according to the Copyright Act 1968).

Conveyancing Act 1919 (NSW):
Section 12 – Assignments of debts and choses in action

Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees.

•   There are four conditions for a valid assignment of a chose in action at law
(a)   Intention to assign, and not merely authorise the debtor to pay another
(b)   Assignment must be absolute (not by way of a charge). An assignment means “I convey the property (debt) from me to you”
(c)   It must be in writing signed by the assignor
(d)   Express notice in writing must be given to the debtor

•   Suppose that B borrows money from L, and now L wishes to assign that debt to a third party. As long as the four conditions for a valid assignment of a chose in action at law have been complied with, that debt can been transferred (assigned) to the third party. L does not own it anymore, and B only has obligations to the third party (not to L)

Note:
1)   Section 12 does not permit the assignment of part only of a chose in action (however part of a chose in action may be assigned in equity): See Norman v FCT
•   E.g. If I am owed $100, and I say to my sister, “I assign half of that debt to you”, that assignment is not effective at law (it is not covered by s 12 of the Conveyancing Act)
•   However, Norman v FCT says that equity will still recognise the assignment of part of a chose in action

2)   Also, section 12 does not permit the assignment of future property, which is only capable of assignment in equity, for value.

Incomplete or ineffective legal assignments

•   What if the requirements of section 12 (or other applicable formalities) have not been fully observed? (e.g. I put my intentions in writing, but no notice is given to the debtor) When will equity recognise an assignment which is incomplete at law?

•   NOTE:   Distinguish between assignments for value and gifts. Equity treats an assignment for value as if a contract has been made to assign the property. That contract is enforceable, because “equity regards as done that which ought to be done”

(i) Voluntary assignments

•   There is a tension between not wanting to complete imperfect gifts and giving effect to intention rather than form
Milroy v Lord
Facts: The assignor, M, executed a deed voluntarily assigning shares in a bank for no consideration. The shares were never registered and M died. Was the assignee entitled to the shares?
Held: There was no effective gift: “In order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him…There is no equity in this court to perfect an imperfect gift” – per Turner LJ
•   Not clear after this case whether the transferor personally had to do everything that was necessary, or whether they had to take all the steps they could take.

Anning v Anning (1907) HCA
Facts: Mr A, in an attempt to avoid succession duties, makes a death-bed transfer of all his property in deed form. However, A’s deed did not meet the formalities needed to assign the debts he was owed, which are ‘choses in action’. Will equity allow this imperfect gift?
Held:
•   Isaacs J:   If property is assignable at law, equity will not enforce a gift of that property unless all the legal requirements for assignment have been completed.

•   Griffiths CJ*:   Equity will enforce a gift if and when the donor has done all those things which the donor alone must do (i.e. the donee may complete the gift by undertaking tasks which need not necessarily fall to the donor)

•   Higgins J:   Equity will enforce a gift if and when the donor has done all that it is within the donor’s power to do, even those things which the donee may do.

Corin v Patton (1990) HCA
Facts: Mrs P was dying and wanted to sever a joint tenancy agreement with her husband and ensure that the interest did not go to her husband. She signed 3 documents:
1.   Voluntary transfer of interest in land to her brother C, subject to a mortgage
2.   Deed by which C declared he had an interest in the land as tenant in common with Mr P on trust for Mrs P.
3.   Mrs P’s will leaving her estate to her children in equal shares
Mrs P died before the transfer was registered and the mortgagee still held the Certificate of Title (not C). Therefore legal title was not transferred.

Issue: Had Mrs P successfully alienated her interest in the land (severing the joint tenancy) by passing an equitable interest to C, or was Mr P entitled to the land by survivorship?

HCA adopted the Griffith CJ view from Anning.
Held: No equitable interest was passed. “If an intending donor of property has done everything which it is necessary for him to have done to effect a transfer of legal title, then equity will recognise the gift. So long as the donee has been equipped to achieve the transfer of legal ownership, the gift is complete in equity. ‘Necessary’ used in this sense means necessary to effect a transfer. From the viewpoint of the intending donor, the question is whether what he has done is sufficient to enable the legal transfer to be effected without further action on his part.” - per Mason CJ and McHugh J.
Deane J:   Ask: Has the donor put the gift beyond recall? A gift is effective in equity when the donor has done all that is necessary to place the vesting of legal title within the control of the donee and beyond the recall of the donor. (similar to Griffith CJ view also)

Assignment of part only of a chose in action
•   Is a gift of part of a chose in action enforceable in equity?
Norman v Federal Commissioner of Taxation (1963) HCA
Facts:   Related to equitable assignment of part of a debt or other choses in action. Windeyer J dissented in the overall result but the majority agreed with his statements of principle.

Held: Windeyer J: “As an assignment of part of a debt is still necessarily an equitable assignment, the question arises, can it be made by way of a gift and if so, how?”
“The whole of the debt now being voluntarily assignable under the statute…it would be a strange anomaly if a part could not be subject of a voluntary equitable assignment. To say “You can give away the whole, but you cannot give away a part, for a part you must get a price would seem to contradict common sense.”

How can part of a chose in action be assigned?
“It is of course necessary that the transaction should take the form of, and be intended as, an immediate transfer of the beneficial interest of the assignor, as distinct from an agreement to assign it. The distinction is critical, for consideration is always necessary to attract the support of equity to a transaction that is a contract rather than a conveyance.”

Is a deed necessary?
“It seems to me that, in principle, so far as a deed has any efficacy in connexion with equitable assignments, it is not that the deed takes the place of valuable consideration where that is needed to attract the aid of equity. Rather it is that, in a case where value is not required but a clear expression of intention is, the delivery of a deed couched in terms of a present gift manifests, in the best possible way, the intention of the assignor to make an immediate and irrevocable transfer”
- This was a presently existing right to a future
Majority: The debt was a mere expectancy (not a presently existing right) which could not be assigned as a gift but only assigned for value.

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(ii) Agreements to assign
•   Equity treats an assignment for value as if a contract has been made to assign the property. That contract is enforceable, because “equity regards as done that which ought to be done”
Chang v Registrar of Titles (HCA)
Facts:    Registered proprietor of bock of land in Melbourne was China. Appellants contracted with agents of Taiwan govt to purchase the land. Later Australia withdrew recognition of Taiwan govt and recognised People’s Rep of China. Victorian registrar then refused to register transfer in appellants favour and appellants sought an order vesting the land in them arguing the vendor had become a trustee for them as purchasers.

Held:   Appeal dismissed
“It has been accepted in decisions in England and Australia that at least when the purchaser has paid the purchase money the vendor becomes constructive trustee of the property sold…” per Mason J.
A purchaser under a contract for the sale of land can obtain an equitable interest in that property, where a court of equity would grant specific performance. This does not automatically make the vendor a constructive trustee.
- Being a purchaser under contract did not entitle them to title without payment
- If there is defect in the vendor’s title, it may impinge on purchaser’s equitable interest

(iii) Creating new equitable property by a declaration of trust
•   A declaration of trust is a final and binding statement by the absolute owner of the property that she holds the property in trust for another.
•   Conveyancing Act 1919 (NSW) S23C(1)(b)  requires that a declaration of trust over an interest in land must be manifested and proved by writing, however an oral declaration of trust over personal property is effective and may be inferred from conduct (Paul v Constance)

Paul v Constance
Facts:   C lived in a de facto relationship with Mrs P. C received workers’ compensation payment for £950 which C and P put in account in C’s name. However, C and P made oral statements that it was their money. P had authority to operate the account. When C died, his estranged wife became administratrix. Since the account was in C’s name, money went to his estate. P argued that C was holding the account (legal chose in action) on trust for her and himself.
Held:   The account was held on trust for both C and P. The requisite intention could be inferred from the following facts:
1.   there had been deposits of money they had jointly earned
2.   money had been withdrawn from the account for P’s purposes
3.   they had generally acted as if the account was a joint account

(iv) Future Property
Examples of future property:
•   An expected legacy under the will of a living person
•   Copyright in unwritten songs
•   Damages claimed under pending litigation
Are these things really property at all, while they are still so contingent? Are they not merely “expectancies”? If it doesn’t presently exist, how can the law recognise a present transfer?
•   Future property cannot be assigned in law but can be assigned in equity for value
•   Does the effectiveness of the assignment depend on whether an agreement to assign the property would be specifically enforceable? (Tailby v Official Receiver)

Re Lind
Facts: L had an expectancy of a share in his mother’s estate. Mother is insane (but still alive) so she won’t be able to change will. L mortgaged it to N (i.e. assigned the expectancy to N in exchange for value (money)) in 1905 and to A in 1908. Between 1908-1910 L is bankrupt and neither N or A make claim on L’s estate (L is discharged in 1910). In 1914 mother dies, L acquires interest in estate, assigns it all to Plaintiff, P, for value (P has taken an assignment of presently existing property for value, but it is an equitable assignment). P argued that debts owed to N and A were discharged and that he took the expectancy unencumbered by any other interest, because P wants to be first in line for payment.

Issue: Who gets what between N, A or P?

Held:   In 1905 property hasn’t passed to A yet, but it will be effective in equity when mother dies, because value has been given. P’s interest was third in line and the first in time prevails. Held that N gets first then A then P (All entitled to be paid back but their security is affected by priority). N and A both had contingent proprietary rights which arose before the bankruptcy, hence these interests survived the bankruptcy. Before the bankruptcy an interest did come alive and simply bore fruit when the mother died. When P takes interest from L, they must do so subject to already existing equities (i.e. L is trustee for N and A of the property, so N and A have equitable interests).

“An assignment for value of future property actually binds the property itself directly it is acquired – automatically on the happening of the event and without any further act on the part of the assignor – and does not merely rest in, and amount to, a right in contract, giving rise to an action. The assignor, having received the consideration, becomes in equity on the happening of the event, trustee for the assignee of the property devolving upon or acquired by him, and which he had previously sold and been paid for.” – per Swinfen Eady LJ

The tree or the fruit?
Distinguish a presently existing right to receive income (“the tree”) from the income as it arises (“the fruit”).

Norman v FCT (1963) 109 CLR 9
Facts: A taxpayer entered into deed in 1956 under which he agreed to transfer to his wife in 1958 “all his right title and interest” on a loan and dividends on shares. Note: The wife gave no consideration, the loan was repayable by the borrower at will (without notice) and the company has discretion in the payment of dividends. In 1958, FCT tried to tax him on the shares and the interest, but he claimed he transferred them to his wife. FCT argued that they were future property when transferred in 1956 and the absence of consideration meant it was not a valid transfer.

Held: Majority: The rights to the interest and dividends were future property, not presently existing rights.
The interest: Since the loan was repayable at will, it was clearly possible in 1956 that the loan could be repayed before 1958. Hence there was no presently existing right to obtain interest in 1958 or any way of knowing it would be paid. There were “gifts of interest paid but not a gift of interest to be paid…”
For this voluntary assignment (by way of a gift) to be effective, consideration should have been paid. Here there was no consideration so the property was taxable.
The dividends: This was a right not already in existence (future property). It is uncertain whether a dividend will be paid in a particular year, it is only a possibility until declared.

Windeyer J (Dissent): “A contract to pay a sum of money on a future day, call it interest or what you will, calculable in amount according to conditions presently agreed, is in my view a presently existing chose in action . . . Why should not the creditor before the date when this debt becomes due and payable, assign his right to receive payment on the due date? . . . What he assigns is not . . . a right to arise in the future but a present contractual right to be paid at a future date a sum of money to be calculated in the agreed manner.”

Note: Have to look at two things in determining what is assigned
1.   What words have been used, how has the assignor expressed himself
2.   The nature of the property being assigned e.g. if it is a bank account, is it a term deposit?
- Here the husband assigned the fruit (the interest itself) not the tree (the present right which will bear the future interest). If he assigned “any rights that accrue from owning the shares”, that would have been presently existing property (the tree) and would have included dividends arising in the future when the tree bore fruit.
- If you are assigning the tree (present right which entitles the assignee to receive a benefit in the future), value consideration need not be given.
- If there is assignment for no value, equity will only enforce it if it is presently existing right (and even then only with respect to principles discussed in ‘Voluntary Assignment’).

Shepherd v Commissioner of Taxation (1965) 113 CLR 385.

Facts:   S granted a licence to a company to manufacture castor wheels he invented in return for an agreed royalty payment of 5% of the gross sale price. He then assigned as a gift “all right title and interest in 90% of the royalties which may accrue for 3 years” under the patent licence agreement. The FCT wanted to tax S on 100% of the royalties received.
Issue: Was this an assignment of a present right, or a purported assignment of a mere expectancy/future property?

Held:   It was a valid assignment therefore the tax assessment was wrong. S was not assigning the future money that would be received from the royalties, he was assigning the right to receive the royalties. S had no present right to receive money from the royalties but had a present contractual right to receive royalties should production occur.
Kitto J: What was assigned was the contractual right to receive royalties (a legal chose in action), not the royalty payments that may be received pursuant to the contractual right. (i.e. S was assigning the tree not the fruit.)
 Agreed with Windeyer J in Norman

•   Note the distinction between Norman and Shepherd

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(v) Property incapable of assignment
•   Are any rights not assignable? Eg, Contracts for personal services? Bare rights to litigate?
•   Distinguish the fruits of litigation from the bare right to litigate: Glegg v Bromley [1912] 3 KB 474
•   Is there, any longer, a prohibition on “maintenance” and “champerty”?

Maintenance: You should not fund litigation for someone else if you if you do not have an interest in it.
Champerty: You should not agree to divide the spoils if damages are obtained from the litigation.

Glegg v Bromley [1912]
Facts:   Mrs G was a plaintiff in litigation. She executed a deed assigning to her husband, for value, any interest or sum of money (damages) she may become entitled to by virtue of the verdict. She won £200 pound but went bankrupt. She claimed that she had alienated the property to her husband before becoming bankrupt and therefore creditor couldn’t claim the money.

Held:   It was a valid assignment. Important to consider the subject matter of the assignment, which was the money that might be acquired from the action. This was not a presently existing chose in action but future property identified by reference to an existing chose in action (the right to litigate). Equity will regard the assignment of future property as valid so long as there is consideration. As soon as the property comes into existence, the beneficial ownership will attach.

Assignment of the fruits of the litigation did not offend the maintenance or champerty principles.

Trendtex Trading Corp v Credit Suisse [1981]
Facts:    T was a Swiss company, which contracted to supply cement to an English Co for shipment to Nigeria. Nigerian purchaser organised payment by letter of credit issued by Central Bank Nigeria (CBN). Ships were held up and cement solidified, so CBN refused to honour the letter of credit. T sued CBN in England for damages. Before the appeal was heard, T assigned its ‘right of action’ (right to litigate) against CBN for consideration to Credit Suisse (CS) who was a major creditor of T and was funding the litigation. CS then assigned the right of action to a third party for greater consideration than what it provided T, and the third party then settled the action. T claimed its own assignment to CS was invalid because it offended the principle of maintenance.

Court of Appeal: “Where a cause of action arises out of a right which was itself assignable, the cause of action equally remains assignable ... it is not a ‘bare’ right to litigate but itself a right of property.” Where a person or party has a genuine pre-existing financial interest in maintaining the solvency of a plaintiff, then such a person could support the plaintiff’s litigation without being guilty of maintenance or champerty. – per Oliver J.

House of Lords: Supported Oliver J’s approach, but found the assignment by CS to 3rd party invalid. Had it been in English jurisdiction, the court would have found T’s action for relief invalid (i.e. T’s assignment to CS was valid)
The court should look at the totality of the transaction. If the assignment is of a proprietary right and the cause of action is ancillary to that right or the assignee has a genuine commercial interest in taking the assignment and enforcing it for his own benefit, the assignment should not be struck as an assignment of a bare right to litigate or as savouring of maintenance. – Per Roskill LJ
Here, it was legitimate for CS, to which T was indebted, to take an assignment of the cause of action as a means of receiving payment of T’s debt. CS’s interest was considered to arise independently of the arrangement to maintain the action. CS was also deemed to have a genuine commercial interest in the suit.

(B) Dealings with Equitable Interests

Dealings with equitable interests
Distinguish between:
•   An assignment of a subsisting equitable interest
•   A declaration of trust
•   A direction to trustees to hold on trust for another
•   A direction to trustees to transfer to another
•   An agreement for value to assign

The principles for validity differ, depending on the form of the dealing intended by the transferor. A failure to effect the intended dealing will not be rescued by equity presuming an alternative form: Milroy v Lord.

Distinguish a “mere revocable mandate” or authority:

Comptroller of Stamp Duties (Vic) v Howard Smith (1936)
Held:   “[A] voluntary disposition of an equitable interest may be effected by the communication to the trustee of a direction, intended to be binding on him, thenceforward to hold the trust property upon trust for the donee. But it must be a direction and not a mere authority revocable until acted upon. Such an authority is not in itself an assignment. It may, it is true, result in a transfer of an equitable interest. For the trustee acting upon it may make an effectual appropriation of the trust property to the new beneficiary or may acknowledge to him that he holds the trust property thenceforward on his behalf. If the authority contemplates or allows such a method of imparting an equitable interest to the donee, the action of the trustee may be effectual to bring about the result. But, in such a case, it is not the donor’s expression of intention which per se constitutes the assignment.” (per Dixon J).

The requirement of writing
Conveyancing Act 1919 (NSW) s 23C

S23C(1): Subject to the provisions of this Act with respect to the creation of interests in land by parol:
(a)   no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, r by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of the law.
(b)   A declaration of trust respecting any land or interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person’s will
(c)   A disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing.

PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241
Section 23C applies to dispositions of subsisting equitable interests in personal property (and not only interests in land).

(ii) Contracts for value to assign

Conveyancing Act 1919 (NSW) s 23C(2): “This section does not affect the creation or operation of resulting, implied or constructive trusts.”

•   Should a contract for valuable consideration to assign an equitable interest in property be in writing pursuant to s23C(1), or is the requirement of writing dispensed with pursuant to s23C(2) in the context of a creation of a constructive trust, where the vendor becomes a constructive trustee for the purchaser of the property?

Oughtred v IRC [1960] AC 706 (HOL)
Facts: Trustees held a parcel of 200,000 shares for Mrs O for life, and remainder to Peter (her son). Mrs O made an oral agreement to sell a second parcel of 72,700 shares to Peter, in exchange for his remainder equitable interest in the 200,000 shares. Mrs O transferred the 72,700 to Peter and thereby became the absolute beneficial owner of the shares. Then Mrs O and Peter instructed the trustees to transfer the legal interest in the 200,000 shares to Mrs O. Tax authority argued this disposition in favour of Mrs O was liable for payment of ad valorem stamp duty on basis that the oral agreement between her and Peter amounted to a disposition within s23C(1)(c) and had to be in writing.

Issue: What stamp duty was payable on the transfer of the 200,000? Ad valorem duty on the full market price? Or nominal duty only, because no value had passed (Mrs O was already entitled to the beneficial interest in the shares and she argued that she merely acquired legal title).

Held: Bare majority found in favour of the taxing authorities

Lord Denning: The oral agreement was ineffective to dispose of Peter’s reversionary equitable interest because of the requirement of writing in s23C(1)(c) (s23C(2) did not do away with this requirement). Even if the oral agreement was effective, the subsequent written transfer from the trustees to Mrs O attracted ad valorem stamp duty.

Lord Jenkins: Found that the transfer from the trustees to Mrs O was a dealing in property and attracted the ad valorem stamp duty under the relevant stamp duty legislation. Even if the earlier oral agreement created a constructive trust (i.e. Peter holds equitable interest on constructive trust for Mrs O) the subsequent legal transfer attracted ad valorem stamp duty.

Lord Radcliffe (Dissent): The oral agreement created a constructive trust with the consequence that the writing requirement in s23C(1)(c) did not apply because of s23C(2).

Lord Cohen (Dissent): Relevant documentation was not an instrument transferring an equitable interest; hence it is not liable to ad valorem stamp duty.

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(iii) Directions to trustee
Is it necessary that directions to a trustee to transfer the beneficial interest in trust property be in writing?

Consider: Direction from a beneficiary to a trustee to hold property in trust for a third party.

Grey v IRC [1960] AC 1 (HOL)
Facts: G held shares as a bare trustee for H. H orally directs G to hold shares for several grandchildren instead. G subsequently executed declarations of trust citing H’s directions. IRC argued that the oral direction was ineffective by virtue of s23(1)(c) and that the written declaration was effective to dispose of H’s subsisting equitable interest in the shares to the grandchildren. Hence IRC argued that ad valorem stamp duty should be paid on the declarations of trust.

•   Question: When did the beneficial ownership of the shares pass to the grandchildren? By the oral instruction, or on the written declaration of trust?

Issue: Was the oral direction “a disposition of an equitable interest or trust subsisting at the time of the disposition”, which according to English equivalent of section 23C(1)(c) of the Conveyancing Act 1919 (NSW), “must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing”.

Held: In favour of IRC, giving the word disposition its ordinary meaning (not a narrow one). The oral direction was considered a “disposition” of a subsisting equitable interest within the meaning of s23C(1)(c) and was therefore ineffective because of the requirement of writing. Hence the oral direction could not pass the interest. However the written declaration did and the property was therefore subject to ad valorem stamp duty.

Lord Radcliffe: “[T]here is warrant for saying that a direction to his trustee by the equitable owner of trust property prescribing new trusts of that property is a declaration of trust. But it does not necessarily follow from that that such a direction, if the effect of it was to determine completely or pro tanto the subsisting equitable interest of the maker of the direction, was not also a grant or assignment . . . and therefore required writing for its validity. Something had to happen to that equitable interest in order to displace it in favour of the new interests created by the direction, and it would be at any rate logical to treat the direction as being an assignment of the subsisting interest to the new beneficiary or beneficiaries, or in other cases, a release or surrender of it to the trustee.”

Vandervell v IRC [1967] 2 AC 291 (HOL)
Facts: Bank held shares as trustee for V (who controlled the company). V wanted to make a tax effective donation to Royal College of Surgeons (RCS). V orally directed that Bank transfer absolute ownership of shares to RCS, who became registered, therefore legal owners. RCS granted an option to repurchase the shares to a trustee company controlled by V. While RCS owned the shares, the directors declared and paid a large dividend. Then V’s trustee company exercised the option to repurchase the shares.

Issue: Could the IRC nevertheless tax V on the dividend income from the shares, on the basis that V had never effectively alienated his equitable interest in the shares by a written disposition? (Although there was no doubt that RCS was the legal owner when they became registered).

Held: V could not be taxed on the dividend income since V divested his interest and RCS was the absolute owner of the shares. There is no justification for invoking s23(1)(c) ‘where the beneficial owner wants to deal with the legal estate as well as the equitable estate’ and is in position to direct the trustee to do so. No more than a transfer of the legal estate is required, the equitable title follows the legal title and therefore there is no need for writing to clarify that both legal and equitable interests were transferred (i.e. the greater includes the less). Here the transfer was effective.

When V handed the documents to RCS, he was in a position to be the legal owner of the shares. When he transferred the gift, he put RCS in a position to become the legal owner (i.e. did everything he must do).

In summary: If X, being absolutely beneficially entitled to property, orally directs Y, the legal owner, to transfer it to Z, with the intention that Z should become the beneficial and legal owner, and Y does so, then Z becomes the beneficial owner. Presumably, if the transaction is voluntary, X can revoke his direction at any time before it is carried out.

Parker and Parker v Ledsham [1988] WAR 32
Facts: Mrs N gave trustees a direction to pay money from her deceased husband’s estate to named persons in a written note, but she died before the money was paid. Was her attempt to assign the property effective?

Held: No effective assignment. Her instructions were a revocable direction, automatically revoked as a matter of law on her death.

(iv) Equitable interests and Conveyancing Act s 12

FCT v Everett (1979) 143 CLR 440 (HCA)
Facts: A partner voluntarily assigned part of his interest in a partnership to his wife. The assignment was in writing (deed) and notice was given to the other partners. FCT tried to tax him on income received from the partnership.

Held: HCA did not have to decide whether this assignment complied with s12, because s12 applies only to ‘absolute assignments’ and not part of an equitable chose in action.
Dicta: Even if s12 was applicable here, the assignment complied with it because there was writing and notice.
“A partner’s interest in the partnership is a chose in action assignable in whole or in part . . .[T]hough the interest of a partner is an equitable interest, it may be assigned under section 12 of the Conveyancing Act 1919 (NSW) . . . The interest, being a chose in action, falls within the expression ‘debt or other legal chose in action’, because the section, in providing that notice shall be given to a trustee ‘as a person liable in respect of such debt or other legal chose in action’, appears to contemplate the assignment by a beneficiary of an equitable chose in action against a trustee. . . The expression ‘legal chose in action’ may be read as ‘lawfully assignable chose in action’.” (per Barwick CJ, Stephen, Mason & Wilson JJ.)
- i.e. s12 does apply to equitable choses in action as well since s12 mentions notice given to “the debtor, trustee or other person…”

•   What kind of interest was assigned? (A partnership interest is “sui generis” i.e. a particular type of equitable interest)
•   Is compliance with s 12 mandatory to effectively assign this type of interest? No, s12 is not mandatory for an equitable chose in action but it can be used.

(Note: Changes to income tax law, including the introduction of capital gains tax, means that an Everett scheme is no longer popular.)