Equitable Property

Equity S2 2018 – Wk2 Cls 1

Julian Laurens

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 A note on contempt
Note that if the D ignores the remedy (i.e. an injunction etc),
then they will be held in contempt of court.

Contempt in the face of the court is an act which has the

tendency to interfere with or undermine the authority,
performance or dignity of the courts or those who participate
in their proceedings: Witham v Holloway (1995) 183 CLR 525
per McHugh J at 538-539.

A court can bring summary proceedings, though usually this is

considered a last option only to be used in exceptional
circumstances: Keeley v Brooking (1979) 143 CLR 162.

Other options should be considered first: See e.g. European

Asian Bank AG v Wentworth (1986) 5 NSWLR 445, 452 per
Kirby P.
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Examples of contempt include:

• abusing and swearing at a magistrate: Prothonotary of the Supreme

Court of New South Wales v Hall [2008] NSWSC 994
• filming witnesses with a view to intimidation: Prothonotary of the
Supreme Court of New South Wales v Rakete (2010) 202 A Crim R 117
• prevaricating or refusing to answer questions: Keeley v Brooking (1979)
143 CLR 162
• refusing to take the oath or give evidence: Smith v The Queen (1991)
25 NSWLR 1
• refusing to leave the court when directed: In the matter of Bauskis
[2006] NSWSC 908
• disobeying court orders including subpoena: O’Shane v Channel
Seven Sydney Pty Ltd [2005] NSWSC 1358.

Generally, rudeness and even extreme discourtesy by legal practitioners,

will not be considered to be contempt: Toner v AG for New South Wales
(unrep, 19/11/91, NSWCA). Further, like police, judges and magistrates
are, by their training and temperament, able to resist the sting of insults
directed to them: see Coleman v Power (2004) 220 CLR 1 at [200]
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Other options that should be considered include:

• a warning, reprimand or exclusion from court

• an opportunity for the alleged contemnor to seek legal advice
• a “cooling off” period followed by an opportunity for apology
• whether an offence under a legislative provision has occurred,
including a breach of the Court Security Act 2005, in which
case the matter may be referred for prosecution
• whether, if the conduct involves a legal practitioner, a
complaint could be made under the Legal Profession Act 2004
• in civil matters, where the conduct involves a legal
practitioner, whether an order under s 99 Civil Procedure Act
2005 could be utilised
• whether the matter should be referred to the Supreme Court
under s 24(4) Local Court Act 2007. If so, the reference is sent
to the prothonotary (the Registrar who can issue writs etc)

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Todays class:

Equitable Property

What is ‘property’?

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Characteristics of ‘property’?

• Legal property

• Equitable property

• What about Native Title? Native Title

(Commonwealth) vs Land Rights (State
Legislation)

Priorities in competition between property interests?

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 Equitable Property - Definition
A right or title enforced by a court of equity but
not at common law; property assignable in equity
but not at common law. Equitable property may be
assigned for value or, except in the case of an
assignment by way of security, voluntarily: Norman
v FCT (1963) 109 CLR 9. Voluntary assignments of
equitable property must normally be made in
writing to be valid: Conveyancing Act 1919 (NSW) s
23C(1)(c); Property Law Act 1958 (Vic) s 53(1)(c).
However, some jurisdictions only require voluntary
assignments to be evidenced in writing: Property
Law Act 1974 (Qld) s 11(1)(c).
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 Classes of Equitable Interest
Three classes of equitable interest:

1. Equitable interest or equitable proprietary interest

1. Claim directly against property – example: a beneficiary
of an express fixed trust
1. We focus mainly on this at the moment
2. Mere equity
1. Go to court to claim an equitable proprietary interest
3. Personal equity
1. Go to court to compel the holder of the legal title to
perform duties – example: beneficiary of an discretionary
trust against a trustee who has legal title.
1. Important re trusts
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• So to summarise for our purposes – key
takeaway

– (equitable) Proprietary interest – a right to claim

against property directly (note ‘in rem’ action)
– (equitable) Personal right (note ‘in personam’
action) – a right to claim against a PERSON or to
compel a PERSON to do something etc.

Work out what you have!

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 Equitable Property
Revision re remedies:

• Equitable remedies such as specific performance and injunctions

traditionally directed at the PERSON of the defendant.

• They enforce PERSONAL rights – but over time a court of equity also gave
relief to the P against third parties who had received property. Over time a
P was simply treated as having (where relevant) a property interest in the
subject property – i.e. in cases where there was a signed contract for the
sale of land or beneficiaries to a trust.

• All equitable property rights are sourced in a personal obligation

enforced in equity – equity will direct you to fulfil the obligations that you
have made to the other. Remember that equity is all about encouraging
parties to perform their obligations – it acts on conscience. Thus if there
has been an agreement to do X and it does not fulfil all ‘formalities’ at CL
but is still able to be performed according to the terms then (ipso facto)
equity will still in cases compel performance of the agreement (by both
parties) – e.g. an equitable lease. And note caveat from Corin v Patton.

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Note though that just because an equitable
remedy may be available to protect an interest,
that does not elevate that interest to a
‘property’ interest:

The example B&V looks at is the unauthorised

use of confidential information – it is not a
recognised class of equitable property – an
injunction (remedy) can be given where there
has been a BREACH by a party of the
EQUITABLE OBLIGATION of CONFIDENCE but
this is a personal right/action.
– Interestingly there are other things not ever to be
considered ‘property’ – for example a dead body!
– Note this is not the same as ‘intellectual property’. 11
‘Property’ interests that equity recognises and will
enforce which are NOT recognised at common law:

1. A beneficiaries interest under a fixed trust;

2. A partners interest in a partnership;
3. Counterpoints to common law interests: e.g.
equitable fee simple, equitable leases -but note
differences as to e.g. the limit of their
enforceability;
4. Equitable security interests
1. (i.e. an equitable charge – attaches to a specific asset
which can be enforced via the power of sale where
there is a default in the loan);
5. Equitable rights over land (equitable easement
or restrictive covenant over land).
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 How do you create equitable interests in
property?
Three ways:
1. By agreement;
2. By express trust;
3. By Court order or operation of law. Examples
include:
1. Constructive trust
2. Equitable lien
1. Trustees Lien
Consider all these when looking at a problem question: has an
interest been created between the parties? Which way? What
type of interest? What rights stem from this interest: remedies?
etc
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 Features of equitable property interest vis ‘legal’ property
interests

Can be created informally vs ‘legal interest’. No need

for a ‘deed’ (this includes for the creation of an express
trust – while a deed is preferred, it is possible to create
a trust by oral declaration assuming there is also other
evidence and some kind of writing) – but interest is
still enforceable if there was a specifically enforceable
contract (agreement) to create the interest (so writing
is important):
– Note as well, that a transfer of legal property will be effective in equity
where the transferor has done all that is necessary for them to do to
complete the transfer assuming that there are still final steps to make
it effective at law. If there are still steps that only the transferor can do
then the transfer will not be upheld in equity: Corin v Patton (1990)
169 CLR 540 14
Note that equity will NOT enforce against a bona
fide good faith purchaser for value of the property
interest where they have taken the transfer without
any prior knowledge/notice of the equitable
interest.

Note that you do not hold both a Legal interest and

an equitable interest at the same time (DKLR
Holdings case).

Also: re the SCOPE – the scope of an equitable

interest correlates to the relief that equity will grant
to enforce it (i.e. through specific performance,
injunction or other remedy).
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The nature of equitable ownership
DKLR Holdings CO(No 2) v Commissioner of
Stamp Duties (BDDV 163)
• You do not hold both a Legal interest and an
equitable interest at the same time
• “It is a fundamental principle of both the
common law and of equity that the holder of an
estate in fee simple cannot be trustee of that fee
simple for himself for what he holds is a single
estate, being the largest estate in land known to
law”: ( Aickin J)
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Equitable property rights are neither a right against
a person or a right against a ‘THING’ (this idea of
property being related to rights against a ‘thing’ is
relevant to Land Law and the idea of ‘legal
property’). Equitable property rights have been
characterised instead as a right against a right
(McFarlane & Stevens BDDV p.165). Is this helpful?

Note that the chief characteristic of a legal

PROPERTY right in relation to a THING is that it
allows a party to exclude others from using that
thing. (very relevant for land law)
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Discussion by McFarlane & Stevens centred around
trusts/ trustees /beneficiaries – note circumstances
when a beneficiary may bring an action against a
Trustee or a third party. Note that a beneficiary can
bring an action against a trustee to compel them to
do something – for example to compel the trustee
to bring an action against another party who may
have damaged trust property etc – this is a duty of a
trustee to do this (i.e. to act in the best interests of
the trust) and is critical in situations when the
beneficiary cannot bring an action directly
themselves (because they don’t own the legal
interest). 18
 Equitable interests and equities
Latec Investments Ltd v Hotel Terrigal
Note issues and differences between justices in this cases as
to what exactly a ‘mere equity’ is and what type of
equitable interest Hotel Terrigal has.

• Hotel Terrigal were the registered Proprietors of land –

Latec gave mortgage - default by Hotel Terrigal and Latec
exercised power of sale and sold to Southern.
• Southern gave equitable charge to MLC Nominees who
now had an equitable interest in the property.
• 5 yrs later – sale by Latec found to be voidable – Had not
exercised power of sale in good faith.
• MLC nominees had acquired their interest bona fide and
for value and without notice of Latec’s fraudulent sale to
Southern. 19
• Hotel Terrigal – argued they retained an
equitable proprietary interest because of the
fraudulent sale. This gave them the power to
have the sale by Latec to Southern set aside.
• Hotel Terrigal argued power to have sale set
aside (rescinded) was binding on MLC
Nominees – MLC would have to give up their
equitable interest in favour of Hotel Terrigal’s
earlier equitable interest.
• The High Court said no – MLC’s equitable
interest prevailed.
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• MLC’s interest was acquired for value and
without notice of Hotel Terrigal’s right to set aside
etc: Kitto J
– Priority rules - ‘first in time’ for example are not
relevant here because of the ‘bona fide purchaser’
rule as it only applies as to competition between
equitable interests . . . Not a ‘mere equity’ and an
‘equitable estate’. (see Menzies J take on this)
• Hot Ter have a ‘mere equity’ - just a right to
rescind (set aside) vs the actual equitable interest
in the estate that MLC have – MLC’s ‘equitable
interest is stronger than a ‘mere equity’?
(Menzies J)
• The other argument is that even if Hot Ter has an
actual equitable interest in the estate, their claim
would still fail as MLC again were ‘Bona fide’.
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• My take as well:
– Even if the original sale by Latec was rescinded, Latec
arguably still had a power to sell. Hot Ter had defaulted, so
it is unclear what they would have achieved.
– One likely reason Hot Ter did want to pursue the matter is
because the property was sold for a lot less than what it
should have received. What this means is that if the
original sale of the property did not make enough money
to pay back all the loan to Latec, then Hot Terrigal would
have had to make up the difference. Of course as well if it
had been sold properly on the open market (it wasn’t) it
may have made enough money to fully pay off the loan
and leave something left over for Hotel Terrigal.

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Walsh v Lonsdale (1882) 21 CH D 9

• P got oral lease for 7 years – was meant to be

registered but wasn’t.
• P went into possession.
• P paid rent quarterly in arrears – D wanted the
rent paid in advance.
• P didn’t – D seized some of P’s personal property
on premises.
• P – wanted damages for this, specific
performance of lease and injunction to prevent D
selling his chattels.
• QUESTION – had a valid equitable lease been
created?
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YES
• Application of equitable maxim
‘equity considers as done that which
ought to be done’. Specific
performance could be given in equity
etc.
• BUT note that the D could hold the
chattels until the rent was paid in
advance as this was actually part of
the agreement  24
• Under an equitable lease – you hold
under the same terms as if it was a
‘legal’ lease. Leases have covenants
implied into them as well as any that
are expressly agree to.
– Implied into every lease e.g.: tenant to
pay rent, maintain property in tenantable
fashion; landlord is to offer quiet
enjoyment.
• Landlord can then also enforce implied
and express terms of the lease.
• But the P is also protected from
breaches of covenant by the D.
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Walsh v Lonsdale applied by the Aus HC in
Chan v Cresdon (1989) 168 CLR 242
• The ability of the court to actually
treat the ‘agreement’ as an equitable
lease was because the agreement
was ‘specifically enforceable’
according to its terms etc. (note that
this is a CRITERIA the court looks at
when providing equitable remedies
such as SP etc). 26
The Doctrine of Notice

Conveyancing Act 1919 (NSW)

• s 164(1)(a) – defines actual and

constructive notice;

• S 164(1)(b) – defines imputed

notice
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 The Doctrine of Notice
Conveyancing Act 1919 (NSW)

s. 164 - Restriction on constructive notice

(1) A purchaser shall not be prejudicially affected by notice of any

instrument, fact, or thing, unless:

(a) it is within the purchaser’s own knowledge, or would have come to the
purchaser’s knowledge, if such searches as to instruments registered or
deposited under any Act of Parliament, inquiries, and inspections had
been made as ought reasonably to have been made by the purchaser, or
(b) in the same transaction with respect to which a question of notice to the
purchaser arises, it has come to the knowledge of the purchaser’s
counsel as such, or of the purchaser’s solicitor or other agent as such, or
would have to come to the knowledge of the purchaser’s solicitor or
other agent as such, if such searches, inquiries, and inspections had
been made as ought reasonably to have been made by the solicitor or
other agent.

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 Constructive Notice - Def
Knowledge that a person would have obtained had
he or she made the inquiries that an honest and
reasonable person would have made in the
ordinary course of the transaction … The doctrine
of constructive notice means that a person who has
knowledge of the facts which would make a
reasonable person suspicious, but who consciously
refrains from making straightforward inquiries for
fear of learning of fraud or breach of trust, will not
be able to derive advantage from his or her
ignorance: Garcia v National Australian Bank Ltd
(1998) 194 CLR 395
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 Imputed Notice - Def

Awareness of a situation or facts that the court

treats a person as having. A principal is said to
have imputed notice of facts that an agent has
received, or would have received had the agent
made proper enquiries, whether or not the
agent communicates them to the principal:
Sargent v ASL Developments Ltd (1974) 131 CLR
634. To be imputed, notice must come to the
agent’s attention in the course of the agency:
Schultz v Corwill Properties Pty Ltd [1969] 2
NSWR 576
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 Notice principle
Hermann v Pitt (1890) 11 NSWLR (EQ) 294
• Sheep sold by Pitt to McLaughlin (McLaughlin received
them similar to a ‘consignment’). Sheep were actually
part of trust property. McLaughlin then resold them (as
per agreement with Pitt) and gave some money to Pitt
and kept rest.
• Trust was a ‘testamentary trust’ (created in will). P
(Trustees of the will) brought action saying sheep had
been sold in breach of trust. Argued the trust should
get the money that McLaughlin received from the on
sale.
• NO – McLaughlin was a good faith purchaser and
without notice of the trust (actual or constructive).
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Principles from Hermann (Owen J):
1. ‘Rule’?: “If a person in possession of goods, and
purporting to sell as owner, sells to a purchaser
for value without notice, and there are no
circumstances creating suspicion and putting the
purchaser on enquiry, such purchaser will obtain
a good title in equity although it be shewn that
the vendor had no title …” (etc)
2. Underlying principle/rationale: Both parties – P
and D – have a right to the protection of the
court. Court will not intervene in favour of either
– application of principles and the law: apply
notice rules! Reluctant to extend the doctrine of
constructive notice outside its current form
simply to favour a party.
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 Case Discussion: National Australia
Bank v Ainsworth
Deserted wife case?

Page 1181 – wife's grounds for appeal?

• Did the wife have an “overriding interest”? Does she have a
‘deserted wife’s equity’? (does such a thing exist?

• Page 1198 – definitions of equity at [F] !! Equity as a moral

virtue – the spirit of equity.
– WHAT IS EQUITY?

Page 1217 – This is where the Lords give their speeches

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 Facts
• Husband and wife separated – Wife stayed in matrimonial home –
husband later transferred it to his business - got a loan/mortgage from
bank – bank put charge over house – husband defaulted – Bank had no
idea of wife's occupation (made no inquiries) and was not aware of
separation.
• Bank got order for possession - Wife claimed she had an “overriding
interest” – Cross J said no – but no final decision made though till
outcome of divorce court.
• Wife went and got a proper divorce etc – claimed that the husband had
transferred the home to his business to avoid paying maintenance - court
agreed – got order from Divorce Court setting aside the disposition
whereby the husband had conveyed the house to his company.
• Wife argued this would defeat Banks claim for possession etc – Cross J said
no.
• Cross J – that order rescinded the earlier order for possession - now simply
means that it goes back to the husband who is still liable, and the bank
can seek possession again.
• Appeal to Court of Appeal: Wife can remain in possession for period that
Court determines, but agrees that the effect of the Divorce Court order is
that said by Cross J. The house was subject to the Banks Legal charge and
they were entitled to possession
• This case – House of Lords – appeal from Court of Appeal by the bank. 34
How can she enforce ‘rights’ over land in
which she has no beneficial ownership?
• Mere exclusive possession not enough to give
rise to a ‘right’.
– “So in principle, in my opinion, to create a
right over the land of another that right
must in contemplation of law be such that it
creates a legal or equitable estate or
interest in that land and notice of
something though relating to land which
falls short of any estate or interest is
insufficient” (1237) 35
• Discussion on mere equity – 1238 (C-D) (D-E) (F)
• 1239 (A)

Lord Wilberforce from page 1241

– “deserted wife’s equity”? Right to Remain in possession
against a third party - Wife's rights are of a personal kind
• “The essential point is that the wife had no right to be
provided with, or kept in, any particular home: her rights
were not rights in rem, nor where they related to any
particular property: they were purely personal rights
against her husband, enforceable by proceedings against
his person . . .” (p 1245 [B])
• “Before a right or interest can be admitted into the
category of property, or of a right affecting property, it
must be definable, identifiable by third parties, capable in
its nature of assumption by third parties, and have some
degree of permanence or stability. The wife’s right has
none of these qualities, it is characterised by the reverse
of them” (1247-1248)
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