How to Prove a Sham

It has been roughly a year since I published two articles on the sham doctrine.

The first, "The Sham Doctrine and Intention: Address the Bilateral Nature of Sham Trusts", which appeared in the Law Quarterly Review, argued that:

1. There is an independent sham doctrine that operates in all bilateral private law arrangements;


2. As such, the sham doctrine cannot operate in trusts created by declaration because there is only one party to the creation of the trust; and,

3. There is no such thing as an emerging sham.

The reason for the point 2. is that were it otherwise, settlors would be able to invalidate trusts on a whim, as some have attempted to do when it is convenient (see, Commissioner of Stamp Duties v Jolliffe), to the detriment of beneficiaries.

The reason for point 3. is that were it otherwise, it would permit trusts to be invalidated which have already been properly constituted, simply because some parties to the trust (involving the trustee, but we cannot be sure who else), have breached its terms. A breach is a breach, not an invalidation of the whole arrangement from the outset.

Following on from this the second article, "The Limits of Sham: Whether a Trust's Terms Matter", published in the Journal of Equity, argued that sham can only be established by the parties' intention at the outset to use the arrangement as a disguise or a facade for some other, different, arrangement.

Accordingly, in this article I took issue with the decision in JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev, that implied a finding of sham could be based on how an arrangement's terms were used to mislead others regarding beneficial ownership; as distinct from the true arrangement being entirely different from the one that the parties entered into. The distinction is between using an arrangement to bamboozle others (which is not a sham), as compared with using the arrangement as a disguise for some other different arrangement (which is a sham).

Despite the debate in the case law and scholarly literature that sometimes proceeded these conclusions, as a matter of practical law, it appears fairly settled. For example, in a recent English High Court case, Malik v Messalti, both sham and the nascent illusory trust doctrine were invoked with little success. Importantly, the court confirmed the very conventional understanding of the sham doctrine that I have articulated above.


Interestingly though, despite a largely homogeneous judicial view of how the sham doctrine works (which was also confirmed through a recent discussion with an English Court of Appeal Lord Justice), it is often invoked with some regularity in cases where it rarely succeeds.

The question might then be asked as to why? The allegation of sham is seemingly raised whenever there is a claimant who wishes to invalidate an arrangement. Yet these allegations are often given short shrift by judges who have not had the kind of evidence presented before them that would go even a reasonable way to proving sham. It appears that sham has been thrown into pleadings without sufficient thought as to the evidential burden required to prove it.

Proving sham is not easy. It requires evidence beyond the four corners of the arrangement, that very clearly shows an intention to use the arrangement to deceive others as to the true arrangement: there must be a provable, separate, and different arrangement than the one entered into. This does not entail evidence that the arrangement is part of an asset protection strategy; since in such a case, the whole point of the strategy is that the arrangement take effect according to its terms (i.e., to be as legally sound as possible).

Accordingly, evidence is required of the alternative arrangement, and that the parties were acting according to the terms of that arrangement. Essentially, what sham requires is evidence of two arrangements: first, the facade; and secondly, the true, secret, arrangement. It then requires evidence that there was an intention to use the first arrangement to deceive; although not necessarily to the extent required to prove the tort of deceit. The exact level and nature of the intention to deceive in sham is, therefore, an area that still remains unclear: actual intention to deceive will definitely prove it, but so have lesser levels... watch this space for announcements regarding forthcoming work on this topic.

The result is that sham is not a simple matter to prove. It requires careful and deliberately focused evidence that addresses its elements.

What is a Family Trust?

People often speak about family trusts. Indeed, a lot of people use them.

In today's post, I'm going to explain what a family trust is.

There's no such thing as a family trust

There's no such thing as the family trust if we're just looking at trust law. For the purposes of tax law, there is, but that simply described a normal private trust with certain features: i.e., if a trust is controlled and for the benefit of family member. 

But, as a matter of trust law, a trust is simply a legally binding obligation that a person (a trustee) has to another person (a beneficiary) with respect to legal and/or equitable (if we're being technical) rights the trustee holds, which are the subject of the trust. This broadly describes every kind of trust that isn't charitable (and even then it is not much different).

So, if you're a beneficiary of a trust, then that means a trustee holds property, money etc. for your benefit. It belongs to you in an indirect way, and you may (depending on the terms of the trust) be paid income from it.

Also, there's no such thing as a trust per se. It's not a company that exists as a separate legal entity from its shareholders. If you're a beneficiary of a trust then it's more akin to a legal relationship, like a contract, between you and the trustee. It's not the same as owning a share in a company.

The result is that you don't necessarily own the trust property. If property is held on trust for you, then the trustee owns it and you are simply entitled to the benefit of it: your ownership is indirect; like if someone has promised that they are going to invest their own money but give you the profits of it. Yet the trustee doesn't really own it either because it's held for your benefit.

Further, a trust may also be structured in such a way that, while you are stated to be a beneficiary of the trust, so are a bunch of other people (such as members of your family); and, the trustee doesn't ever have to give you anything: he or she might decide to give some of the money from the trust to your brother or sister. This means the trustee has discretion as to who should, in reality, benefit from the trust; and that is why trusts structured in this way are often referred to as discretionary trusts.

So, if you may never receive anything from the trust, but the trustee doesn't derive any benefit from it either (the property is held for the beneficiary 's benefit, not the trustee's), who should pay tax on any income generated by the trust property?

Now you can see why they're so popular as, broadly speaking, they can only be taxed when a beneficiary has actually received a direct distribution from the trustee.

Fixed vs Discretionary Trusts

As I've noted in earlier posts (see here and here and here), there's some key differences between fixed and discretionary trusts.

These differences matter because so-called family trusts are usually organised as discretionary trusts (hence recent political moves to impose greater regulation on them). There is however, no reason why a person who wishes to utilise a trust in the family context couldn't setup a fixed trust instead, while deriving many of the benefits commonly provided by a discretionary trust structure.

Fixed Trusts

A trust is a legal obligation one person (a trustee) owes to another in respect of the management of property/wealth.

Imagine a trust fund, which consists of money and shares. You and one other person are the beneficiaries of that trust fund, so the trustee's job is to manage that wealth for your benefit and to pay you money out of the trust fund (according to the terms of the trust).

If the terms of the trust are written in such a way that you and the other beneficiary are each entitled to 50% of the trust fund, then you each have a fixed interest in the trust fund. This is a fixed trust.

This is still a fixed trust even if the terms of the trust only give you a 25% share, while the other beneficiary receives a 75% share. Both of your interests are still fixed according to the terms of the trust; they're just fixed at unequal amounts.

If you have a fixed interest in a trust, then you are also said to own that part of the trust, even though you don't control it: the trustee does but for you benefit.

Discretionary Trusts

A discretionary trust works similarly to a fixed trust, but with one key difference: neither you nor the other beneficiary has a fixed interest in the trust fund. This is due to the way the terms of the trust are drafted.

For example, in the fixed trust discussed above, your interest in the trust fund is fixed according to a percentage. In a discretionary trust however, the terms of the trust may state that the trustee has a discretion as to how much money you receive from the trust. As a result you may receive something, or you may receive nothing at all: the trustee can give 100% to the other beneficiary.

This means while you have an interest in the trust, you don't really own it in the same way you would a fixed interest in a fixed trust. That's because in the fixed trust, you have an absolute right to a specific part of the trust fund: you will receive it no matter what. In a discretionary trust though, you may never receive anything if the trustee doesn't exercise the discretion in your favour.

If you're seeking to minimise your tax burden, this is why discretionary trusts are preferred: they allow you to allocate income as needed between the various beneficiaries. That being said, you can achieve a similar result with a fixed trust.

Income splitting

The key to tax minimisation in the trust context is income splitting, which works by allowing a person (we'll call them the originator) to funnel income that would otherwise be taxed to him or her into the trust fund, and then allocate that income to the beneficiaries of the trust.

Effectively, the income of one person is split among a number of people (the beneficiaries of the trust). If those beneficiaries are in a lower income tax bracket than the originator (the person doing the funnelling), then obviously they won't pay as much tax on that income as the originator would have.

Income splitting works in the family context by allowing the income of those who earn the most to split it among the family unit, and allocate some of it to those who earn the least; thus taking advantage of those family members' lower income tax thresholds. The result is that the family, as a whole, is paying less tax on the same amount of money than it would have if that money was solely attributed to the originator.

Income splitting in fixed trusts

Income splitting is commonly thought to be a phenomenon of discretionary trusts, hence recent political moves to tax distributions made from them at a higher rate; but there's no reason why income splitting cannot be achieved in a fixed trust. After all, the only difference between a fixed trust and a discretionary trust is that in the fixed trust the amount of money you receive is fixed by the terms of the trust in advance; whereas in a discretionary trust it can be determined (and therefore, altered) by the trustee at any time. Income that is put into the trust fund however, is still split among a number of beneficiaries. The only difference in terms of income splitting then, is a discretionary trust is somewhat more flexible.

What is seemingly ignored by politicians and tax experts on this subject though, is that income splitting is still easily achievable in a fixed trust, and that it can be made to be almost as flexible as a discretionary trust.

The way this is achieved is by stating, in the terms of the trust, that the beneficiaries' interests may be altered at any time through amending the trust's terms. This is perfectly valid under trust law, and represents a means of altering the beneficiaries' interests (and therefore, income) in the trust to achieve a similar functional result as a discretionary trust.

So, don't like the present allocation of income? Simply change the trust's terms and, just like that, you have the benefits of the discretionary trust structure, but without the associated stigma and political attention.

Labor's Trust "Reforms"

Labor has announced their much awaited policy regarding discretionary trusts (see here). They've seemingly moved past the boudnary of family trusts, perhaps realising there's no such thing beyond tax law, and that people could still use discretionary trusts for income splitting if they didn't.

What they have announced though, is to tax distributions from discretionary trusts to adult beneficiaries at 30%. There are however, some issues:

1. This doesn't affect fixed trusts.

A fixed trust is a trust where the beneficiaries' interests are fixed according to the terms of the trust when it is established. Distributions from such trusts would still be taxed at the usual rate; so a person could establish a fixed trust to achieve income splitting. While this may lack the flexibility of a discretionary trust, in the sense that the trustee can't just give however much money to whomever, such a trust can include a power to amend its terms. This means if you want to change how the income is split among the beneficiaries, you simply amend the terms of the trust.

2. Taxing discretionary trusts at 30% means that they still get a tax break of up to 15%.

A quick perusal of Australia's personal income tax rate will show you that Australian residents pay 32.5% for every dollar of income earned between $37,001-$87,000; 37% for every dollar of income earned between $87,001-$180,000; and, 45% for every dollar of income earned over $180,000. That's a lot of tax people can still use discretionary trusts to avoid paying if you're setting the limit at 30%.

3. Wealthy people may start buying some farms for tax purposes

There's always jokes about wealthy people buying certain businesses for tax purposes. If you exempt farms, I imagine we could start to hear about some new farm purchases down the yacht club...

I'm sure there are other issues (such as using charitable trusts in cute ways), but these are the big three that immediately come to mind.

So, in the end, I don't think this policy is going to save anywhere near as much money as Labor are claiming it will. It is, at best, largely symbolic, and wealthy people and their advisors will continue to find ways to do what they've already been doing all along.

Let's Dispel Some Trust Myths

In my last post I explained how family trusts actually work, and that the issue is one surrounding taxation; not the trust structure per se.

In this post, I explain why people saying trusts do more harm than good is deeply ignorant.

Firstly, from an international investment perspective, various jurisdictions (including Singapore and Hong Kong) have implemented laws liberalising their trust structures to make them more attractive for international investors, and thus draw greater wealth into their economies (in terms of fees regarding the creation and administration of such trusts): see here. These economies are highly sophisticated and would not alter their trust laws in such a way if they thought they weren't going to do well out of it. They see value in the trust; it's odd that we don't at the moment.

Secondly, the various evil ways that trusts are used equally apply to companies. For example, Dale Boccabella has stated that:

"There are a few other ways discretionary trusts are used. They are also used to frustrate creditors, people who are owed money by the beneficiaries of trusts.

Someone who is owed money by a beneficiary of a trust can’t go to the trust to settle their debt. This is the case even if the beneficiary has received money from the trust in the past and is likely to receive money in the future, after release from bankruptcy (having not paid their debts)."

Yes, but that's also true of a company. Indeed, what is seemingly forgotten is that part of the reason we have the modern company structure is because of the way businesses used the trust structure to achieve limited liability, which is often regarded as one of the great hallmarks of modern business, and what allowed commerce to flourish in recent centuries. So, why aren't we abolishing companies?

Lastly, a lot of the benefit of the trust structure can be replicated through a combination of contractual arrangements that would give rise to agency and bailment obligations. There's no possible way to police such arrangements, and if you took away the trust, that is exactly what people would have their lawyers create. At least trusts have to be registered with the ATO; and even if people are using them to legally minimise their tax, then the government can know about it.

Governments have tried to abolish the trust structure going back to the time before Henry VIII, and even his most famous effort, the Statute of Uses, was unsuccessful. There is a social desire for such a structure that divides the legal and beneficial ownership of assets, which has existed long before taxation ever became an issue. Recent calls that focus on this are therefore ignorant of the trust's history, its actual structure and overall functions.

The Family Trust

Since this week's political football is the family trust, which I happen to know a couple of things about, I thought I would dispel a few myths regarding what it is, and what I think is happening.

Firstly, there's no such thing as the family trust if we're just looking at trust law. A trust is simply a legally binding obligation that a person (a trustee) has to another person (a beneficiary) with respect to legal and/or equitable (if we're being technical) rights the trustee holds, which are the subject of the trust. This broadly describes every kind of trust that isn't charitable (and even then it is not much different).

So, if you're a beneficiary of a trust, then that means a trustee holds property, money etc. for your benefit. It belongs to you in an indirect way, and you may (depending on the terms of the trust) be paid income from it.

Also, there's no such thing as a trust per se. It's not a company that exists as a separate legal entity from its shareholders. If you're a beneficiary of a trust then it's more akin to a legal relationship, like a contract, between you and the trustee. It's not the same as owning a share in a company.

The result is that you don't necessarily own the trust property. If property is held on trust for you, then the trustee owns it and you are simply entitled to the benefit of it: your ownership is indirect; like if someone has promised that they are going to invest their own money but give you the profits of it. Yet the trustee doesn't really own it either because it's held for your benefit.

Further, a trust may also be structured in such a way that, while you are stated to be a beneficiary of the trust, so are a bunch of other people (such as members of your family); and, the trustee doesn't ever have to give you anything: he or she might decide to give some of the money from the trust to your brother or sister. This means the trustee has discretion as to who should, in reality, benefit from the trust; and that is why trusts structured in this way are often referred to as discretionary trusts.

So, if you may never receive anything from the trust, but the trustee doesn't derive any benefit from it either (the property is held for the beneficiary 's benefit, not the trustee's), who should pay tax on any income generated by the trust property?

Now you can see why they're so popular as, broadly speaking, they can only be taxed when a beneficiary has actually received a direct distribution from the trustee.

Yet this isn't the only reason why discretionary trusts have been so useful, nor why "family trusts" are such an issue.

When a discretionary trust is used in the family context then tax law allows it, for tax purposes, to be classified as a family trust. This is still the same discretionary trust I've been talking about, but when it is used by families, tax law allows people to claim all sorts of extra tax saving goodies.

You see then, the issue is not the trust itself but the way our governments have passed a bunch of tax laws that, especially in the family context, have rewarded and incentivised the trust's use purely for the purpose of minimising people's taxes.

That's why the solution to this latest political issue isn't to abolish trusts (and anyone who says so is truly ignorant as to the myriad of ways they are used, e.g. your superannuation fund is a trust), but to correct the tax laws that promote them being used in ways that are, at least now, regarded as socially unacceptable.

Unconscionable Conduct

I've written a couple of things on here about unconscionable conduct before. One of these concerned ss 12CA and 12CB ASIC Act 2001 (Cth). The equivalent provisions under the Australian Consumer Law are ss 20 and 21.

These sections aren't difficult to understand. Section 20 requires that a person be under a 'special disability' as defined in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14. In short, that means a person was under some kind of legally recognised disability that prevented them from forming the requisite intention to enter into a transaction.

Section 21, on the other hand, is much wider. It gives the court a broad discretion to find almost any conduct unconscionable that occurs in trade or commerce in connection with the supply or acquisition of goods or services. It does not require a special disability. Indeed it has been applied by the courts concerning the conduct of one company against another: ACCC v Allphones Retail Pty Ltd [2009] FCA 17; ACCC v Dukemaster [2009] FCA 682; ACCC v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405.

The disctinciton between s 20 and s 21 is clear, and this is why I found recent statements by Gerard Brody, CEO of the Consumer Action Law Centre in Melbourne, problematic. In a recent broadcast of ABC Radio National's 'Law Report' he spoke about how ss 20 and 21 ACL function. That the CEO of such an organisation was so wrong about how the law works is troubling.

Gerard Brody spoke of how unconscionable conduct operates under the ACL, but he made no disctinction between s 20 and s 21. He spoke firstly of Amadio, which means he is referring to s 20 ACL: see ACCC v Berbatis. He then however, refered to ACCC v Lux. This was decided under s 21, which, as noted above, has a completely different test than Amadio and s 20. Yet he conflated both Amdio and ACCC v Lux as though they concerned the same law. They clearly don't.

Section 21 unconscionable conduct is very board and does not have any of the limitations which Gerard Brody attributes to unconscionable conduct as applied under s 20. In fact both s 20 and s 21 state that unconscionable conduct falling under one section doesn't apply to the other, i.e. s 21 isn't limited by the more onerous s 20. That is why s 21 has been applied to conduct between companies (ACCC v Coles; ACCC v Dukemaster; ACCC v Allphones).

The reason Gerard Brody embarked on this erroneous explanation of the law was to advocate for refrom in line with the EU. The thing about any law reform though, is you first need to get your facts straight about what the current law is. Unfortunately, that wasn't the case here.

Update 16/5/16
I posted a comment on the RN Law Report website for the story noted above. Apparently the moderators did not like it, so it did not get published. For shame, Aunty. Likewise the Consumer Action Law Centre, did not like it when I told them on Twitter that they fail to grasp the basics of the law. Nobody loves a critic.

"It's uncscionable!" ASIC v Westpac: Part whatever

Yesterday, it was reported that ASIC is taking action against Westpac for "the alleged rigging of the bank bill swap rate".

In its own words, "ASIC is seeking declarations that Westpac contravened s.12CA, s.12CB and the former s.12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s.912A(1), s.1041A  of the Corporations Act 2001 (Cth) (Corporations Act)."

Good, but something odd caught my eye: s 12CA?

Section 12CA ASIC Act states, "A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories."

This means unconscionable conduct as enunciated by the High Court in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14.

The facts of that case, briefly, concerned an elderly couple, the Amadios, who agreed to guarantee the debts of their son's insolvent business. In addition to their age, the Amadios had poor English and limited business understanding. In legal speak, they were under a "special disability." This is the first element necessary for there to be unconscionable conduct.

The second element necessary is that the stronger party, in this case the bank manager who procured their signatures, knew or ought reasonably to have known of the special disability.

The Amadios won that case, and since then Commercial Bank of Australia Ltd v Amadio has represented "the unwritten law". So, unless ASIC can point to some such people, which Westpac had specific knowledge (actual or constructive) of, I'm not sure why ASIC proceeded under s 12CA.

Further the s 12CA claim doesn't make much sense since ASIC is also bringing an action under s 12CB, which is much wider and has been previously applied by the courts in the context of oppressive business conduct.

My guess is ASIC is throwing mud; it'll be interesting to see what sticks.

The Secrets of the Super Rich... except, not really

For the life of me I don’t understand what that Four Corners program on ‘The Secrets of the Super Rich’ was actually about. It appeared as though the program was trying to make a bunch of different points in search of a coherent narrative, and comprehensively failed in all of them. So, let’s go through them.

1. In “offshore” jurisdictions (also known as “tax havens”), such as the British Virgin Islands (BVI), a person is permitted to act as a nominee director and/or shareholder of a corporation, while the “real beneficial owner” can remain hidden.

That’s not necessarily special or limited to BVI. Trust law has been used to conceal, legally speaking, the “real” beneficial owners of property for centuries. In many respects, it’s a trust’s raison d'être. You can argue it’s easier in BVI, and similar places, and not as secret, but it’s still secret enough that practitioners continue to debate the merits of onshore versus offshore asset protections strategies.

2. Criminals have used nominee directors/shareholders to launder money.

This would’ve been a great line of inquiry to follow, which is why it’s a shame the above is pretty much all Four Corners said about it before moving on.

3. Major Australian corporations that provide essential services and security for government agencies are secretly owned by shady foreigners.

Nick Xenophon, never one to miss a pithy line, said, with respect to Li Ka-Shing, the owner of SA Power Networks, that, “The great irony is that here is a company that effectively provides light for every South Australian household but is not prepared to have the lights shone on its tax affairs”. Why? To what end? With respect to the provision of electricity, the business is regulated like any other. He cannot escape that regulation via offshore companies. In which case, it seems like the point boils down to wanting to know his business in order to know whether he’s the kind of person we’d be comfortable with owning a major power company. Even though there’s nothing that could be done about that fact even if Australians didn’t like him (also I can think of several Australian business figures who are not much loved anyway).

Related to the above case, is the fact that Li Ka-Shing’s companies were taken to court by the tax office because of its failure to either lodge tax returns, or for lodging unsatisfactory tax returns. Again, where is the secret offshore corporation line figuring here? The company was taken to court for not paying taxes, which is illegal. As pointed out in the program itself, the issue isn’t that what these companies are doing is illegal, rather ethically questionable. This makes you wonder if anyone told Four Corners the old line about law and morals being mutually exclusive entities.

I think even Four Corners realised it failed to land anything on this point as well, so it moved onto the next one:

3. Li Ka-Shing’s companies settled with the tax office over the unpaid tax dispute for 1/10th the original claim.

Again, the tax office does this not infrequently, and it has nothing to do with there being a corporation registered in an offshore jurisdiction. In fact Four Corners didn’t actually say that the settlement had anything to do with the offshore issue; so why then, did they bring it up?

4. Companies use offshore jurisdictions to minimise their tax obligations in Australia.

Yes, they do. Guess what though, that has nothing to do with the law of the offshore jurisdictions. It’s about the tax law of Australia allowing them to do so! Even stranger about this point: it has nothing to do with the nominee directors/shareholders issue at all.

This point was brought home in the concluding minutes of the program when it was said by tax officials and politicians that the solution is to change Australian law, as the companies are simply acting in accordance with it. If it’s morally wrong, then it’s your law, Parliament; it’s up to you to make it right!

I ask you though, what does this concluding call for reform of Australian law have to do with nominee directors/shareholders in tax havens? Nothing.

The program missed the openings to make two very important points that would’ve been directly relevant to the issue of tax havens (though at times it did come perilously close to them).

The first is that such nominee directors/shareholders raise great concerns with respect to money laundering criminal activities.

The second is that the ability to hide the identity of the real owners of corporations can lead to enormous problems surrounding government corruption: where the secret owners of companies are using positions of power to award government contracts or benefits to companies they ultimately control and profit from.

Unfortunately the first point was, at best, addressed in passing, while the second point could’ve been raised, but wasn’t.

Four Corners missed an opportunity with this program, which if taken up would’ve contributed far more to the public discourse. Instead they told people a bunch of things that, in reality, lawyers have known and written about in law journals for many years.

Note: ironically, and tellingly, for a program about how the law of both Australia and overseas is used to conceal the “real” owners of companies, I did not see a single Australian legal expert interviewed. The one lawyer I did see, briefly, was a Canadian expert on fraud in this area; and it would’ve been great to hear more from him.

The Resulting Trust

In order to understand the resulting trust it's necessary to grasp the basic structure of all trusts. A trust effectively splits the ownership of property into a legal title and an equitable (or beneficial) title. The easiest way to understand this split ownership it is to think of a car loan: you own the legal title to your car, but the finance company has a security interest in your car because of the loan. That security interest is an equitable interest, and gives the holder certain rights over the car (if you default on your repayments the company can repossess your car and sell it).
In a trust though, while the ownership is split it works in a different way. A person (the trustee) holds the legal title to property 'on trust' for another (the beneficiary). That beneficiary holds the equitable interest in the trust property.

The term 'resulting' in resulting trust means 'to come back', and that's exactly what happens. For example a person pays (or partly pays) for property, but it is legally held by another. Absent an intention to make a gift, equity regards the beneficial interest as coming back to them, and the other person now hold their legal interest (or part of it) on resulting trust for the person who paid. Thus the person into who's hands the property moved only possesses the legal title, and holds that legal interest in trust for the beneficial interest holder.

There are a couple of reasons why this would happen. The first is that a person, we'll call him Andrew, transferred some property into express trusts (the kinds of family trust we're all familiar with), held by Bob as trustee, for Cathy as beneficiary. Not all of the property transferred to Bob though, was part of the stated trusts settled for Cathy; there was excess property. So, what happens to it? The answer is it results back to Andrew. In this case, Bob will be trustee for Cathy, and trustee (under a resulting trust) for Andrew with respect to the excess property.

The second reason why a resulting trust would be found is where someone has effectively made what looks like a gift, a very large gift. Say Adam purchases a house from Barbara and directs her convey the property to Chris. Did Adam intend to gift the house to Chris? In this situation the law presumes that Adam did not, and therefore Chris holds his legal title to the house on a resulting trust for Adam. If Chris wants to assert that in fact the property belongs to him, then he would need to present evidence that rebuts the presumption. In other words, the law starts off from the view that no gift was intended, and so evidence would be needed to prove that otherwise.

The same thing occurs where Adam and Chris buy a property together and are registered as 50-50 owners, but in fact Adam paid 70% of the purchase price. The law presumes that Adam did not intend to give Chris 20% of the property, and so Chris will hold part of his share on a resulting trust for Adam.

This is simple enough, but then things start to become a little more complex. If Chris was Adam's son, then the law presumes that Adam did intend to make a gift of the house. This is called the presumption of advancement. It applies wherever fathers and/or mothers, gift property to their children (or people they're in a similar relationship to), even if they're adults. It also applies to property moving from husbands to wives, but not the other way around.

There are various bases for why the presumption of advancement exists, but the most obvious is that a father was (historically) under a moral obligation to provide for his children and his spouse. It's the kind of archaic justification which meant the presumption of advancement did not apply to mothers giving property to their children until much more recently. Indeed, the presumption does not even apply as between de facto spouses.

The effect of the presumption of advancement is that it rebuts the presumption of a resulting trust, which in effect places the onus on the other person to present evidence rebutting the presumption of advancement.

So, be secure in the knowledge that whatever your parents bought for you, even though you did nothing to earn it, is your because... legal reasons.

Law: it's just rules

A recent "survey" by Lawyers Weekly (I use the term in inverted comas as it was run through their Facebook page) found that law students are way more stressed than other uni students. Shocking!

The reasons were down to:

1. A heavy reading load;
2. The fact that many were the best students in their high school, but so was everyone else they're now studying law with; and,
3. That law is an intellectually demanding subject (of course, the last opinion is somewhat coloured by the second).

Here's the thing, the reading load for law isn't that massive. In fact, it's not really any different than Arts or Science. So why don't Arts and Science students rate as highly on the stress-o-meter? In the case of Arts, it's because you don't really have to do very many of those readings to succeed, if your so inclined and aren't merely treating it as a Bachelor of Attendance. In fact, you can pretty much read anything you want on the topic you're studying. Your lecturer/tutor will think you're awesome in writing your essays (because 99% of the time all your assessments are essays) for doing "research", by which I mean reading a few articles, following all their footnotes, and padding out your references. So long as you mount a reasonably coherent argument, that distinction is yours! Oh, and thanks to the fact you'll mostly be writing essays, you'll have weeks to think about it even if you only spend the last few days before it's due actually writing.

In Science, you have to do all your readings and understand what they mean, but the assessments and nature of the subject is far kinder to you than a law exam. For example, in my Science exams I had a large number of multiple choice questions, and even the problem questions had definite, or "Science-y" answers.

The reason law is so overwhelming is it's like all the hard parts of Arts and Science got put together, and all the easy bits were left out. In law, you have to do the all the readings like in Science, but then also mount an argument as you would in Arts, but you usually have to do it in a two hour exam, and it's likely worth 60%-70% plus of your mark...

To use a sport analogy, law is like being expected to run a marathon in the time it takes to run a 100m sprint.

As stressful as this sounds though, take a step back and realise that I'm saying the assessment is hard, not the content, because law itself is really just a collection of rules.

To return to sport, or games, think about any that you like, they all have a collection of rules governing the participants. That's all laws are. They are not difficult to understand. There's merely a lot of them to remember, and they are often poorly communicated. Both of these problems are due to the fact that the law has been made by a lot of individual people, and groups of people (judges, parliaments, etc) talking about the same things in different ways over long periods of time. It would be like, instead of having one rule book for Monopoly, you had 100 and each was written by a different person, but all of them were right. That's how people would get into fights about rules. That's why laws need courts.

Real life is, of course, far more complex than a board game or a sport (some might disagree). Therefore, the rules are more numerous. The rules however, are still just rules, and they are not difficult to understand once they have been communicated in a coherent way. Fortunately law students have access to such coherent communication: they are called textbooks, and there are enough of them out there that if you find one or two incoherent, there's always another.

So, all we are left with is the fact that the law = a large number of rules. Law students don't have to learn that many of them though. Indeed, law firms wouldn't be constantly complaining their grads didn't know anything if those grads weren't taught so little in law school. In my experience, most law students can explain and apply the law quite well to 99% of the situations that occur in real life. The problem is law exams are either written in such a way that: a) assume students are sitting on the High Court bench; or b) are phrased in such obscure ways that are designed to make it difficult to figure out the issues or the solution to the problem. The sad truth about both a) and b) type questions is they both are asking students to do the same thing: discuss the relevant law.

The problem with the "problem question" is that students think there is a solution. There isn't. There is no right or wrong answer. All the marker wants you to do is discuss how the relevant law taught in the course (and that will only be a paragraph) works, and then apply it to the facts. What most students don't realise is that if they just focus on getting the discussion right, the analysis will only be, maybe, three sentences long and will have pretty much written itself. This is because the analysis must rest on the law, and by explaining the law, they've already pretty much done the analysis.

Unfortunately, the way questions are phrased and the time in which they have to be answered, combined with how much of a student's assessment they're worth, makes an unreasonably difficult examination situation all the more so. By now though, you see my point. Law itself, the rules, are not difficult. Every time you drive a car, or pay for goods you are following the rules; obeying the law. You understand these quite clearly, and if you had to work in a situation that involved contract law, or trusts, or banking you would come to understand it very quickly too. If I were to ask you to walk into a law exam though...

So, let's stop pretending law is difficult because we enjoy that look in peoples' eyes when we say we're lawyers. The studying of law is hard because it's "designed" to be (the same way a hurricane going through a junkyard and successfully rebuilding a car would have "designed it"), and if you can get through it then you've proven... something, but let's stop pretending that anyone has proven they're smarter. They might very well be, but a law degree doesn't prove it.