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Part A

Discuss about the Equity & Trust for Charitable Business Purpose.


Whether the objects of the entities which have been mentioned in the question would be charitable at law or not?

Charities Act 2005

Established for a charitable purpose, they are a type of express trust but they differ in that:

It isn’t necessary to have a human beneficiary

Therefore the test for certainty of objects becomes irrelevant for a charitable trust

Rather the key question is whether the settlor intending to create a trust for a valid charitable purpose

Charitable trust aren’t subject to the rule against perpetuities, they can go on forever, don’t have to end.

Charities (including charitable trusts) registered under the Charities Act 2005 enjoy a number of financial advantages. Including exemptions from:

Income tax-Charitable trusts can run business to generate income for their charity purpose, just because you’re a business doesn’t mean you will loose your charitable trust statues.

Gift duty

Rates (in some circumstances)

Because charitable trust don’t need to have a human beneficiary there is not necessarily any person who can enforce the trust. As a result, the crown via the Attorney General is empowered with oversight of charitable trusts. Charity is represented by the AG, if something goes wrong, they have to go to court, law gives AG a general oversight in terms of charitable trusts. (New Zealand legislation, 2016).

Pemsel’s Case (Income Tax-Special Purposes Commissioners v Pemsel[1891] AC 531:

MacNaughton L ruled that the list of 1601 came down to four heads of charity;

  1. Trusts for the relief of poverty
  2. Trusts for the advancement of education
  3. Trust for the advancement of religion and;
  4. Trust for other purposes beneficial to the community and not falling under the other three heads


So, it has been concluded that Yes, the objectives of both the entities were charitable at law as it has been clearly defined under section 13 of the Charities Act.

Whether there are some situations by which the charitable trust variations takes place or not?

Charitable Trusts Act 1957

once trust established for charitable purpse, property cannot revert back, can only ever be used for a charitable purpose.

Re Twigger [1989] 3 NZLR 329: A rich man in the 19thCentury, in his will set up trusts for an old persons home, the Canterbury orphanage and for a CHCH refuge for city women who had succumbed to the temptations incidents of city life. The old people’s home today is still going, but the orphanage is not. In the 1980s a hospital board proposed a scheme to reorganise the money. Tipping J found problems with their proposal. He said under the old rules the money had to go to a purpose as close as possible to the failed one, but there was no such restriction in s32, only a moral obligation that the wishes of the will maker should be followed as closely as possible. The money for the orphanage was later transferred to a children’s home instead. Tipping J said under the Act he could not modify the proposed scheme, the trustees would have to go away, draw up a new one, get the AG’s approval and then bring it back to the court. He thought there should be reform, but it has never eventuated.


Re Slatter’s Will Trust [1964]Ch 512: left all money to a saburculoses hospital, time she died, hospital was closed. What happens?

Under equitable principles the trustees can apply for a cy-pres modification of trust where a modification is found as close to the settlors intentions as possible, even if original purpose is impossible. The settlor had manifested a general charitable intention to devote property to a charitable purpose. Today rule has been taken over by statute, but doctrine of cy-pres still remains relevant.

Charitable Trusts Act 1957: part 3 provides mechanism for the modification and variation of the mode of administration and of the purposes of the charitable trust. This process is done through the AG. If charitable trust fails, money and property doesn’t go back to settlor, trustee will come up with scheme to do the settlors intentions as best as possible with a new remedy, will go to the AG and if they are happy with it, goes to court and is passed  (Mundsen, 2013).

Charitable trust exam question- may get exam question looking about setting up a purpose trust, what if it doesn’t come within one of the heads- no beneficiary= could be charitable trust. (Socities & Trusts, 2016).


It has been the methods which were set out under the act have been mentioned above in regard to the variation.

Whether there are some methods by which courts determine the applicability of granting interim injunction or not?

Judicature Act 1908

An interim injunction is a temporary order of the court that prohibits or compels some action until the court has heard the arguments of all the parties and made a permanent order.

In a case like this, when the applicant approaches the Court complaining against the Statutory Authority alleging arbitrariness, bias or favouritism, the court, being custodian of law, must examine the averments made in the application to form a tentative opinion as to whether there is any substance in those allegations (New Zealand Legislation, 2016).

Grant of temporary injunction, is governed by three basic principles, i.e. prima facie case; balance of convenience; and irreparable injury, which are required to be considered in a proper perspective in the facts and circumstances of a particular case. But it may not be appropriate for any court to hold a mini trial at the stage of grant of temporary injunction (Vide S.M. Dyechem Ltd. Vs. M/s. Cadbury (India) Ltd., AIR 2000 SC 2114; and Anand Prasad Agarwalla (supra).


The grant of an interlocutory injunction is subject to its own test for consideration by the court,2 – namely, whether:

there is a fair and bona fide question to be tried;

Damages would be an adequate remedy; and

the balance on convenience favors the grant of an injunction (Carey, 2012).


It has been concluded that there has been various methods which were considered by the court in order to grant interim injunction which have been specified if they would be fulfilled then it can be granted.

Whether there were some issues pertaining to trustees duties does the current circumstance illustrate or not?

Trustee Act 1956

General rule: trustee required to administer trust in accordance with general principles of law and the trust instrument. There has been some duties which should be performed by him such as:

To make acquaintance with trust’s terms

To adhere to the terms of the trust

To maintain impartiality between beneficiaries: It includes two different aspects to the duty:

Trustee must act impartially between individual beneficiaries

Trustee must act impartially between different classes of beneficiaries. Sometimes its hard for trustee to balance interest of one beneficiary with a life interest and interest of beneficiaries who receive that benefit after person dies.

To act in the beneficiaries’ best interests

To avoid conflicts of interest (trustees owe a ‘duty of loyalty’ to the trust): fiduciary relationship- equity recognizes. One party has measure of advantage over another party- must be counteracted by making sure one party adheres to higher standard of good behavior and conscience. Fiduciary relationship is called a duty of loyalty- which isn’t actually a specific duty, is essentially policy that expresses over aim of other, more detailed obligations. Two key ones are fiduciary obligation not to act in situations where there is a conflict of interest, fiduciary duty not to make a profit at the expense of the beneficiary.

Not to profit from the trusteeship: In the case of Bray v Ford [1896] AC 44 it was clearly held that it is an inflexible rule of a court of equity that a person in a fiduiary position… is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and his duty conflict.

To invest the trust funds

The rule against self-dealing, etc

As per Trustee Act 1956 trustee have some other rights also such as:


Section38(1): Implied right of indemnity: trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers.

38(2): no trustee shall be allowed cost for execution of trusts unless the contrary is expressly declared by the instrument creating the trust.

Section 13A Duty to invest

Sections 13B Duty of trustee to invest prudently

Section 13C duty of certain persons to exercise special skill

Not to delegate their work to others

To be active

To act unanimously

To pay the correct beneficiaries

To keep proper accounts and give information as required

The right to apply to the court for directions (Fortune Manning, 2016).


As mentioned above were the duties of the trustees but in the current situation Sarah would be liable for breaching the duty of a trustee as being a trustee it was clearly mentioned that he or she should not have persnla interest an in this case she was reluctant to agree as she was thinking that selling the property may cause a short term impact on her interest. So she would be punishable for the same.

Whether it is likely that the family trust will be opened to allow creditors to be paid with the trust assets or not?

Property Relationships Act

A landmark decision of the Supreme Court released in 2016 has clarified the circumstances in which assets held in a trust may be vulnerable to relationship property claims and potentially claims by creditors. The case involved a property trust which had been settled by Mr Clayton around 13 years after commencing a relationship with Mrs Clayton.  Mr and Mrs Clayton separated after a 17-year marriage and had two daughters who are the final beneficiaries of the property trust.

Mr Clayton maintained that none of the assets in the trust were relationship property and that Mrs Clayton was not entitled to a division of those assets as part of the relationship property settlement.  The significance of this court decision is that the Supreme Court found that the various powers which Mr Clayton enjoyed under the trust deed gave him such a degree of control over the assets of the trust that those powers were effectively property for the purposes of the Property Relationships Act.  The value of those powers was equivalent to the value of the trust assets, and were relationship property and able to be divided equitably between Mr and Mrs Clayton (Herbert Smith Freehills, 2016).


This decision is significant in a number of ways.  First, it looks at the cumulative effect of the different provisions of the trust deed and concludes that those provisions give Mr Clayton the power to effectively deal with the trust capital and income in whatever way he chooses.  Mr Clayton is the sole trustee of the trust and is also the settlor.  He is a “Principal Family Member” under the trust deed which gave him the power of appointment of both discretionary beneficiaries and trustees.  He had the power to change any provision relating to the management and administration of the trust.

Most importantly, he had the power to pay or apply all of the trust capital to one or more discretionary beneficiaries (of which he was one).  He could also provide for early distribution of the trust capital including to himself alone.  The trust deed also contains a very broad resettlement power which means that Mr Clayton could establish a new trust for any one or more of the discretionary beneficiaries (including himself) leaving little or no capital in the property trust.

The cumulative effect of these provisions gave Mr Clayton such control over trust property that the Supreme Court treated the cumulative rights as property rights of Mr Clayton for the purposes of the Property Relationships Act which are equivalent to the value of the trust assets and available to be divided under that legislation.

It is possible that the same argument could be made where a liquidator is seeking to recover assets which have been settled on a trust and indeed one of the authorities relied on by the Supreme Court did arise in a liquidation case rather than a relationship property case.

This decision reinforces the importance of ensuring that a trust deed is well drafted and ensures that no one person is able to control the assets of the trust in the way that Mr Clayton was able to do.  It is advisable to have more than one trustee and at least one independent trustee who is not a beneficiary of the trust.  It is important to ensure that the powers to appoint and remove beneficiaries and trustees cannot be used to subvert the purposes of the trust which is to provide for the final discretionary beneficiaries.  In the Clayton case there were a number of provisions which removed the normal fiduciary obligations of Mr Clayton (that is the duties of good faith). 

Part B

The nail in the coffin for Mr Clayton was that there was no effective means of preventing him from exercising the powers he was given in favour of himself.

In establishing a trust, the settlors do lose a degree of control over their assets.  In many situations, client resist losing control and choose not to have an independent trustee and to have provisions similar to those in the Clayton case.  This decision reinforces that such trusts are not impregnable to the claims of spouses and liquidators or other creditors.


It has been concluded that yes in some cases it can be done.


Whether to someone do the proceeds of Julians dishonesty belongs or not?

Corporations Act

The proceeds of Julian would belong to the corporation and Ron from which he took money.

In both New Zealand and Canada a flexible approach has been adopted in relation to relief for breach of fiduciary duty and in other contexts including breach of confidence claims. In these jurisdictions, the constructive trust is not considered to be the most appropriate remedy in the vast majority of cases (Ridge, 2016). The approach of the High Court to the award of a constructive trust in respect of gains acquired in breach of fiduciary duty has changed significantly in recent years. In earlier authorities, it was asserted that a constructive trust arises in respect of the gains and that the advantage must be held for the beneficiary. In Henry (Keith) & Co v Walker (Stewart)Dixon CJ, McTiernan and Fullagar JJ indicated that any property acquired by use of the fiduciary position is held by the fiduciary in trust for the beneficiaries, whilst in Hospital Products Mason J also indicated that the fiduciary must account in equity, and the appropriate remedy is by means of a constructive trust.


Therefore, it has been mentioned above that Julian have breached his duty and therefore would be liable for the same.


Whether A-Door is likely to be successful in an action against Ken in equity and preferable to sue for breach of contract or not?

Contract Law

Oral contracts are spoken agreements that are sometimes legally binding. The problem proving an oral contract is the lack of tangible evidence. Oral contract cases often rely on the performance of one or both parties that exhibits a clear reliance on the agreement.

Certain oral contracts are considered enforceable. Enforceable contracts are those which a legal remedy is offered if they are breached by either party.

There are several remedies for breach of contract, such as award of damages, specific performance, rescission, and restitution. In courts of limited jurisdiction, the main remedy is an award of damages. Because specific performance and rescission are equitable remedies that do not fall within the jurisdiction of the magistrate courts


Therefore, yes it has been concluded that A- door would be successful in making action against Ken in equity. And would be liable to get award of damages for breach.


Carey, G. (2012).  Ireland: Court Confirms Restrictive Approach To Mandatory Interlocutory Injunctions. Retrieved on 23rd October 2016 from:

Fortune Manning. (2016). The Duties, Office And Powers Of A Trustee. Retrieved on 23rd October 2016 from:

Herbert Smith Freehills. (2016). Creditors and Jurisdiction – Choose Wisely. Retrieved on 23rd October 2016 from:

Moore Stephens Markhams. (2016). Trustee of a Family Trust? Are you aware of your responsibilities? Retrieved on 23rd October 2016 from:

Mundsen, V. ( 2013). Variation of Charitable Trust. Retrieved on 23rd October 2016 from:

New Zealand legislation. ( 2016). Charities Act 2005. Retrieved on 23rd October 2016 from:

New Zealand Legislation. (2016). Judicature Act 1908. Retrieved on 23rd October 2016 from:

Ridge, P. (2016). Participatory Liability for Breach of Trust or Fiduciary Duty.  Retrieved on 23rd October 2016 from:

Socities & Trusts. (2016). Charitable Trusts. Retrieved on 23rd October 2016 from:

Te Puni Kokiri. ( 2016). Duties of directors/trustees. Retrieved on 23rd October 2016 from:

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