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RE 204 Trusts Wills and Sale & Purchase - Landlord and Tenant

By Theresa Rogers,2014-07-10 19:24
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RE 204 Trusts Wills and Sale & Purchase - Landlord and Tenant ...

    Trusts Wills and sale & Purchase Agreements

    Background reading:

? Chapter 8, South Pacific Property Law, Farran & Paterson

    ? Wills Act (Cap 59) Fiji

    ? Trustee Act (Cap 65) Fiji

    ? Section 58, Fair Trading Decree 1992, Fiji.

    ? In re the estate of Merur, Civil Action No. 97-1257, Superior Court of the

    Commonwealth of the Northern Mariana Islands, 2 Feb 2000.

    ? Vosailagi v Mara [1992] FJHC 62. ? Hewitt v Habib Bank Ltd [2004] FJCA 33. ? Eli Fong v Edmund March FJHC, 12/05/06

    ? Contract Law in the South Pacific, p 181

Chapter 8 of Farran & Paterson will give you a reasonable understanding of

    the background to the alienation of property.

The substance of today‟s lecture is the operation of the law of trusts.

Trustee: is a person with a power or responsibility to administer property for

    the benefit of another.

    Fiduciary: is a person who is clothed with a trust obligations.

    Beneficiary: is a person who is entitled to the benefit.

    Testator: is a person who makes a will or given a legacy.

    Intestate: is not having a will before one dies.

    The Trust relationship comes in many forms:

    ? Express Trust: (Usually in Deed form, but not necessarily). This is a

    situation where legal ownership of property is held by the trustee and

    the beneficial ownership is with the beneficiaries.

    ? Constructive or Implied Trust: This is the informal form of trust

    relationship and depends on the availability of equitable relief.

    ? Fiduciary Relationship: is a sub-category of constructive trust.

    SETTLOR <-> TRUSTEE <-> BENEFICIARY

    OWNER/TRUSTEE <-> PURCHASER/BENEFICIARY

    OWNER <-> MANAGER <-> CLIENT

    TESTATOR <-> TRUSTEE <-> BENEFICIARY

The fiduciary relationship is the most common form of trust.

The TRUSTEE/manager is a bit like the meat in a sandwich where the

    SETTLOR/Owner is one piece of bread and the BENEFICIARY/Client is the

other. The trustee/manager owes duties to both primary parties and this

    lecture will consider those duties and the way to discharge them.

A general obligation to act in good faith is imposed by law on contracting

    parties in Europe, the United States, Canada and New Zealand but USP

    jurisdictions have been somewhat less robust. A manager of real estate

    (because the relationship is particularly susceptible to an implied obligation of

    this type) is most likely to attract fiduciary obligations. It takes only a

    relatively minor determination (that a fiduciary relationship exists) for a Court

    to apply the full weight of a duty of utmost good faith (uberrimae fidei) to a

    management agreement. A fiduciary relationship is one in which the parties

    are in a special relationship of confidence and trust (Contract Law in the

    South Pacific p 181).

    The Merur case illustrates (at VI B 2) the legal consequences of breach of the fiduciary duty owed by a broker to a seller and Vosailagi v Mara discusses the

    duties of a trustee.

In addition, the manager is also subject in some jurisdictions, to statutory

    obligations such as that set out in section 58 of the fair Trading Decree 1992

    Fiji concerning the manager/client relationship.

Courts in the USP jurisdictions may not to date have been particularly robust

    in their supervision of management agreements but there is already a

    considerable body of law that counsels a cautious approach.

There are three basic categories of management relationship:

    ? Employer/Employee

    A manager and the manager‟s employees can be in this type of

    relationship. If the manager is employed by the owner, the employment

    agreement should be written and the expectation of confidence and trust

    should be recorded along with the scope of the employee‟s responsibility

    and authority. If the manager is an employee of the manager, the

    agreement should mirror the manager‟s obligations to the owner and

    clearly state the scope of the authority and responsibility of the

    manager‟s employee.

    ? Principal/Agent

    A manager that is in a principal/agent relationship with the owner is most

    likely to be liable to the owner as a fiduciary but it does ultimately turn on

    the scope and intimacy of the arrangement. If for example the owner

    clearly depends on the manager‟s advice or if the manager receives

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    sensitive/valuable information as a consequence of the retainer or if the

    manager is authorised to legally bind the owner the manager can be

    accountable for any failure to act as a fiduciary.

    ? Trustee/Beneficiary

    If the manager is engaged as a trustee either by formal deed or by way of

    a constructive or implied trust, the manager is obliged to act without any

    self-interest, for the benefit of the beneficiaries.

Common-law duties of care, obedience, accounting, loyalty and disclosure are

    implied if the relationship between owner and manager is categorised as a

    fiduciary relationship.

As a consequence, as with the relationship of landlord and tenant, all

    agreements concerning the management of real estate should be in writing.

Management agreements should clearly set out the scope of the obligations and

    authority conferred.

Most management agreements share the following essential elements:

    ? Identify the parties and their capacities and the property;

    ? Commencement date and period of the agreement;

    ? Scope of the manager‟s responsibilities and authority to engage, to

    spend and to bind the owner together with formal reporting

    arrangements;

    ? Responsibilities of the owner including any working capital provision,

    insurance and minimum information transfer provision;

    ? Fees or formula for calculation of the manager‟s remuneration and the

    terms for payment;

    ? Provision for early termination;

    ? Notice and dispute resolution procedures

    ? Witnessed signatures and date of execution

Real Estate Agent Fraud

    Background reading:

    ? Eli Fong v Edmund March, HCFJ, Coventry J, 12 May 2006.

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    Just after I arrived in Fiji, I chanced upon a fascinating story in the Fiji Daily Post (in the 17 and 24 June 2006 issues, in the page 7 column “under the

    microscope”).

    It is a horror story.

    I managed to get a copy of the judgment from the High Court library and I want to take you through it quickly.

    In 1974 Tom Nabong was the registered owner of 3 blocks of land totalling approximately 350 acres, at Savusavu on Vanua Levu. Less than 10 years later he was the registered owner of no land at all.

    In 1987 Tom Nabong started proceedings (Tom Nabong v Edmund March) and died on 17 March 1999. Eli Fong is his nephew and sole executor of his estate. Eli is an economics lecturer at FIT. He got leave to continue the proceedings when Tom Nabong died in 1999.

    The story starts in 1971 when Tomanita (Tom‟s mother) and Tom sold 20 acres of Block 1 to Edmund March for $2,650. Things started going wrong in February 1974 when Tomanita and Tom gave Edmund March a power of attorney as a

    security for a loan of $500 and “such other sums as EM may at his discretion advance to T and T. EM then lodged caveats in September 1974 to protect an “equitable mortgage” dated 22 February 1974.

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    In February 1975 T and T gave EM an agency “to deal with all 3 blocks” and after payment of all expenses (including payments to KW March Ltd) the profits were to be split 60/40 in favour of EM.

In August 1975 T and T authorise EM to „raise money in any manner whatsoever,

    utilizing the land‟ and to subdivide the land.

    In 1976 Block 2 was mortgaged to Barclays, 1977 Tomanita died, in 1979 EM started selling land and in 1980 transferred Blocks 1 and 2 to himself.

    In this case civil fraud as a fiduciary was alleged. The standard of proof when fraud is alleged is higher than balance of probabilities but less than the criminal standard of beyond reasonable doubt. To succeed, EF needs to preclude any reasonable explanation other than fraud and unjust enrichment. If you read the judgment you will find that EF did that and he also did it beyond reasonable doubt.

    The basis of the claim is that EM gained the total trust of Tom Nabong and his mother Tomanita. EM was running his own real estate business and he ended up with 180 acres of the 350 while the Nabongs lived in subsistence.

    In March 1987 Tom revoked EM‟s power of attorney and in April 1987 filed the proceedings against EM alleging fraud as a fiduciary. The ultimate indignity

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    occurred in December 1992 when EM used the power of attorney to transfer 4 more acres of Block 3 to himself.

    On 12 May 2006, Justice Coventry in the FJHC ordered that EM transfer back to Eli Fong all the 160 acres of unsold land from the original 3 Blocks and damages sufficient to discharge any mortgages.

    So: Edmund March had the proceeds of sale of about 200 acres of Savusavu to live on for 30 years between 1974 and 2006

    But he was nailed in the end.

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