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Express Trust, Trusts

Express trust alleged to protect deposits

Designing a kitchen takes time and effort.  And about a billion magzines.  You finally get it nutted down.  Kitchen professional is chosen, design finalised, deposit paid.  At this point thoughts of trusts are as far from your mind as possible, your mind being full of composite vs granite.  Will marble really stain that badly (ah – yes it will)? How hard is granite on your stemware? (very – but so lovely … just make sure you have stemware that is always in stock so you can keep on making up the sets).  I digress, but you see how it is and how hard to keep on thinking about trusts.  And why would you?  Well – what if the manufacturer goes into liquidation after you pay the deposit?  Whose is that money.  Is it safely earmarked for your kitchen, or horror – has it gone “into the pot” so that creditors ahead of you can get their hands on it?

The answer depends on whether there was an express trust in respect of your deposit.  To find such a trust, the three certainties must be satisfed as for a garden variety inter vivos trust – that is the terms of the alleged trust must be “sufficiently clear that it can be said with certainty in respect of any given customer that a particular payment is held on trust for that customer”: Harris v Morse at para [3].

The burden rests on the party alleging the trust: Thexton v Thexton.

How hard can it be then?  I paid $20,000 as a deposit for a kitchen.  There’s a paper trail and a receipt.  Unfortunately – that is not enough.  To establish that the deposit was held on an express trust it is necessary to show:

  • terms and conditions of trade confirming deposits are held on trust (not just the purchaser “trusting” that this will be the case
  • that the funds were in fact held on trust – it is not sufficient for “general funds” in the amount of deposits paid to be later transferred to evidence an express trust: See Harris v Morse at [24] – [25]
  • even if certainty of an intention that there be a trust is established – until when?  When the kitchen is completed? Delivered?  Installed.  Remembering that while there is a trust, the money is not the manufacturer’s money either and so there is a tension betweeen what might be being held for the customer, and when will the manufacturer get its money?  Revert again to the terms and conditions.

As a separate point, if the customer has been led to believe the deposit will be held on trust, even if it is not, will that create some priority against other creditors?  Citing again from Harris v Morse at [42]:

“[42] Even assuming that the staff concerned had actual or ostensible authority on behalf of the Company to represent to customers that their funds would be held on trust and that statements to this effect were made to Ms Breedveld and Mr Scott, this could only give rise to an estoppel against the Company. It would not give rise to an estoppel against the secured creditors, [ ], precluding them from claiming monies secured by their GSA.”

Trusts – good, but not magic.  Deposits can be held on trust, but there needs to be one, not just a wish there had been later.

References:

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