By Russell Cocks, Solicitor
First published in the Law Institute Journal
The concept of a trust has a long history in the law. Its greatest claim to fame is as a weapon by which the conscience of Equity could master the harshness of the Common Law. Whilst the Common Law might demand that T be regarded as the legal owner of Blackacre, Equity would impose a trust in favour of B, and T would be deemed to hold that bare legal interest on behalf of B, the true beneficial owner.
Modern legal theory now accepts the merger or fusion of Common Law and Equity into one seamless, but organic, set of principles, however this theory relies on the concepts developed in our legal past. The concept of the trust developed from this imposition of an amorphous relationship between trustee and beneficiary to include a variety of the strain that was in fact intentionally created and indeed recorded in written form, often in a testamentary document but equally so in a document intended to have immediate effect. Sub-groups involving multiple beneficiaries and the possibility of discretionary or changing beneficiaries evolved, but one constant remained: a trust is a vehicle, it is not a legal entity. The law recognises natural persons (in two genders) and corporations (in a variety of forms) as legal entities and a trust falls into neither category. The trustee is a legal person, the beneficiary is a legal person, but the trust itself has no legal capacity or liability.
As a consequence of this principle the Torrens system of recording ownership of land has an aversion to the trust. It is possible to register the legal ownership of the trustee on a Torrens title and it is even possible to record the interest (by way of caveat) of the beneficiary, but (in Victoria at least) it is not possible to record the trust. Section 37 Transfer of Land Act states that ‘The Registrar shall not record in the Register notice of any trust’ and the Land Victoria Lodging Book (p 1.11) states that ‘Any reference to trustees is in conflict with Section 37 … and is not acceptable’.
However trusts, with either natural persons playing the role of trustee or, more often, a corporate trustee, are common occurrences in day to day transactions, with many people employing a trust for superannuation purposes or as a tax minimisation device or in the hope of limiting legal liability. Appreciating that a trust is not a legal entity is important at two stages of a conveyancing transaction – contract and transfer.
The trustee is the legal owner of the property and will be shown as such on the certificate of title without any reference to the trust in accordance with s 37. Thus the description of the vendor in a contract of sale will usually be correct, as that description will be taken from the title. However the description of the purchaser is a more arbitrary exercise and unfortunately is often entrusted to participants in the process who do not appreciate the niceties of the law, such as estate agents, conveyancers and accountants (and, dare I say it, some lawyers). This will lead to the purchaser being (incorrectly) described as ‘The Fred Nerk Superannuation Trust” or “The Frederica Nerk Family Trust”. Is such a contract enforceable?
The purchaser does not ‘exist’ as far as the law is concerned, it is a non-entity. Only legal persons can sue and be sued, so there is no purchaser for the vendor to sue if the vendor wishes to enforce the contract against a defaulting purchaser. Equally, if the vendor does not wish to proceed, there is no legal entity capable of enforcing the rights of a purchaser – there is no-one who can sue the vendor. In the absence of an argument based on rectification (a very limited legal remedy) there is a real risk that the contract will ‘fall over’, with consequent liability for that disaster falling on those advisers who allowed the purchaser to be incorrectly described. The correct description of the purchaser is to name the trustee – perhaps ‘Fred Nerk’ or ‘Frederica Nerk Pty Ltd’. Further describing the purchaser ‘as Trustee of the Fred Nerk Superannuation Trust’ or ‘as Trustee of the Frederica Nerk Family Trust’ is superfluous, but not fatal, and sometimes placates the uninformed.
Whilst reference to the capacity of the purchaser in the contract (‘as trustee for…’) is permissible, that cannot carry over to the transfer of land. That document must name a legal person – the trustee (either natural or corporate) as the transferee and cannot include reference to the trust. Otherwise, on the basis of s 37, the Registrar will refuse to register the transfer, and we don’t want to go there.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.