LAWS2385 Equity and Trusts

Transcription

1 UNSW LAWS2385 Equity and Trusts 2013 S1

2 Personal Property Goods Introduction to property Background on property Property comes under many different types of law (tort, contract, criminal etc). Property law generally concerns questions of ownership or allocation. Property can be seen as things, but also as rights for example, the right to use something, or exclude someone else, the right to sell or loan it etc. Thus people owe others a duty not to interfere with these rights. You may not know who the duty is owed to, but the duty is still owed to that person. For example, you cannot go steal someone else s car; you don t know whose car it is, but you owe them a duty to allow them the right to the car. Property v Contract King v David Allen A right to post bills on the wall of a theatre is a contractual right, not a property right. There are a limited number of property rights that exist. In order to be called property, a right must fit the little box of property interests. Property rights can be enforced against anyone (in rem), but contractual rights can only be enforced against parties to the contract (in persona). In King, King owned the building that a theatre wall was a part of, and agreed with Allen that he could ost on it. King leased the building to the company, and they would ratif the agreement later. The company told Allen that he could no longer post, and Allen sued King for breach of contract. King wanted to bring the company in as a right to litigation, but was not allowed to because the court held the right to post bills was a contractual right. Property classifications When you hire something, for example a hall from the council, you have a contractual right with the council to use the hall. Nevertheless, you may not have a proprietary interest with the hall and therefore would not be able to sue for trespass. Property rights exist in relation to things, operate in rem as opposed to contractual rights which operate in persona. You cannot make up your own property right, they are set interests, unlike contractual rights where you can create a right in the contract. Property rights come under different types: 1. Fee simple (the person owns the property) 2. Leasehold interest (the person is a tenant) 3. Possessory rights over chattels However for a right to be a property right, it MUST fall under one of those types. A right to post bills on a wall is not under one of these and thus is not a property right.

3 Possession as the root of all title Whoever controls the property is likely the person who owns the chattel. At common law, possession is the root of all title, thus if someone has physical control, they are likely the person who owns it. However it is not just about physical possession, it is also about right to possession. You may lend your phone to someone; however just because you no longer control it physically, you have a right to get it at any time. This right might be a right to immediate or future possession. Depending on what it is, the remedy will differ. The general principle is that: Possession means the same thing and is entitled to the same legal protection whether or not it has been obtained lawfully or by theft or by other unlawful means. It vests in the possessor a possessory title which is good against the world save as against anyone setting up or claiming under a better title Thus we are particularly focused on the rights given to someone based on possession. You cannot take things away from people who are currently in possession. This principle that possession confers a property right has implications for proof of property offences in criminal proceedings. In R v McKiernan [2003] 2 Qd R 424, Davies JA made the point that possession is not just evidence of ownership but is effective ownership against the whole world except someone who can prove better title. Categories of possession Possession Definition Example Actual Possession Constructive Possession Where the plaintiff exercises a requisite level of physical control over the goods and has an intention to possess Where a master/servant or principlal/agent or a gratuitous bailment at will exists and the goods are in the hands of the latter, the former will have constructive possession. The bailee has actual possession during the bailment Note: It is as good as actual possession. Damages are the full value of the goods Right to immediate possession Where the plaintiff (not in actual possession) can demonstrate earlier possession by themself or someone whose rights they acquired and that earlier right was not surrendered. At the end of a fixed term bailment, the bailor has a right to immediate possession or throughout the term of a bailment at will. Reversionary Right to Future Possession Where the plaintiff is entitled to possession in the future at the conclusion of the rights of someone who is in present possession. During a fixed term bailment the bailor has a reversionary right that is, once the bailment finishes they are entitled they have an immediate right of possession

4 The property torts actions a plaintiff may bring TORT DESCRIPTION POSSESSION ELEMENTS Trespass (can overlap with conversion but not detinue) Conversion (can overlap with trespass or detinue) Detinue (can overlap with conversion but not trespass) Wrongful intentional direct interference with a chattel in the possession of another (Penfolds Wines Pty Ltd v Elliott). A non-owner of the chattel can sue in trespass (Costello) but even an owner cannot unless they have present possession. A positive wrongful act intentionally denying the plaintiff dominion over the goods inconsistent with his or her rights (Maynegrain v Compafnina Bank). Self-help available. Wrongful detention of goods and refusal to hand them over to a person with a right to immediate possession who has formally demanded their return (Spackman v Foster) Self-help available. Present Possession (Actual or Constructive) Present Immediate right to possession Present Immediate right to possession Note: detinue often arises with conversion too 1. Actual or constructive possession Persons with a deferred reversionary or immediate right to possession cannot sue in trespass (Henry Berry v Rushton) 2. Interference Established by any physical contact and includes: seizing (Crozier v Cundey; destroying or directly damaging (Fouldes v Willoughby) removing from one to another (Kirk v Gregory); simply using the goods (Penfolds Wines Pty Ltd v Elliott) 3. Actionable without proof of damage 1. Actual, constructive, or an immediate right to possession (Penfolds Wines Pty Ltd v Elliott) Does not require proof of absolute ownership only possession 2. Positive, intentional denial of plaintiff s dominion over chattel Must be a positive act of dominion which is adverse to the plaintiff s title or right to use or possess. Mere removal without intention of further use is not sufficient; you must show the defendant had a degree of use as though they were his own (Fouldes v Willoughby). Mutilation of the chattel (L Leod v M Ghie) Unauthorised sale (Glass v Hollander) Delivery to a third party (Cook v Saroukas) 1. Actual, constructive, or an immediate right to possession (Jarvis v Williams) (showing a proprietary interest in the chattel). 2. Detention after plaintiff s lawful demand for their return Action accrues when: the right of action accrues at the time of refusal to hand over (John F Goulding v Victorian Railways Commissioner) Remedy: A proprietary action for the return of the specific chattel OR its value, AND damages for its detention use this claim if you want a particular piece of property back, like a wedding ring. Negligence Where the plaintiff was owed a duty of care which was breached by the negligent actions of the defendant, damaging the chattel Present Immediate right Reversionary 1. Defendant breached duty of care which caused reasonably foreseeable damage to the chattel Does not depend on plaintiff having immediate right to possession but relies on there being damage (Penfolds Wines)

5 Present Action on the case Permanent loss or damage to the chattel must have occurred which would enure to the reversioner. Immediate Right Reversionary only property tort available for such possession 1. Intentionally committed acts: causing destruction or lasting damage to the goods 2. Permanence of the injury: the permanence of the injury must be clearly demonstrated (Tancred v Allgood) Remedies Remedies for Trespass: Damages: damages are for the full value of the chattel o Depreciation of value: damages are recoverable for the depreciation of value in the chattel from the time taken to the time recovered (Pargiter v Alexander) o Disruption to business: damages are recoverable for disruption to business (Private Parking Services Ltd v Huggard) o Annoyance: damages are recoverable for annoyance (Private Parking Services Ltd v Huggard) Remedies for Conversion: Damages: the measure of damages is the full value of the chattel (The Winkfield: thus, a plaintiff may be compensated several times over) Not in possession: where a plaintiff is not in actual possession, but there exists a legal arrangements between the plaintiff and the defendant, the plaintiff will only be compensated for his or her limited interest (The Winkfield) Subsequent action: defendants have no defence to a subsequent action by the true owner possibility of double compensation (Attenborough v London and St Katharine s Dock Co) Remedies for Detinue: Damages: damage for the full value of the Chattel are the ordinary remedy (Howard Perry v British Railway Board) Specific performance: the court may make an order of specific performance where the chattel has special value or interest (some value in addition to its commercial value) (McKeown v Cavalier Yachts) o Obtain chattel: this is the only tort which allows the possessor to obtain the chattel Remedies for Negligence: Damages: damages in tort are compensatory according to the principle restituto in integrum (The Albarezo) Remedies for action on the case COMPENSATORY Damages: (Trading Co Pty Ltd v Baldwin)

6 The defence of jus tertii Generally a defendant in an action for wrongful interference with goods cannot escape liability by showing that a third party has a better title than the plaintiff (Armory v Delamirie) Against a stranger (non-bailment) 1. The plaintiff was in possession Where the plaintiff is in possession, the jus tertii defence is not available as a defence for the wrongdoer. Possession alone gives the possessor such a property as will enable him to maintain an action against a wrongdoer, for possession is prima facie evidence of property; against a wrongdoer, possession is title (Jeffries v Great Western Railway). Where the plaintiff is a wrongdoer: Even where the item is stolen, possession will entitle the possessor to legal protection against interfering strangers even if obtained by unlawful means (Costello v Chief Constable of Derbyshire Constabulary). Exception: at the time of the wrongful interference, the defendant was acting as an agent of the superior title holder What protection does the law give a thief? Here the issue was whether Costello, a thief, could still sue under a property tort claim even though the property he was suing for, which was in his possession, did not actually belong to him (it was not being asked for by the owner of the good) Costello v Chief Constable 1. It was held that YES the law protects anyone with possession of a good 2. Holding possession of a good means you have better title to it than anyone else in the world, except its true owner Jeffries v The Great Western Railway Co (1856) 119 ER 680 The plaintiff brought an action in trover (which is the same as its modern form conversion) in respect of the seizure by the defendants of certain railway tracks. At the trial, the plaintiff proved that the defendants had seized the trucks from his possession and claimed ownerships of the trucks under an assignment from Owen. The defendants also claimed ownership of the goods under assignment by Owen after the 3. Lord Campbell CJ the law is that a person possessed of goods as his property has good title as against every stranger, and that one who takes them from him, having no title in himself, is a wrongdoer and cannot defend himself by showing that there was title in some third person. Against a wrongdoer, possession is title. 4. The jus tertii cannot be set up as a defence to an action of trespass or conversion, for the presumption of law is that the person who has

7 date of the first assignment, but before possession of the goods was taken. The defendants wanted to prove that before the plaintiff took possession, Owen went bankrupt, and the court made an order requiring the goods to be sold for the benefit of the creditors. This a would mean the goods did not belong to the plaintiff, but to the purchaser of title under the order from the Court of Bankruptcy essentially a plea of jus tertii the possession has the property. This presumption cannot be rebutted by evidence that the property was in a third person when offered as a defence by one who has no title and was a wrongdoer. 5. What is important is relativity of the right to title, NOT who has the best right to title in the world. Thus here, the plaintiff had a better right to title than the defendant, even though the best right lay in the creditor who bought the title. Therefore the plaintiff could validly sue 6. In the law of property, unless in the context of bailment, you can be doubly liable. Here the defendant has committed a tort against the plaintiff, but may also have committed a tort against the owner The above case is generally accepted as deciding that: 1. A defendant who interferes with the plaintiff s possession is liable to pay the full market value of the chattel, without any deduction for the likelihood of the true owner taking steps to the recover the chattel from the plaintiff AND The defendant, despite having lost the judgment in favour of the plaintiff, will have no defence to a subsequent action by the actual owner for recovery of the chattel or payment of its value (essentially this is a dose of double liability). 2. The plaintiff did not have possession A defendant liable in conversion may defend themselves by pleading that a third party had a better right to the goods in the sense of a right to the goods superior to both the plaintiff and the defendant. If this is the case, then conversion cannot hold because the defendant is not trying to hold dominion over the plaintiff s good, they are holding dominion against a third party s (who isn t suing) good. Penfolds put a note with their bottles saying that they still retained title on the bottle, and purchasers were merely bailees to the bottle. What happened was that once a bottle was drunk, people were re- Penfold s Wines v Elliot (1946) 74 CLR The court held there was no trespass because Penfold s was not in possession of the bottle. There was no detinue as there was no refusal by the hotel to return the bottle. There was also no conversion because: 2. It is not an act of dominion to fill up the bottle inconsistent with Penfold s rights to one day reclaim the bottle 3. The bailee willingly handed over possession of the bottle, which is

8 Bailment Rights of bailor o o o Right to immediate possession if bailment at will, at conclusion of fixed term or where there is a breach of the terms of the bailment (Hobbs v Petersham) The bailee is estopped from disputing the title of the bailor: Biddle v Bond. Can claim damages for trespass when the bailment is at will (but not for other types of bailment) because the bailor has constructive possession: Wilson v Lombank. (but be wary of this) Rights of bailee o o o Bailee in possession can sue person who wrongfully deals with goods in any action of trespass, detinue, conversion and negligence: The Winkfield, BRS v Arthur Crutchley. Bailee can sue bailor for wrongful acts during currency of the bailment: City Motors. Bailee can sue sub-bailee even though bailee has breached the terms of bailment with their bailor, if the sub-bailee has done something (e.g. negligence) which causes the goods to be lost: Anderson Has the property been bailed? A bailment arises when (Hobbs v Petersham Transport): i. Chattels are delivered by the owner or the person with a right of possession ii. Into the possession of another person iii. Upon an express or implied promise that the chattels will be redelivered to the bailor or dealt with in a stipulated way. Types of bailment Gratuitous bailment: (Not for reward) Bailee gives no consideration to bailor. May be fixed term or at will. Here the bailor retains contructive possession Fixed term bailment: Bailor has a reversionary right that becomes an immediate right to possession upon the end of the term Bailment at will: (May be for reward or gratuitous) Bailor has an immediate right to possession and constructive possession. Not for a specified term and bailee retains the goods only until bailor demands for their return Conditional bailment: (Contract) Reversionary right unless condition of the contract is broken (e.g. using chattel in unauthorised way), then becomes immediate right to possession: (City Motors, Penfolds Wines v Elliott) A common scenario of bailor/bailee relationships is in hiring a car. During the term of the contract, the bailee has actual possession and the right to immediate possession of the car, and the bailor has the right to future possession upon the end of the hire.

9 Title under possession in a bailment The following case held that: a) You get constructive possession from gratuitous bailments at will, but not necessarily for all bailments at will b) Even if there is constructive possession, if the person in possession willingly hands it over, that third person has not committed a trespass Wilson v Lomback 1. Hinchcliffe J I do not think the plaintiff ever lost possession. Also delivery to the true owner does not defeat the plaintiff s claim. It was a bailment at will so that the plaintiff could have demanded the car back at any time, and thus constructive possession. Thus gratuitous bailments at will give constructive rights to possession. However where there is consideration it is unclear. A Tasmanian case says that where there is reward bailment, there is not constructive possession. 2. There are three types of possession: a. Actual b. Constructive c. Immediate right to possession 3. In this case, the judge found that there was a constructive possession by the plaintiff through possession of the chattels by the agents of the plaintiff. 4. However, even if there is constructive possession, there is no trespass since there is no interference with the possession, the car was willingly handed over. It is analogous to Penfold s. a) The plaintiff (bailee) was in possession i) Action by a bailee against an interfering stranger/third party Not only can the bailee in possession of a chattel sue in trespass, conversion or detinue, but he or she can also sue in negligence (The Winkfield) There was a collision between the steamship Mexican and the steamship Winkfield; resulting in the sinking of the Mexican with The Winkfield (1902) All ER Rep Collins MR the law is that in an action against a stranger for loss of goods caused by the negligence of the stranger, the bailee in possession can recover the value of the goods, although he has a good answer to an action by the bailor for damages for the loss of the thing bailed (essentially there is not double liability). 2. Possession is good against a wrongdoer and the wrongdoer cannot set up a jus tertiidefence unless he claims under it 3. The wrongdoer is nnot defending under the title of the bailor is unconcerned with what the rights between the bailor and bailee are, and

10 some of the mail on it. The Postmaster- General was a bailee of packages aboard the Mexican. The court assumed that the Postmaster- General had custody of the goods. The Winkfield was held to be negligent. The question was whether the bailee could recover even if there was no obligation to account to the bailors (the people whose post it was). thus must treat the possessor as the owner of the goods for all purposes irrespective of the rights and obligations between the bailee and bailor a. Thus a defendant who pays damages or restores a chattel to a person who had been in possession otherwise than as a bailee will be doubly liable, but if it is to a bailee, then they do have a defence 4. A person possessed of goods as his property has a good title against every stranger, and one who takes them from him, having no title themselves, is a wrongdoer and cannot defend themselves by showing that there was title in some third person, for against a wrongdoer, possession is title. Thus it is not open to the defendant as a wrongdoer to inquire into the limitations of the possessor s property right as bailee as to the bailor. 5. The root principle of the whole discussion is that, as against a wrongdoer, possession is title. The chattel that has been converted or damaged is deemed to be the chattel of the possessor and no other, and therefore its loss or deterioration is his (the possessor s) loss and thus only he must be recouped as though he had complete and absolute ownership, entitling him to equivalent compensation as to the value of the whole loss. 6. This result applies in the case of involuntary bailees and in general in the case of anyone with a limited interest in the goods with actual possession at the time of the wrong. Thus compensation is to be paid whether: a. Through inability to raise jus tertii OR b. Through the plaintiff having better right to possession 7. Thus the wrongdoer (Winkfield) must treat the person in possession (the P- G) as the owner of the goods and thus pay him for the full amount, even though they do not really belong to him. Note: the bailee can recover from a stranger the full value of the destroyed or lost chattel, but remains liable to account to the bailor for the surplus recovered beyond his/her limited interest. ii) Action by a bailee against bailor The bailee can sue the bailor for wrongful acts during the currency of the term of the bailment (City Motors). Whether the chattel has been destroyed or merely damaged (McCauley v Karooz) Regardless of whether the damage done to the chattel exceeds the value of the bailee s own interest Regardless of whether the bailee is answerable to the bailor for the damage (The Winkfield) Whether the bailment is gratuitous or not does not affect the bailee s standing to sue ((Houghland v R R Low (Luxury Coaches) Ltd) City Motors Pty Ltd v Southern Aerial Super Service Pty Ltd (1961) The bailor interfered with goods during the bailment whilst the bailee was in actual possession. The plaintiff The bailee can sue the bailor for wrongful acts during the currency of the term of the bailment.

11 agreed to purchase a new truck from the defendant and trade in an old truck as part of the purchase price. The new truck and old truck were exchanged before the defendant told the plaintiff that the offer was rejected and the old truck broke down. The plaintiff offered to pay for the new truck but the defendant declined and took possession of it. ion and detinue in a bailee situation The plaintiff bailee had an exclusive possessory right to the truck the bailor repossessed it in circumstances not authorised by the hire purchase agreement and therefore could sue in detinue. A plaintiff can sue their own bailor in detinue if the term of the bailment has not finished. When a bailor sues a bailor and vice-versa, damages are restricted to the value of that party s interests they cannot sue for the full value of the property. For example the bailee could sue for damages in not being able to use the truck for one year. Con vers Recall that a plaintiff must show that he or she had actual possession of the good(s), or an immediate right to possession at the date of interference with the goods or the date of demand for return. In the case of car hire, there is not claim in detinue if the car hire company demands the car back before the end of the contract, since they have no immediate right to possession. In the case of goods bailed at will (such as a gratuitous bailment), the bailor has the right to regain possession at any time and thus retains immediate right to possession during the bailment. In both cases (contractual bailment and bailment at will), both the bailee and bailor have a cause of action against a wrongdoer who interferes with the goods in the bailee s possession (BIS Cleanaway t/a CHEP v Tatale [2007] NSWSC 378. However, in the absence of prior actual possession or other proprietary interest, a contractual right to possession is not sufficient title to mount a case in detinue or conversion (Jarvis v Williams [1955] 1 All ER 108 & International Factors v Rodriguez [1979] QB 351). This is because of jus tertii. Issue: where the bailee is in breach of the terms of the bailment. Can the bailee rely on jus tertii? Bailee can sue sub-bailee even though bailee has breached the terms of bailment with their bailor, if the sub-bailee causes the goods to be lost: Anderson Group Pty Ltd v Tynan Motors Pty Ltd The appellant was hiring a car under a hire purchase agreement with Esanda Ltd. The appellant left the car with the respondent sub-bailee to sell, violating the hire purchase agreement. The car was stolen due to the respondent s negligence. The respondent claimed the appellant did not have title to sue as the breach of the agreement meant only the company had a right to immediate possession. The bailee could not deny the bailor s title to sue even if a person breaks a bailment, if that person continued in possession of property then that person has a title to defend his or her possession. A bailee is estopped from pleading jus tertii - the bailee cannot defend an action by the bailor on the ground that a third party is the true owner of the goods or has a superior right to that of the bailor (Biddle v Bond), unless:

12 1. The bailee is evicted from the goods by a person whose title is superior to that of the bailor. The bailee can resist any attempt by the bailor to recover the goods or damages (Biddle v Bond) 2. The bailee's denial of the bailor's title is authorised by the true owner (Biddle v Bond) It is not enough that the defendant merely be aware of an adverse claim, the defendant must defend the right and title by the authority of the true owner (Biddle v Bond) Biddle v Bond 5. A bailee is estopped from disputing title of a bailor, which means that the bailee cannot rely on jus tertii to avoid returning the goods to the bailor 6. The exception is: a. Eviction by title is paramount; the true owner takes the goods from the bailee b. The bailee defends action by the bailor with the authority of the true owner i. This was the case in Biddle v Bond b) The plaintiff (bailor) was out of possession i) Bailor s right against a stranger who interferes Bailment at will or where a conditional bailment was broken gives an immediate right to possession and therefore makes the actions available. Wilson purchased the car from an individual who did not have title to sell it. He took it to a garage for repairs. Upon completion the car was wrongfully taken by the defendant. Plaintiff brings an action in trespass contending that he was in possession of the car when the defendant removed it. Defendant argues that the plaintiff had an immediate right to possession only, thus not allowing an action in trespass. Wilson v Lombank Ltd 1 Court chooses to see the plaintiff as in possession repairs had been completed, monthly account between the plaintiff and garage Wilson at all times could have demanded the return of the car. Moreover there does not appear to be any obvious bailment at will here as moneys are being paid to the bailee garage. Therefore Wilson never lost possession of the car. Constructive possession entitles the bailor to sue in trespass Can a 1 Take this case with a grain of salt. Seems to be at odds with other authorities as it suggests that a person with a right to immediate possession is to be regarded as having possession.

13 third party wrongdoer be doubly liable? In general, yes, double liability may occur for any property tort. However a bailee/bailor situation is an exception. If the bailee brings a case against the wrongdoer, the bailor may not, and vice-versa. O Sullivan v Williams A bailee was in possession of a car, and was trying to claim losses for damage of the car by the wrongdoer. The bailor had already sued the wrongdoer. 1. Since the bailor had already sued the wrongdoer, the bailee could not sue as well. 2. They did sue because they wanted damages, but also claimed nervous shock. The court said that if they wanted to sue for loss of the property, they must sue the bailor; however they could still sue the wrongdoer in a normal tort so they could sue for the nervous shock. ii) Bailor against own bailee Breach of bailment will bring the bailees rights to an end at which time the bailor acquires a right to immediate possession (Penfolds). The appellants were wine producers and sold their wines in bottles which were supplied on condition that they were returned as soon as the contents had been consumed. The bailee s right to possession ended from the moment the wine was drunk. The respondent was the owner of a hotel which sold bulk wine to customers who brought in their own bottles some of these belonged to the appellant. The respondent did not take any step to inform himself whether the bottles so filled were or were not owned by the appellant. Penfolds Wines v Elliot Breach of the contractual condition brought the bailees rights to an end at which time the bailor acquired a right to immediate possession. The appellants could not sue in trespass as they did not have actual possession the only possession interfered with was that of the bailee who authorised the interference. The acts of the respondent amounted to conversion because they filled the bottles for the purposes of trade in a manner quite inconsistent with recognition of the appellants title. Lost-and-Found Situations: Generally, a finder in actual possession of a chattel has sufficient title to sue a stranger, even if they are not the true owner Actual possession sufficient: a finder in actual possession of a chattel, though not an owner, has sufficient title to sue a stranger (Armory v Delamirie) Employees: the rights of the finder will be determined by the employment relationship.

14 Problem Questions Found in course of employment: where the chattel is found in the course of employment, the employer takes a superior right (Wiley v Synan) Employment wholly incidental: where the employment or agency is wholly incidental to the finding, the employee takes a superior right (Byrne v Hoare) Must take into control: the employee or agent who finds the chattel must take it into control to assert the rights against anyone (Wiley v Synan: boatswain finding on a ship could not recover when gave directly to custom s officials) 1. LYB loans jewellery to women for special occasions. LYB lends a diamond necklace to Susan for 48 hours from noon Saturday until noon Monday. Susan pays a $500 deposit plus $80 rental. On Saturday night, Lara sees Susan wearing the necklace and believes that it is the same necklace that was stolen from her the precious year. Lara explains the situation to Susan, who hands over the necklace over to Lara. When Susan explains the situation to LYB, LYB writes to Lara stating that the necklace is a common one that that LYB bought the necklace directly from the manufacturer. LYB also provides copies of the receipts to Lara. LYB demands that the necklace be returned; however Lara does not reply to LYB s correspondence. You can assume that LYB is correct in its assertion that the necklace is not Lara s stolen one. Can LYB bring an action against Lara in any property tort? - LYB and Susan have a bailment for reward for a term does not give right to constructive possession o They have a right to future possession, they can bring action on the case if there is permanent loss or damage - At the time of Lara s conduct at the party it is not trespass o It is willingly handed over o There is no possession by LYB - In conversion and detinue o At the time of Lara taking the jewellery there is no immediate right to possession by LYB, so there is no right to sue o However after Monday, the refusal to hand the necklace over to LYB by Lara is an act of detinue and conversion since LYB did have immediate right to possession as the bailment term was over 2. Sally finds a nice bracelet on the floor as she walks out of her property class. She decides to take it to jeweller to find out how much it is worth. She passes the bracelet over the counter. The jeweller, realising that the bracelet is valuable, asks Anne where she got it from. On hearing the story, he says to her well, the bracelet isn t really yours then, is it? and refuses to return it to Anne despite her protestations. Later, when the true owner sees the bracelet in the window, the bracelet in the window, the jeweller returns it to her. The jeweller and the true owner are no longer in touch. Does Sally have a remedy against the jeweller? - Yes, but not in trespass as there was no interference, she handed it over - She can sue in detinue and conversion as she has greater right to the bracelet than the jeweller, even though the true owner has supreme right

15 3. For an agreed fee of $100, Mary lends Nina her car for the weekend. Mary, who is desperately in need of the money, does not put any conditions on the loan. Due to bad weather, Nina cancels her planeed weekend away and instead offers the car to her boyfriend Oliver for the weekend. Mary, surprised to see Oliver driving her car, waits until he pulls over and then demands that he return the car to her immediately. Oliver, (being far from home) refuses. Nina returns the car as agreed on Sunday night. Does Mary have any cause of action against Oliver - It is a reward bailment for a term no constructive possession, but a future right to possession o Could be action on the case, but no damage - No trespass, willingly handed - Within the term, so she has no right to immediate possession, so therefore no tort at all. 4. Sam lends his spare watch (given to him by his father) to his brother Wilson, saying he won t need it for a while but will ask for it back when he does. Kevin steals the watch from Wilson and gives it to his friend Matthew for his birthday. Sam sees Matthew wearin g his watch and writes him a letter demanding he return the watch (giving evidence that it is his watch). Matthew refuses. Does Sam have an action in trepass against either Kevin or Matthew? What remedies does Sam have against Matthew - This is a gratuitous bailment at will, so Sam still maintains constructive possession of the watch therefore he still has possession. Thus there is an action in trespass against Kevin who stole the watch and thus interfered with the item in his possession. However he cannot sue Matthew for trespass - He can sue Matthew in detinue and conversion for the refusal to return - The remedies Sam has against Matthew are specific restitution and damages (he can get the watch back and damages in common law).

16 Fiduciary Relationships and Obligations You must ask: 1. Is there a fiduciary relationship? 2. What are the fiduciary duties/obligations and what is the scope of these duties? 3. Have they been breached? 4. Has there been informed consent? 5. Are there any other defences? If you determine that there is a breach, the available remedies are: 1. Compensation for loss a. Equitable compensation (personal remedy) 2. Disgorgement of gain a. Account of profits (personal remedy) b. Constructive trust (proprietary remedy) 3. Restitution of property obtained by the fiduciary in breach of obligation a. Rescission of gift or contract with a constructive trust over property transferred or the traceable proceeds (proprietary remedy) 4. Injunction to prevent further breach a. For example an injunction to prevent a fiduciary in pursuing a self-interest activity. Fiduciary relationships A relationship of trust and confidence will be recognised as fiduciary where it arises from a fiduciary undertaking to act in the interests of the beneficiary in a matter which confers discretion on F, and in respect of which the exercise of discretion affects B in a practical or legal way (such as economically). The essence of a fiduciary relationship is that the fiduciary must act exclusively in the interests of the beneficiary in matters within the scope of the relationship. In determining whether a relationship is likely to be fiduciary, a guiding principle is: The more closely the legal relationship approximates to that of a vendor and purchaser, the less likely it is to be fiduciary. Examples of fiduciary relationships Some recognised fiduciary relationships include those between: a) Trustee and beneficiary a. The trust is the paradigm fiduciary relationship, though trustees may also come under a duty to act for the unborn (unidentified person) (Breen v Williams (1996)) b) Solicitor and client c) Director and company

17 d) Employee and employer e) Agent and principal f) Partner and co-partner g) Executor/executrix of an estate and beneficiary h) Investment advisor and client (as per ASIC v Citigroup (2007)) Other relationships may be held to be fiduciary, in whole or in part, where there is a reasonable expectation that one party should subordinate their own interests on a particular matter for that of another. The thing that all of these relationships have in common is that: 1. The fiduciary is expected to act exclusively in the interest of the beneficiary on matters covered by the relationship; AND 2. The fiduciary is not permitted to pursue self-interest Vertical relationships A vertical relationship is one where one party has much greater access to resources, skill or information than the other. Examples include trust and agency. The leading authority for application of fiduciary obligations to vertical business relationships is Hospital Products v United States Surgical Corporation (1984) 156 CLR 41, where the Mason J held that: The critical feature of [fiduciary] relationships is that the fiduciary undertakes to act for or on behalf of, or in the interests of another person in the exercise of power which will affect the interests of that person in a legal or practical sense. All aspects of this test must be satisfied, it is not enough to say that A is a fiduciary to B because A has undertaken to act for B. USSC manufactured surgical tools, and the first defendant, Blackman, realised they were not patented in Australia. He offered to become a distributor and gained exclusive distribution rights under an oral contract. In the meantime, he established his company, Hospital Products, which was a direct competitor of USSC by repackaging USSC products and Hospital Products v USSC (1984) 156 CLR 41 The essential features of fiduciary relationship the undertaking test The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interest of another person in the exercise of a power or discretion which will affect the interest of that person in a legal or practical sense The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power of discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expression for, on behalf of and in the interest of signify that the fiduciary acts in representative character in the exercise of his responsibility

18 selling them as their own, as well as using designs to make their own products. This became successful so that Hospital Products began to compete with USSC in America. USSC then terminated the contract and sued for breach of contract and fiduciary obligation. All elements of the test have to be applied 1. Blackman s conduct in developing a competing business was a breach of contract, but there were no fiduciary obligations owed to USSC 2. The latitude Blackman enjoyed under the agreement was inconsistent with the existence of a fiduciary relationship he was not obliged to sell any specific quantity, could determine sale price and was permitted to make a profit. Essentially Blackman could act as a commercial party for his own benefit. Furthermore, there was no undertaking by Blackman to do anything for the benefit of USSC. Also, the contract was terminable by either party at will. 3. The court will not, by application of fiduciary principles, make agreements for parties which they have no made for themselves. 4. However Mason J held that there was a limited fiduciary duty to maintain the goodwill of the company in Australia. This would mean that they owe a duty not to put themselves in a conflict of interest with the USSC brand and not profit based on their brand. 5. If they sued for breach of contract, USSC could only sue for expectation loss. They didn t want what they lost from not keeping the contract alive, they wanted the profit made by HP, the equitable remedy of account of profits. 6. Another remedy they sought was the proprietary version of the account of profits. They wanted an order to access the bank account with the profits as THEIR property. The court essentially says that the fiduciary held that property as a trust for the beneficiary, called a constructive trust. The benefit of this is that owning the account rather than just being paid gives priority over other creditors in bankruptcy Commonwealth Bank of Australia v Smith (1991) The plaintiffs were longstanding clients of the bank who often relied on their advice in their business dealings. The bank advised them to purchase a hotel which happened to belong to another of the banks clients (since it meant the hotel owner would repay the loans the bank had issued them) even though a mortgage valuation showed the hotels value being less than the price the plaintiffs were paying. The bank also said the lease would be renewed, despite having no grounds to make that representation. The plaintiffs lost considerable money in operating the hotel and the lease wasn t renewed. The Full Federal Court held that the bank had so identified its interests with those of the plaintiffs that it owned the plaintiffs a fiduciary obligation it had undertaken to act exclusively in their interest in advising them on the purchase of the hotel. The bank placed themselves in a position of conflict between the advisory duties it owed to the plaintiff and the interest in ensuring the sale of the lease, thereby breaching its fiduciary obligations.

19 The underlying question coming from this is: When can a fiduciary relationship arise from a contractual relationship? If there is going to be a fiduciary duty, there will likely be a clause in the contract that creates it. If there are fiduciary relationships created by a contract, it does not mean ALL breaches of contract will be breaches of fiduciary duty. You cannot then say that due to this ordinary contractual reliance that there would be superimposed fiduciary obligations. It is not enough; you need something more than this ordinary vulnerability John Alexander s Clubs v White City Tennis Club [2010] HCA 19 The parties entered into a lot of contracts to enable for the development of the tennis club John Alexander s Clubs v White City Tennis Club [2010] HCA 19 Horizontal relationships 1. The court held that a while generally a fiduciary relationship can be superimposed on a contract, it is not automatic and should not be put on all contracts. In all contracts there is an element of vulnerability and an element of reliance. You cannot then say that due to this ordinary contractual reliance that there would be superimposed fiduciary obligations. It is not enough; you need something more than this ordinary vulnerability. 2. HCA said there were no fiduciary obligations; the terms of the contract outlined that there was less/no extra reliance. In these cases the fiduciaries and principals are the same people consider business partners. A horizontal relationship is one where the resources, skills and information are shared between the parties for the purpose of achieving a common goal. Examples include professional or business partnerships. Note that even though there is not one person vulnerable to another, they are mutually vulnerable to each other s actions. Vulnerability need not be about someone having more expertise, for example in this case, it may just be about the undertaking in question. The rule for determining whether there exists a fiduciary relationship in a horizontal sense, as used in United Dominions Corp v Brian (1985) 157 CLR 1, is: Have the parties placed a high degree of mutual trust and confidence in each other in the pursuit of their common goal?

20 Brian entered a joint venture agreement with UDC and SPL to construct a shopping centre near Brisbane. SPL owned the land, and although the shopping centre was developed, Brian never received his share of the revenue. Unknown to him, UDC had taken a mortgage over the land and claimed the profits under a clause in the mortgage. United Dominions v Brian (1985) 157 CLR 1 1. The clause in the contract was unenforceable against Brian to the extent that it deprived him of his share of the profits. 2. A joint venture agreement is in substance a partnership. 3. It doesn t matter that the co-venturers embarked on joint venture activities before executing the agreement the relationship was at that stage fiduciary since the executing of the agreement demonstrated a high degree of mutual trust. Thus UDC could not obtain for itself a collateral advantage without the knowledge and consent of the other parties. The joint venture was considered a partnership even though it was not labelled so. The relationship between the parties was fiduciary since the willingness of the parties to proceed with the product demonstrated a high degree of mutual trust and confidence. Contractual and fiduciary relationships Fiduciary relationships can be created in a contract, or evolve from a relationship which was initially contractual. Two aspects are particularly important. 1. Fiduciary obligations can be modified or excluded by terms of a contract a. Mason J in HP v USSC: i. The fiduciary relationship must accommodate itself to the terms of the contract so that it is consistent with them. The fiduciary relationship cannot be superimposed upon the contract to alter the operation which the contract was intended to have according to its true construction. b. In ASIC v Citigroup Global Markets Australia Pty Ltd: i. Since the fiduciary relationship was going to arise from the contract, the terms of the contract are able to explicitly exclude the existence of fiduciary obligations An investment bank agreed to advise a company on a proposed takeover bid of another company. The day before, a bank employee purchased shares in the target company on behalf of the bank (the employee did not know about the takeover). ASIC argued that the bank had acted as a fiduciary ASIC v Citigroup Global Markets Australia (2007) 241 ALR While normally there may have been a fiduciary duty, the letter of engagement (contract) under which the bank agreed to act expressly excluded the existence of fiduciary obligations and allowed the bank to trade on its own account. 4. There is a distinction between a fiduciary relationship arising out of the contract and a fiduciary relationship that already exists and is trying to be contracted out of. You cannot contract out of a fiduciary relationship that