Class 1B

Equitable property
 What is property?
• Property can be understood as:
• An object or thing capable of being owned by a person, or
• The proprietary rights (rights of ownership) to that object or thing.
• ‘The concept of "property" may be elusive. Usually it is treated as a "bundle of
rights”:Yanner v Eaton [1999] HCA 53 at [17]
 What is property?
• Content of the “bundle of rights” can vary but may include:
• right to possess;
• right to use;
• right to manage;
• right to income and/or capital;
• right to security;
• power to transfer;
• absolute, indefinite nature of rights;
• duty of others to refrain from use;
• liability to execution;
• residual rights
 What are proprietary rights?
Characteristics that are relevant in identifying interests in any particular property as being “proprietary”
(see Equity Doctrines and Remedies):

1. the power to recover the specific property;

2. the power to transfer the property to another;

3. the persistence of remedies in respect of the interest against third parties who assume the burden of
such remedies;

4. the extent to which the interest may be displaced in favour of competing dealings by the grantor or
others with interests in the subject matter (i.e., priorities).
 Classification of proprietary rights

PROPERTY

Personal
Real
(land)
(non-land)

Chattels Real Chattels Personal

Choses in Possession
Choses in Action (intangible)
(tanglible)

Legal Equitable
 Nature of equitable interests in property
• Historically, petitions to the Chancellor which concerned property resulted in orders against the
person restricting their ability to use their legal rights. Over time, the principles that developed
from these cases led to the recognition of equitable rights in legal property owned by another. The
historical development and recognition of rights explains their features.

• Equitable property rights can vary in terms of the characteristics of transmissibility, priority,
permanence, the remedies available to enforce them, and other matters

• Equity presupposes the existence and validity of the common law and legal rights to property but
recognises additional rights to that property.
 Characteristics of equitable interests in
property
Creation of Equitable rights and interests in property

1. By agreement ie intentionally;
2. By express trust;
3. By implication of law: eg resulting trust;
4. By operation of law: eg equitable lien imposed by a court over the defendant’s property, so that if the
defendant does not comply with the court order the property can be sold to satisfy it.

Features of Equitable Interests in property

• Created less formally

• Bind the holder of the legal interest and volunteers but not a purchaser for good faith without notice.
 Commissioner of Stamp Duties (Qld) v
Livingston [1965] AC 694
Mrs Livingston was a beneficiary under the will of her late husband. The estate included land in
Queensland and was still in the course of being administered when she died and the Succession and
Probate Duties Act 1892 (Qld) levied a succession duty on “every devolution by law of any beneficial
interest in property” being in Queensland. Did her interest in that land fall to be taxed?

HELD: No. As at the time she died she had only the right of a beneficiary in an unadministered estate to
compel the due administration of the estate, but no proprietary interest that could be taxed.

At 712 per Viscount Radcliffe: [E]quity … calls into existence and protects equitable rights and interests in
property only where their recognition has been found to be required in order to give effect to its doctrines.”
 Commissioner of Stamp Duties (Qld) v
Livingston [1965] AC 694
• Mrs Coulson’s residuary interest in the unadministered estate was a chose in action but was not a
property interest for the purposes of stamp duty law because until the estate was administered no
one could say what property would be realised to give effect to it or what the residue might be, so it
gave her only a personal right to compel proper administration of the estate by the executors, and
therefore did not attract stamp duty in Queensland where the property existed.

• However, the right has one of the indicia of property – it is transmissible by will.

• In another context, in Official Receiver v Schultz (1990) 170 CLR 306 it was held that for the
purposes of bankruptcy law, the same chose in action was a property interest, so that when it later
bore fruit that vested in the Official Receiver in Bankruptcy
 Examples of equitable interests in property
• Interest of a partner in a partnership: Canny Gabriel Castle Jackson Advertising Pty ltd v Volume
Sales Finance Pty Ltd (1974) 131 CLR 321, 327-328.
• Equitable interests created by creation of security interests in property – eg an unregistered
mortgage will be treated as an equitable mortgage. J H Just (Holdings) Pty Ltd v Bank of New South
Wales (1971) 125 CLR 546.

• An equitable charge arising from contractual agreement that property be held as security for a debt.

• The interest of a beneficiary under a fixed trust (not a discretionary trust)

• The trustee’s interest in trust assets in respect of properly incurred trust expenses

• A restrictive covenant over land: see Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143 which
established that there are occasions in which equitable covenants can bind future purchasers of
property and ‘run with the land’.
 Examples of equitable interests in property
• Equitable interest of a purchaser under a contract for sale

• Future property: Norman v Federal Commissioner of Taxation (1963) 109 CLR 9.

• Equitable interests in assignment of property for value that do not comply with formalities

• Equitable interests in voluntary assignment of property that do not comply with formalities in certain
circumstances: Milroy v Lord (1862) 4 De GF&J 264; 45 ER 1185, where the donor has done
everything necessary to be done by the donor personally which according to the nature of the
property is necessary to vest legal title in the intended done (as interpreted by the High Court in
Corin v Paton (1990) 169 CLR 540.

• Interests arising by implication of law – eg resulting trusts; equitable lien

• Interests arising by operation of law – eg where the court orders that property be held on
constructive trust.
 What is a trust?
• A trust can be defined as a relationship between a person known as the trustee, who undertakes to
hold property of which it is the owner exclusively for the benefit of others, known as the
beneficiaries.
• A trust is not a company; nor a separate legal entity – it is an undertaking recognised in equity to give
a proprietary interest in the beneficiaries.

• Requires three certainties:

• Certainty of intention (to create a trust)

• Certainty of subject matter (any presently existing legal or equitable property)

• Certainty of object (the identity of the beneficiaries)

 DKLR Holding Co (No 2) Pty Ltd v Commissioner of
Stamp Duties (NSW) (1982) 149 CLR 431
FACTS: 29 Macquarie (No 14) Pty Ltd was the owner of land and passed a resolution to transfer that land
to DKLR to hold on trust for it. The resolution provided that only the legal estate would be transferred.

"(T)hat the Company affix its seal to a transfer of the bare legal estate in the whole of the land in
Certificate of Title Volume 5723 Folio 131 to D.K.L.R. Holding Co. (No. 2) Pty. Limited."

The issue was whether that transfer attracted stamp duty.

 DKLR Holding Co (No 2) Pty Ltd v Commissioner of
Stamp Duties (NSW) (1982) 149 CLR 431
HELD:
PER AICKIN J at 463:
A preliminary argument advanced on behalf of D.K.L.R. was that the transfer of the land to it by 29
Macquarie was effective to transfer only the "bare legal estate" and to leave remaining in 29 Macquarie the
entire beneficial interest. It was said that immediately prior to the transfer 29 Macquarie held both the
unincumbered legal estate and the entire equitable interest in that property and that all that it had done
was to transfer the legal estate. In my opinion this argument is based upon a fundamental misconception
as to the nature of legal and equitable interests in land or other property. If one person has both the legal
estate and the entire beneficial interest in the land he holds an entire and unqualified legal interest and not
two separate interests, one legal and the other equitable.

PER BRENNAN J at 474;

An equitable interest is not carved out of a legal estate but impressed upon it.
 Personal equity
• A personal equity is simply the basic right of access to a court of equity of a plaintiff seeking
equitable remedies that are not a proprietary remedy
• Incapable of assignment
• Does not attach to particular assets
 National Provincial Bank v Ainsworth [1965] AC 1175
• Facts: Mr Ainsworth deserted his wife in 1957, leaving her with their four children in their family home. The
property had been purchased by Mr Ainsworth in 1956 – he also owned two additional homes.

• The family home was subject to a charge in favour of the National Provincial Bank (‘NPB’). The husband failed to
pay the debt, and the bank sought to exercise its power to sell the family home.

• Issue: Did Mrs Ainsworth’s have a proprietary right which was entitled to priority over NPB’s charge?

• Held: Mrs Ainsworth’s right was an equitable personal right and was not entitled to priority over the charge of
National Provincial Bank.

• Per Lord Wilberforce at 1245: “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 were they related to any particular property: they were purely
personal rights against her husband, enforceable by proceedings against his person”

• At 1247-1248: “Before a right or an 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.”
 Mere equity
A “mere equity” is not a fully fledged equitable property right – it is an equitable claim which if made out
and accepted by the court, may lead to an equitable proprietary interest coming into existence upon the
exercise of the original equitable right.

The key difference between an equitable interest and a mere equity is that with a mere equity, the court is
required to “perfect” the interest: Mills v Ruthol (2002) 10 BPR 19,381; [2002] NSWSC 294 at [132] per
Palmer J

Westpac Banking Corporation v Ollis [2008] NSWSC 824 at [77] per Einstein J: “the critical difference
then, is between an “equity” – an in personam right in equity – which requires the intervention of the court
to flower into a full equitable estate, and an equitable interest which does not because it already consists
of such estate.”

A subsequent equitable interest will take priority over an earlier mere equity if it was acquired for value and
without notice of the earlier mere equity
 Examples of mere equity
Examples of circumstances in which the court recognises a ‘mere’ equity’ arising include:

• the rights to set aside a transaction for fraud or unconscionable conduct or undue influence

• the right to obtain rectification for mistake.

• the right to claim an interest in property pursuant to proprietary estoppel principles;

• the right to a constructive trust over property, pursuant to principles laid down in Muschinski v. Dodds
(1985) 160 CLR 583 and Baumgartner v. Baumgartner (1987) 164 CLR 137
 Latec Investments Ltd v Hotel Terrigal Ltd (in
liq) [1955] 113 CLR 265
Hotel Terrigal was the registered proprietor of land. It gave Latec a mortgage over the land to secure a
loan. When it fell into arrears, Latec purported to exercise its power of sale as a mortgagee but in so
doing, sold the property at an undervalue to a related company, Southern Investments.

Hotel Terrigal had a right to bring proceedings against Latec for the fraudulent exercise of power of sale,
which if accepted, would have restored its equity of redemption under the mortgage. However it did not
seek to do so until nearly five years later. In the meantime, Southern had given MLC Investments an
equitable charge over its assets. MLC had no knowledge or notice of the fraudulent exercise of the power
of sale.

Here - Terrigal had a prior mere equity to set aside the conveyance. MLC had a subsequent equitable
interest. Which interest prevailed?
 Latec Investments Ltd v Hotel Terrigal Ltd (in
liq) [1955] 113 CLR 265
HELD: MLC’s later created charge prevailed

Per Kitto J at 277:

“In my opinion the equitable charge [of MLC] stands in the way of Terrigal’s success because it was
acquired for value and without any notice either of the existence of the mortgagor’s right to set aside the
sale or of any facts from which such a right might be inferred... the defence of purchaser for value without
notice (in the absence of the legal estate) is a good defence against the assertion of the equity in such a
case...”

At 278: “The maxim qui prior est tempore is not applicable , for it applies only as between equitable
interests… Where a claim to an earlier interest is dependent for its success upon the setting aside or
recitification of an instrument, and the court … leaves the instrument to take effect according to its terms in
favour of a third party whose rights have intervened, the alleged earlier equitable interest is unprovable
against the third party and consequently, so far as the case against him discloses, there is no prior
equitable interest.
 Equitable security interests
• Equitable mortgage - Mortgagor (the owner of the property) transfers their title to property to the
Mortgagee; In return, the Mortgagor obtains an equity of redemption.
• Equitable charge - the Chargor (the owner of the property) grants the Chargee (the secured party) the
right to appropriate property (i.e. sell it) to satisfy a debt or obligation owed by the Chargor to the
Chargee. Unlike a mortgage, a charge does not involve a transfer of the legal title from the Chargor to
the Chargee
• Equitable lien - the Lienor (the owner of the property)’s title is encumbered in favour of the the Lienee
(the secured party). Should the Lienor fail to fulfill their obligation, the Lienee may apply to the court for
a judicial sale of the property subject to the lien. The court will then appoint a receiver to sell the
relevant property.
 Beconwood Securities v ANZ [2008] FCA 594

• Concerned the construction and interpretation of a ‘Securities Lending and Borrowing Agreement’
(SLA) between Beconwood and OPS
• The agreement involved ‘securities driven share lending’. This involves a practice whereby securities
are transferred from one party (the lender) to another party (the borrower). The borrower is then
obligated by contract to redeliver to the lender at a later time securities which are equivalent in
number and type
• Transactions of this nature involve a transfer of the title to the shares so that they can be bought and
sold on the open market
• In this case the parties were disputing whether or not the transaction had created an equitable
mortgage or, alternatively, an equitable charge in favour of the lender. If it had, the lender would
obtain priority over the current holder of the legal title to the shares (ANZ)
 Beconwood Securities v ANZ [2008] FCA 594

• Clause 3.4 of SLA:

“All right title and interest in and to Securities borrowed or lent and Collateral which one Party
transfers to the other in accordance with this agreement will pass absolutely from one party to
the other free and clear of any liens, claims, charges or encumbrances...without the transferor
retaining any interest or right to the transferred property, the Party obtaining such title being
obliged only to redeliver Equivalent Securities or Equivalent Collateral, as the case may be.”
•Clauses 6.1 and 6.2:
• Require the borrower “to redeliver Equivalent Securities in accordance with this Agreement and
the terms of the relevant Borrowing Request”.
• Equivalent securities were defined in cl 22 to be: “securities of an identical type, nominal value,
description and amount to particular Securities borrowed and such term will include the
certificate and other documents of or evidencing title and transfer”
 Beconwood Securities v ANZ [2008] FCA 594

• Held: this transaction did not create an equitable mortgage or an equitable charge
• Did this create an equitable mortgage?
[47]: “The problem that confronts Beconwood in its argument for a mortgage is that there can be no
right to redeem in the case of an outright transfer of property, such as occurs in an absolute sale.
[50]: “In light of the foregoing, the argument that the SLA can be characterised as a mortgage is
simply unsustainable. It breaks down at many points. First of all, by the express terms of the SLA,
unencumbered title in both lent securities and collateral passes on delivery. Secondly, when the
transaction comes to an end there is no obligation to hand back in specie the securities initially lent.
 Beconwood Securities v ANZ [2008] FCA 594

• Did this create an equitable charge?

[54]: “Beconwood contends that it has a charge, or some kind of equitable interest, over the shares
until it obtains legal title on the transfer back.
[57]: “Beconwood cannot obtain a legal or equitable interest in any shares, even if they meet the
description of Equivalent Securities, before shares that satisfy the description are appropriated to
the agreement: Re Goldcorp Exchange Ltd [1995] 1 AC 74. This is no more than an application of
the rule that until property which is previously unidentified is appropriated to an agreement, neither
a legal nor an equitable interest in that property can be created by that agreement”.