FEDERAL COURT OF AUSTRALIA
Parsons and Parsons v McBain
[2001] FCA 376BANKRUPTCY – constructive trust – transfer of property to beneficiary – whether void as against trustee in bankruptcy
EQUITY – equity of exoneration – how defeated
TRUSTS – “common intention constructive trust” – whether trustee in bankruptcy takes subject to trust – time at which trust arises
Abigail v Lapin [1934] AC 491 cited
Aguilar v Aguilar (1820) 5 Madd 414; 56 ER 953 cited
Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 cited
Berry (a bankrupt), Re [1978] 2 NZLR 373 cited
Caldwell v Ridge Wholesale Acceptance Corporation (Australia) Limited (1993) 6 BPR 13,539 cited
Duncan, Fox, & Co v North and South Wales Bank (1880) 6 App Cas 1 cited
Gee v Liddell [1913] 2 Ch 62 discussed
Giumelli v Giumelli (1999) 196 CLR 101 followed
Holland, Re; Ex parte Official Trustee in Bankruptcy (1985) 5 FCR 165 cited
Huntington v Huntington (1702) 2 Vern 438; 23 ER 881 cited
International RefugeeOrganization v Maryland Drydock Co, 179 F2d 284 (4th Cir, 1950) cited
Kiely, In re (1857) Ir Ch Rep 394 cited
Morgan v Marquis (1853) 9 Ex 145; 156 ER 62 cited
Muschinski v Dodds (1985) 160 CLR 583 followed
Osborn, Re; Ex parte Trustee of the Property of Osborn (A bankrupt) v Osborn (1989) 25 FCR 547 overruled
Paget v Paget [1898] 1 Ch 470 cited
Parteriche v Powlet (1742) 2 Atk 383; 26 ER 632 cited
Schebsman, In re; Ex parte The Official receiver v Cargo Superintendents (London) Ltd and Schebsman [1944] Ch 83
Secretary, Department ofSocial Security v Agnew (2000) 96 FCR 357 explained
Sharpe (A Bankrupt), In re; Ex parte Trustee of the Bankrupt’s Property v The Bankrupt [1980] 1 WLR 219 cited
Shropshire Union Railways and Canal Company vThe Queen (1875) LR 7 HL 496 cited
Taite v Austin (1714) 1 P Wms 284; 24 ER 382 citedAshburner, Principles of Equity (2nd ed, 1933)
Bogert, Trusts and Trustees (Revised 2nd ed, 1978)
Scott, Law of Trusts (4th ed, 1989)
Fisher & Lightwood’s Law of Mortgage (Aust. Ed., 1995)
Halsbury’s Laws of England (4th ed, 1979)BRONWYN ALICE PARSONS v ROGER GEOFFREY McBAIN Trustee of the estate of PETER FREDERICK PARSONS (a bankrupt)
CATHRYN MAREE PARSONS v ROGER GEOFFREY McBAIN Trustee of the estate of GEOFFREY JAMES PARSONS (a bankrupt)
T 16 of 2000
BLACK CJ, KIEFEL & FINKELSTEIN JJ
5 APRIL 2001MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY
T 16 of 2000
On appeal from a single judge of the Federal Court of Australia
BETWEEN:
BRONWYN ALICE PARSONS
AppellantAND:
ROGER GEOFFREY McBAIN Trustee of the estate of
PETER FREDERICK PARSONS (a bankrupt)
RespondentJUDGES:
BLACK CJ, KIEFEL & FINKELSTEIN JJ
DATE OF ORDER:
5 APRIL 2001
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1. The appeal be allowed in part.
2. The declaration and orders 2 and 4 of the trial…
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- Parsons v McBain [2001] FCA 376
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- [2001] FCA 376
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CaseChat Overview and Summary
The court rejected the notion that a "common intention constructive trust" comes into existence only when declared by the court, as this view was inconsistent with earlier case law. The court held that equity acts consistently and in accordance with principle, and that equity regards as done that which ought to be done. Therefore, equity would recognise the prior existence of a constructive trust without needing a formal court order. The court also clarified that while a constructive trust is a remedial institution, it can exist independently of any formal order. In this sense, the constructive trust is both a remedy and an institution.
The court further addressed the argument that a trustee in bankruptcy takes property subject to any existing trusts. It held that the equitable interest arising under a constructive trust may be defeated by competing claims, but not merely because the legal title has passed to a trustee in bankruptcy. The court emphasised that a pre-existing equitable title can be taken away by something tangible and distinct having grave and strong effect.
The court allowed the appeal in part, set aside certain orders of the trial judge, and directed the appellant to execute a transfer of the property to the respondent as tenants in common in equal shares. The respondent was ordered to pay the appellant’s costs of the appeal and the proceedings at first instance.
Orders
Orders of the court
1. The appeal be allowed in part.
2. The declaration and orders 2 and 4 of the trial judge be set aside.
3. The appellant, by herself or her attorney, forthwith execute and deliver to the respondent a transfer in registrable form, of the property situate and known as 80 King Street, Smithton in the State of Tasmania, as comprised in Certificate of Title Vol. 22152 fol. 9 of the Register of Titles, into the names of herself and the respondent as tenants in common in equal shares.
4. The respondent pay the appellant’s costs of the appeal and of the proceedings at first instance.
1. The appeal be allowed in part.
2. The declaration and orders 2 and 4 of the trial judge be set aside.
3. The appellant, by herself or her attorney, forthwith execute and deliver to the respondent a transfer in registrable form, of the property situate and known as 2 Leesville Road, Smithton in the State of Tasmania, as comprised in Certificate of Title Vol. 213233 fol. 1 of the Register of Titles, into the names of herself and the respondent as tenants in common in equal shares.
4. The respondent pay the appellant’s costs of the appeal and of the proceedings at first instance.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
Thus, the notion that a “common intention constructive trust” first comes into existence when so declared by the court must be rejected. In virtue of the fact that such a view informed the decision in Re Osborn, the case should not be followed. In any event, it is clear that Deane J was not of opinion that a “common intention constructive trust” is brought into existence by court order. In Muschinski, at 614, he said:“Equity acts consistently and in accordance with principle. The old maxim that equity regards as done that which ought to be done is as applicable to enforce equitable obligations as it is to create them and, notwithstanding that the constructive trust is remedial in both origin and nature, there does not need to have been a curial declaration or order before equity will recognize the prior existence of a constructive trust … Where an equity court would retrospectively impose a constructive trust by way of equitable remedy, its availability as such a remedy provides the basis for, and governs the content of, its existence inter partes independently of any formal order declaring or enforcing it. In this more limited sense, the constructive trust is also properly seen as both ‘remedy’ and ‘institution’. Indeed, for the student of equity, there can be no true dichotomy between the two notions.”(emphasis added) It was submitted by the trustee, however, that an observation by the Full Court in Secretary, Department ofSocial Security v Agnew (2000) 96 FCR 357 was inconsistent with the views just expressed. The Full Court said (at 365) that:“… the court has a discretion to modify the prima facie date on which the [constructive] trust takes effect. We would adopt the view of A J Oakley that ‘in the absence of any judicial order to the contrary, a constructive trust will take effect from the moment at which the conduct which has given rise to its imposition occurs’: Oakley, Constructive Trusts (3rd ed, 1997), p 5. See also Pawlowski, pp 12, 130-132. Compare Re Sabri; Ex parte Brien v Australia & New Zealand Banking Group Ltd (1996) 21 Fam LR 213 at 223-229.” We do not agree. We do not take the word “discretion” in the passage cited to mean that what is involved, in determining when a constructive trust is deemed to exist, is a weighing process where various factors found to be relevant are taken into account, an assessment made of the weight to be given to each of those factors, and then a weighing of the factors so assessed and a determination made as a result of that process. A decision of that kind may be described as discretionary but as the cases show, that is not what is involved in determining the date on which a constructive trust is to take effect. We think it clear from the context (including the cases to which the Court had express reference) that the Full Court was doing no more than acknowledging that, in an appropriate case, an equitable interest arising under a constructive trust may be defeated by, or must defer to, competing claims. The equitable interest will not be defeated merely because the legal title has passed to a trustee in bankruptcy, for he stands in the shoes of the bankrupt: Aguilar v Aguilar (1820) 5 Madd 414; 56 ER 953. But the interest may be defeated by, or may be made to defer to, later claims “by conduct, by representations, by misstatements of a character which would operate and enure to forfeit and to take away the pre-existing equitable title”: Shropshire Union Railways and Canal Company vThe Queen (1875) LR 7 HL 496, at 506 per Lord Cairns. What must be shown to take away a pre-existing equitable title is “something tangible and distinct having grave and strong effect to accomplish the purpose”: Abigail v Lapin [1934] AC 491 at 504.