•    Unit Trusts

These are trusts in which property is purchased by a ‘manager’, usually a proprietary company, and vested in a trustee under the terms of a trust deed in which the beneficial interest is divided into a number of units which can be sold or granted by the original beneficiary, usually the managing company which established the trust. Purchase price will include the investment in the trust and a service charge or commission for the manager. The units entitle the holders to specific shares of the income of the trust and usually to a return of the proportion of the capital investment. The manager has a right to ‘redeem’, or repurchase the units on demand at some price determined by the term of the trust.

•    Trading trusts

These are trusts in which the trustee carries on a business for the benefit of the cestuis que trust. The trust deed will, of course, provide the trustee with the necessary powers to conduct a business, and will usually include wide powers of investment.

•    Family trusts

These are trusts for the benefit of a family group in which the trustee will often be one or more of the family members, or a proprietary company in which family members are the shareholders and directors. Usually held on discretionary trust and the principal advantage of the trust will lie in the taxation advantages of splitting the income earned by the trust among the family members.

•    Superannuation trusts

These are established for the purpose of providing superannuation benefits, in the form of retirement benefits – either by way of lump sum or pension – and other allowances. Attractive because contributions to them are generally tax deductible and superannuation fund investment income enjoys favourable treatment under the tax system provided the fund satisfies related legislation.

There are two principle types of superannuation funds:
1.    Defined benefit schemes – where the members are paid a lump sum on retirement, where the sum payable is calculated with reference to the number of years of service or membership of the scheme, salary at retirement and other factors such as age at retirement.  have predetermined levels of benefit.
2.    Defined contribution schemes – also called ‘accumulation schemes’, in which the level of contributions made by or on behalf of members is set, and each members benefit on retirement is based upon the total contributions made by or for that member, plus an appropriate share of total fund earnings attributable to that member’s account.

6.2 The distinction between trusts and other institutions

•    Trusts and fiduciary obligations

The key difference between a trustee and that of other fiduciaries is tied up in the trust property. The trustee has title to the trust property. Other fiduciaries this is not present. A trustee owes a fiduciary obligation but due to the aspect of title to property not all fiduciaries are trustees. It is possible for a trustee to be a fiduciary as well as in:

Chan v Zacharia
Where 2 doctors where held to occupy dual roles with regard to the legal rights under a lease formerly held by them as partners, including an option to renew.
The first role was that of trustee of those legal rights; the second was the stemming of their positions as former partners, in which each remained under a fiduciary obligation to assist in the realization, application and distribution of the partnership property.

A fiduciary who benefits improperly from the office of fiduciary holds any such gains on a constructive trust for the principal.

•    Trust and agency

Both trustee and agent must act in the interest of the beneficiary/principal and owe respective fiduciary obligations. But property is the difference. An agent may have possession of some of the principal’s property but not title to that property. Not holding title means an agent cannot give good title to a bona fide purchaser.

Re Brockman
An agent will also be more subject to the directions of his or her principal in matters concerning the agency, while a trustee
cannot be governed by the instructions of its beneficiaries in its day-to-day management of the trust.

Re Jones, Ex parte Mayne
An agent who receives money on behalf of his or her principal will not ordinarily be trustee of that money; but a solicitor, who is bound to keep such money separate and to account for it, will hold any such money as trustee for client.

•    Trust and bailment

A bailment is a delivery of personal chattels to a bailee subject to a condition that they be returned to the bailer, or as he or she directs, when the purpose of the bailment as been carried out.

The bailee’s position is similar to a trustee’s in a general way – both are ‘entrusted’ with another’s property; the trustee’s duty to care of the trust property is roughly comparable with the duty of a gratuitous bailee, though generally the trustee’s duties are more onerous.
Consider, however, the following differences:
•    A bailee obtains only possession of and ‘special property’ in the goods bailed, whereas a trustee takes title the trust property;
•    A bailee cannot pass a title to the chattels valid against the bailor, whereas a bona fide purchaser who purchases the legal estate form a trustee for value without notice, acquires a good title.
•    Bailment is a common law notion; where as the trust is purely equitable.
•    Bailment applies only to personal property capable of delivery, whereas a trust may arise in respect of any kind or real or personal property;
•    Bailment is enforced by the bailor, but generally a trust is enforced by the beneficiary rather than the settlor.
Where A delivers his chattel to B with a limited purpose, it may be difficult to decide whether a trust or bailment was intended. The question may be tested by asking whether A intended to part with title as well as possession. A mere parting with possession, creating a bailment, will be more the common situation.

A bailee will also not be able to able to give good title to a bona fide purchaser without notice of the title of the bailor.

•    Trust and contract

A contract arises from agreement, while a trust is created principally by the intention of the settlor. The extent of the liability of a party to a contract for breach is to compensate the other party for loss occasioned by the breach as determined by the common law rules on assessment of damages, while that of a trustee involves a duty to restore the trust to the position in which it would have stood but for the breach.

Previously, it was stated in Wilson v Darling Island Stevedoring and Lighterage Co Ltd, it was the law that where A contracts with B to provide a benefit for C, C will acquire no rights at common law nor in equity because he or she is not a party to the contract and thus cannot enforce it. However, where A transfers money or conveys property to B on terms that the latter will use it for the benefit of C. C would not be able to sue on the contract but, in the event of a breach by A, B would be able to recover substantial damages on behalf of C.

The existence of a trust of the benefit of the promise is determined by the intention of the parties, particularly that of the promise. On this ‘trust’ approach it is only where the promise holds the benefit of the promise on trust for the third party that the promise can recover substantial damages for breach of the promise – unless the promise will suffer actual loss from the promisor’s failure to pay the third party e.g. if it was a creditor of the promise: Coulls v Bagot’s Executor and Trustee Co Ltd.

However, the existence of a trust in favour of the third party will not give that party any right of action against the promisor, they can only sue the promisee seeking either a mandatory injunction requiring the promisee to sue the promisor or equitable compensation for the ‘loss’ suffered by the trust.

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd

The HC held by a majority that a third party who was not a party to a contract in question, one of worker’s compensation insurance, was entitled to recover under the contract as a member of the class of persons intended to benefit from the performance of the contract. It only arises in special cases which can fit within its scope.
It provides an alternative to the argument that the promisee holds the benefit of the promise on trust for the third party, thus reducing the need for the construction of artificial trusts in contractual situations.

Continued on page 3