The trustee’s position is both simple and highly complex. The trustee is the legal owner of the trust property, and therefore has all the rights and responsibilities that come with complete ownership. The trustee is regarded as personally liable for debts incurred on behalf of the trust unless documents contain clear and unambiguous words excluding that conclusion: see Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773. But in equity the trustee only holds the property for those beneficially entitled to it. Thus, trustees may potentially incur personal liability in performing trust business without taking personal benefit from the expense. Few would take on the responsibilities of trusteeship without some financial relief from that outcome. Equity, and more recently, statute, has dealt with the situation by recognising the trustee’s right to be indemnified out of trust assets for expenses incurred in carrying out the trust. Practically, this means the trustee can pay the trust expense directly out of trust funds (called the right of exoneration) or pay the expense out of personal funds, and then be reimbursed for it (called the right of recoupment).

Equitable intervention into contract law defies easy summary. Apart from equitable remedies to enforce contracts, such as specific performance and injunctions, or to rescind voidable contracts, equitable doctrines perform a number of distinct roles in the formation, modification and enforcement of contracts. Equity recognises more extensive grounds than the common law to set aside agreements based on defective consent. So, while contracts can be rescinded at common law for duress or fraudulent misrepresentation, in equity they can be avoided on the additional grounds of undue influence, unconscionability, non-fraudulent misrepresentation, mistake and under the rule in Yerkey v Jones (1939) 63 CLR 649. Equity can also occasionally modify or prevent contract enforcement even though the bargaining process was not defective. Terms constituting penalties (as opposed to liquidated damages clauses), forfeiture clauses and contractual restrictions on a mortgagor’s equity of redemption belong to this category and can be set aside.

Rescission has several legal meanings. In this chapter, it refers to the setting aside of a contract or gift on the ground that the plaintiff’s intention to contract or to make the gift was defective. Two types of defective intention can cause a transaction to be rescinded. First, the plaintiff’s intent to transact may be vitiated by mistake, misrepresentation, duress or undue influence. Secondly, the defendant’s blameworthy conduct may have caused the plaintiff to enter into a disadvantageous transaction. The second category includes transactions induced by unconscionable conduct, breach of fiduciary duty and failure to explain the nature and effect of a guarantee under the doctrine of Yerkey v Jones (1939) 63 CLR 649. A transaction which is liable to be rescinded is voidable, not void. This means that it is valid until the plaintiff elects to set it aside. Failure to set aside a contract means that it remains valid and enforceable: see Daly v Sydney Stock Exchange Ltd. Rescission can be ordered at common law as well as in equity.

Equity is a chameleonic word, taking its colour from the context in which it is used. Equity refers to the principles, doctrines and remedies applied by Australian courts exercising the jurisdiction of the English Court of Chancery prior to the enactment of judicature legislation which reformed the structure of the court system in the mid-nineteenth century. Equity, in this sense, is intelligible without having to acquire an understanding of legal history, but the understanding will be deeper if that history is known. This chapter identifies some of the landmarks of that history. The final section summarises some of the more common equitable maxims. The student will occasionally encounter them when reading the cases, and should consider their value in applying equitable doctrine to the circumstances of an individual case.

Equity’s personal monetary remedies are the account of profits and equitable compensation. Additionally, statutory damages are available in some cases, under versions of Lord Cairns’ Act discussed in chapter 3. The possibility of exemplary damages in equity will also be considered. As the name suggests, an account of profits is a profit-stripping remedy. It can be contrasted with the proprietary remedy of a constructive trust which can also achieve profit-stripping by reallocating beneficial ownership of property held by the defendant. Accounts of profits are only intended to redirect gains made by the wrongdoer; they are not intended to punish. Therefore allowances have to be made to the defendant for proven actual inputs, and may also be made for ‘value-adding’ inputs such as skill and expertise. However, equity proceeds from the assumption that all profits are recoverable; it is up to the defendant to prove otherwise. Accounts of profits are available for equitable wrongs such as breach of confidence, breach of trust, breach of fiduciary duty and third-party participation in a fiduciary breach.

Trusts come in all shapes and sizes. They are used for multifarious purposes; by individuals and families, by financial institutions and other businesses, by charities and foundations and by the courts. The trust is, as Maitland once famously observed, ‘An institute of great elasticity and generality; as elastic, as general as contract’. It is usually neither difficult nor controversial to recognise the existence of a trust. However, as we shall see, this is not always the case. This chapter first presents a description of express trusts in terms of the main characteristics with which they are typically associated. It then approaches the question from the opposite direction, by contrasting the legal archetype to other legal concepts, such as equitable charges, debts and partnerships that have points of similarity but also points of difference. The picture of the institution we know as an express trust that emerges through these two perspectives, although perhaps not deserving the title ‘definition’, will provide some guidance as to the nature and form of this most elastic of legal concepts.

Plaintiffs may have an ‘equity for relief’ but this does not mean that the plaintiff holds a right to relief. All equitable relief is discretionary, and judicial discretion is exercised in a principled manner. The court considers the surrounding circumstances of the case, weighing factors from both the plaintiff’s and defendant’s perspectives in fashioning an appropriate remedy. Principles informing the exercise of equitable discretion include the doctrines of laches and acquiescence, unclean hands and hardship to the defendant. Additionally, a court exercising equitable jurisdiction will not make an order that is futile or impossible to supervise. The impact of the court’s order on third parties will also be considered. These factors apply generally to all equitable remedies. The availability of specific performance is additionally controlled by particular discretionary grounds: want of mutuality and the plaintiff’s willingness and readiness to perform her own obligations. Bars to relief are sometimes referred to as equitable defences but properly understood they are not true defences.

Fiduciary relationships arise in equity’s exclusive jurisdiction and are relationships to which equity grants particular protection. Fiduciary obligations are owed by the fiduciary to identified others or a group of people, often described as the principal of the obligation or, somewhat confusingly, the beneficiary to whom the obligation is owed. In broad terms, the core obligation of a fiduciary is undivided loyalty. The fiduciary must act exclusively in the interests of the beneficiary. This obligation is not unbounded; for example, fiduciary obligations may be limited by time or the nature of the activities giving rise to the obligation in question. Fiduciary obligations thus exist within a defined scope. Additionally, not all of the obligations owed by the fiduciary to the beneficiary will be fiduciary obligations. For example, a trustee may be required to exercise a degree of care when making investment decisions, but this obligation is not fiduciary in nature.

Resulting trusts arise when title to property is transferred and the provider of property does not intend to benefit the recipient. The trust thus identified is a bare trust under which the essential duty of the legal owner is to act in relation to the property as the beneficiary directs. Resulting trusts are often described by distinguishing them from their siblings, express trusts and constructive trusts. Unlike express trusts, which give effect to the settlor’s positive intention to benefit the recipient, a resulting trust arises in the absence of the provider’s positive intention. Whilst the juridical basis of some constructive and resulting trusts may be contested, it is nonetheless certain that constructive trusts are raised in response to equitable wrongdoing such as breach of fiduciary duty, and that resulting trusts are not a proprietary response to equitable wrongs.

Charitable trusts are created for social purposes, rather than for the benefit of identifiable persons. The beneficiary principle (Morice v Bishop of Durham (1804) 9 Ves 399; 32 ER 656) requires express trusts to have identifiable persons as their object, primarily so that there is someone with sufficient standing to enforce the trust in court. Charitable trusts are an exception to this principle, and thus do not require certainty of object. In order to be valid, however, they must be for the benefit of the public. Additionally, the social purpose they perform must be legally recognised as being charitable. The law concerning charitable purposes is over 500 years old, and sourced in general terms from the Preamble to the Elizabethan Statute of Charitable Uses 1601. Since Pemsel’s case in 1891, charitable purposes are grouped into four headings: trusts for the relief of poverty, the advancement of education, the advancement of religion, and for other purposes beneficial to the community. For purposes of Commonwealth legislation, whether a purpose is charitable is now determined according to s 12 of the Charities Act 2013. Charitable trusts can continue in perpetuity.

Equity has always protected certain information from unauthorised misuse. In Coco v A N Clark (Engineers) Ltd (1968) 1A IPR 587, Megarry J dated this jurisdiction to before 1535, saying: ‘The equitable jurisdiction in cases of breach of confidence is ancient; confidence is the cousin of trust’. However, equity’s protection is not unlimited. Four elements must be satisfied in order for an equitable obligation of confidence to arise: (1) The information must be specifically identified. (2) It must have the necessary quality of confidence. (3) It must have been received by the defendant in circumstances that import an obligation of confidence. (4) There must be an actual or threatened misuse of the information, contrary to the plaintiff’s wishes. Any kind of information might be protected by the equitable obligation of confidence, such as trade secrets or commercially valuable information that cannot otherwise be protected by patent, trademark or copyright law. It can also be used to protect personal information. Confidential information can take virtually any form.

Equitable remedies grew out of the Chancellor’s aim to put both parties in the positions that reflected the merits of the case, the parties’ circumstances and circumstances of any other persons who might be affected by his orders. The Chancellor’s judgment was always discretionary, and might call for both the plaintiff and defendant to take remedial steps. The Chancellor’s court was not shy about the need to unravel complex problems. There is a real sense in which the court did whatever was necessary to achieve an appropriate balance between the parties. That flexible attitude still informs modern equitable remedies. Remedies are important in every case extracted in this book. This chapter merely attempts to provide the flavour of equity in action, to demonstrate equity unravelling complex interactions between parties, imposing obligations on the plaintiff as well as on the defendant, and taking into account the interests of third parties. The cases exhibit many of the objectives of equitable remedies, such as compensation, disgorgement, restitution, reformation, coercion and vindication.

The principal liability for any breach of trust lies with the trustee who must compensate the trust for any loss caused by the breach or account for any profit arising from the breach. Where loss to the trust estate has been caused by the commission of a tort or breach of contract by a third party, the duty to obtain compensation from the third party also rests on the trustee, and failure to seek compensation may itself constitute a breach of trust on the part of the trustee unless it would be impracticable to litigate. If the trustee fails to pursue the third party, the beneficiary can bring a claim, joining the trustee as co-defendant. Liability for breach of trust is in principle strict although liability for failure to exercise reasonable care and skill, for example in making trust investments, requires proof of fault, applying, as the context requires, equitable or statutory standards of care. The rigour of the trustee’s strict liability persuaded legislatures. Trustee legislation also includes provisions excusing trustees from personal liability in cases where the principal wrongdoer is co-trustee or an agent of the trust and the trustee has not behaved improperly.