Tuesday, September 21, 2021

No debate** - Can shares be owned as tenants in common?

Recent posts have considered various aspects of the rules in relation to assets owned as joint tenants.

Another aspect of the rules in this area that continues to cause debate relates to the manner in which shares in a company may be owned.

Often a constitution of a company will mandate that shares registered as owned by 2 or more people may only be owned as joint tenants. Often the constitution will also state that the name first listed on the share register will have all voting rights in relation to the shares.

Where a constitution of a company does not set out that joint share owners must own as joint tenants the issues are more complex if a will does not distribute a discrete number of shares to separate people. That is, instead of (say) giving 100 shares to A and B, giving 50 shares to A and 50 shares to B.

Despite there being a number of conflicting cases, it appears as though the long standing decision in McKerrell [1912] 2 Ch 648 continues to apply. In that case it was held that despite a will stating that the recipients of the gift of shares were to take as tenants in common – ‘That is not possible. At least, it is not possible that a chose in action, such as shares, can be held as tenants in common at common law’.

In other words, the only assets that can be owned as tenants in common at law are real property and chattels. This means, as one example, bank accounts in joint names are deemed to be owned as joint tenants. This is because there is essentially a chose in action, being the contractual right of the account holders against the bank, for recovery of a ‘debt’ (being the balance from time to time in the bank account).

Another example in this regard is the well known case of Equititrust Ltd & Anor v Franks [2009] NSWCA 128, where it was held in relation to a debt (and related mortgage), that the common law presumption of a joint tenancy applied despite the deeming provisions under legalisation that would have otherwise seen the parties hold as tenants in common.

As usual, if you would like copies of any of the abovementioned cases please contact me.

** for the trainspotters, the title today is riffed from the Breeders song ‘Lord of the thighs’. View hear (sic):

Tuesday, September 14, 2021

Assuming makes an a%& of you and me ... presumptions** and jointly owned assets

Last week’s post considered various aspects of the rules in relation to assets owned as joint tenants.

At law there is a presumption that where property is gifted to two or more people, they receive that property as joint tenants (subject to any contrary intention).

A number of jurisdictions have also enacted legislation confirming this outcome, including Western Australia, South Australia and Victoria.

In New South Wales and Queensland however there is legislation that ‘flips’ the position at law.

This means that where real property is gifted to two or more people in those jurisdictions it will be deemed to pass to the parties as tenants in common, in equal shares.

** for the trainspotters, the title today is riffed from the Midnight Oil song ‘Blot’. View hear (sic):

Tuesday, September 7, 2021

The youngest, modern-est**, most beautiful-est ... and 'wealthiest'

Previous posts have considered the distinction between owning an asset as joint tenants compared to tenants in common.

One aspect of the rules in relation to joint tenancy that can arise in tragic circumstances is where two (or more) people die in the same incident, or indeed in unrelated incidents, and it is not possible to determine the order of deaths.

In these circumstances, in all Australian states other than South Australia, there is legislation deeming the deaths to have occurred in order of oldest to youngest. This means the youngest person will be entitled to 100% of the assets formerly owned as joint tenants.

These rules apply where the court determines that the order of death is uncertain (for example, see Re Comfort; Re Tinkler; Equity Trustees Executors & Agency Co Ltd v Cameron [1947] VLR 237).

South Australia also has a unique approach (in Australia) in relation to perpetuity periods, having essentially abolished the rule against perpetuities (which is generally 80 years) and allowing trusts to potentially last indefinitely.

The decision of In the Estate of Graham William Dawson (Deceased) and Teresa Veronica Dawson (Deceased) [2016] SASC 89, arguably best summarises the position in South Australia where multiple joint tenant owners of an asset die.

While acknowledging that the law in this area has essentially been ‘frozen’ for over 100 years, the court held that the existing rules continued to apply because no legislation had been introduced in South Australia changing the position. This meant the assets owned as joint tenants passed undivided into the respective estates for the 2 owners.

Interestingly, again due to legislation in states other than South Australia, companies can also own assets with other parties as a joint tenant.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Silverchair song ‘Young modern station’. View hear (sic): 

Tuesday, August 31, 2021

Before too long ** - when not even living together is a de facto relationship

As previous posts have touched on, in order to be in a de facto relationship, two people need to ‘live together as a couple’.

The case of NSW Trustee and Guardian v McGrath & Ors [2013] NSW SC 1894 highlights that in order to live together as a couple, you do not necessarily have to share a particular residence.

As is often the case in disputes about whether a de facto relationship existed, following the death of one of the parties, the facts in this case were relatively complicated.

In summary:
  1. The couple, with their respective life spouses had been friends for around 20 years.
  2. When the respective life spouses passed away, the couple formed a close bond, which they shared for around 13 years.
  3. They never lived together as such, however the relationship was often described as ‘boyfriend/girlfriend’.
  4. They spoke every night on the phone.
  5. They would meet at least a couple of times a week.
  6. They would often holiday together.
  7. the couple also attended all family functions (for example, birthdays, Christmas day etc.) together for one side of the family - in relation to the other side of the family, there was significant estrangement and no family functions were attended.
Following a dispute about the distribution of the estate on the first of the couple to die, the entitlement of the other party to the relationship turned on whether he satisfied the definition of a de facto.

The court decided that although the case was borderline, there was sufficient evidence to support the existence of a de facto relationship, given how devoted the couple seemed to be to one another, even though they never chose to share a residence for a lengthy period of time.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Paul Kelly song ‘Before too long’. View hear (sic): 

Tuesday, August 24, 2021

Non-lawyers providing full (legal) services**

One issue that often arises is the liability of non-practicing lawyers and those advisers without any legal qualification who facilitate the provision of legal documentation.

Arguably, the leading case in this area is Legal Practice Board v Computer Accounting and Tax Pty Ltd [2007] WASC 184.

In this particular case, an accountant arranged for a trust deed to be bought for a client over the internet. The base trust instrument had been written by lawyers however, the accountant then populated the template.

In doing so, the court held that practically this meant that the accounting firm was breaching the relevant legislation. In all likelihood, the accountant would not be covered by their professional indemnity insurance in relation to any issues that arose out of the trust instrument.

Despite the proliferation of online providers, the decision in this case remains a very important one for any adviser facilitating legal solutions.

In many respects, it reinforces the approach adopted by firms such as ours who, while leveraging significantly off technology driven solutions, still ensure that all documentation is reviewed by a fully qualified, specialist lawyer, and where relevant, a certificate of compliance is provided confirming that all legal advice has been provided by the firm, and not the facilitating adviser.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Art of Noise song ‘Backbeat’. Listen hear (sic):

Tuesday, August 17, 2021

Guiding (star)** principles on trust interpretation

Following the post last week I was reminded of a related issue from the case of Harris v Rothery [2013] NSWSC 1275 that provides useful guidance in relation to the role of an appointor.

In many respects, the main focus in the decision was on the issue of whether the role of an appointor was a fiduciary one.

While the court held that for the purposes of the relevant deeds the role was not a fiduciary one (even though generally it will be), a number of other issues were addressed by the court that are important to the interpretation of trust deeds.

In summary, these included the following:
  1. a later inconsistent document to a purported variation, including where the later document is set out in the will of a party can validly amend a trust instrument, depending on the provisions of the original document;
  2. where a trust deed is prescriptive about the steps that must be taken (for example, providing written notification to a trustee) any purported change will only be valid on satisfying the relevant requirements;
  3. similarly, if there are timeframes set out in the deed for the provision of notices, unless they are complied with strictly, the notice will be held to be ineffective;
  4. unless a trust instrument requires original notices to be provided, then copies will suffice;
  5. similarly, notices that are undated will not of themselves be invalid unless the trust instrument requires dated documents;
  6. the provisions of a trust deed must be interpreted by reference to a reasonable objective construction, as opposed to how the parties subjectively interpreted them; and
  7. the nomination of a replacement appointor will only take effect when the incumbent appointor is no longer able to act, unless otherwise expressly provided in the instrument of nomination.
As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Teenage Fanclub song ‘Guiding Star’. View hear (sic):

Tuesday, August 10, 2021

2 (+2 =5)** step deeds of variation

A common theme of posts over time has been the critical need for trustees (and their advisers) to read the provisions of any trust deed.

One issue that arises regularly under trust deeds is a variation power that may only be used in relation to certain clauses in the trust deed.

Where a trustee wishes to amend clauses that are protected from variation, one strategy that is often considered involves preparing:
  1. an initial deed of variation, which amends the power to vary under the trust deed to remove the prohibitions; and
  2. a second deed of variation implementing the desired changes.
Obviously, this approach is only available where the variation power itself is not one of the clauses that the prohibition on variation applies to.

Even where the approach, is on the face of the trust deed available, there are cases that would suggest this 2-step process is void for being a fraud on the power to amend.

The leading case in this area is Jamaica Ltd vs. Charlton [1999] W.L.R. 1399.

In particular, the decision confirms that the trustee cannot look to achieve by two steps, what was unable to be achieved by one step.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Radiohead song ‘2+2=5’. View hear (sic):