Equity and Trusts

The Lease
Leigh should register the lease as soon as possible as it is referred to as being in registerable form. A lease at law gives Leigh a much stronger position to bring enforcement action against Kumar and subsequently the guarantee of Anisa instead of relying on an equitable lease. If Leigh is unable to register the lease it may be enforceable in equity as an agreement to lease.
Equity regards that what ought to have been done is done and looks to the intent of the parties. Clearly here there was an intent to ‘carry on’ a business repairing heavy earth moving equipment at the lease site for a period of at least 5 years. The signed lease and agreement provide evidence to support that assumption.
The wording of ‘carry on a business’ implies that the parties might either be Partners, a Joint Venture or at least engagement in a commercial opportunity. Whether there was a fiduciary duty may become relevant in light of the orchids and watering system as the housing of the orchids for future cultivation and export was a term of the lease. Leigh needs to argue the lease formed part of the wider agreement to attract more potential remedies. Given the existence of a signed agreement and annexed signed lease it was reasonable for Leigh to have relied on the promise of payment being fulfilled in accordance with the lease.
Leigh would acquire some protections under the equitable lease. If estoppel is established (see estoppel) Leigh might require specific performance for payment of the lease of both Kumar and subsequently Anisa under the guarantee whereby Anisa would need to make good Kumar’s promise.
If Leigh raises specific performance for payment of the lease he may then seek to rely on equitable damages for his losses in relation to the lease (and therefore orchids & watering system) if his claim for specific performance is defeated.
Leigh might seek equitable compensation for the orchids and the watering system pursuant to the lease term if he can show that his loss and detriment was caused by the failure of Kumar and Leigh and a breach of the fiduciary duty owed (see fiduciary duty). It is important to note that the lease was annexed to the agreement and therefore it is reasonable to argue that the lease formed part of the agreement and therefore a fiduciary duty was owed.
Leigh could easily claim that he has ‘clean hands’ as he has upheld his side of the agreement thereby reducing Anisa’s options for defences. It should be considered that Anisa may seek to rely on a term of the lease as per Chan that absolves responsibility. Anisa may also rely on defences of futility and undue hardship. Some enquiries could be made as to the financial position of Kumar and Anisa.
It is unlikely that the court will enforce Leigh’s desire that Anisa use his land and watering system where it might require constant supervision by the court. Furthermore, the requirement suggested by Leigh cannot be defined by the court.
Breach of Fiduciary Duty
The formal agreement between Leigh and Anisa to carry on a business suggests a corporate business opportunity and relationship where a fiduciary duty was owed. This fiduciary duty could be reasonably argued as being the result of a partnership given that the parties were to ‘carry on a business’ which suggests there is a joint, but not necessarily equal, profit making assumption and therefore a transaction that provided joint advantage. Arguing that there was a partnership will be effective as the onus shifts to the person arguing that there was not a partnership to disprove it. If a partnership fails the relationship could be argued as a Joint Venture or other commercial relationship that establishes a fiduciary duty.
Given that the tender is for work that goes to the core of the parties agreement it is reasonable to argue that Anisa’s action in submitting a second Aston tender is clear breach of the no-conflict and no-profit duties. Anisa sought to carry on the business of the partnership under a different name.
The ‘Aston Tender’ arose during the course of the relationship between Leigh and Anisa and therefore arrived to Anisa as a fiduciary. The tender application was not withdrawn, it was unsuccessful. We are unsure whether there were any other tenders and it could be argued that Anisa used the special knowledge of the parties tender application to be successful in the second tender application.
Furthermore, Anisa also owed Leigh a duty of disclosure because the transaction (the Aston tender) fell within the scope of the agreement. In alleging that Anisa breached the fiduciary duty of disclosure the onus is for Anisa to disprove the character of fiduciary which will be difficult given the nature of the relationship. Anisa’s second tender application is likely to be a material fact.
In order to establish a causal relationship it would be prudent to seek an Anton Pillar Order to inspect the tender to establish its nature in comparison with the parties tender. Anisa is liable for non-disclosure even if it was unintentional.
Establishing a fiduciary obligation can be advantageous as it reverses the onus of proof to establish a partnership, and whether Anisa was a fiduciary and provides for flexible remedies such as equitable damages, account of profits and constructive trust.
In seeking remedies Leigh could argue that a constructive trust was created for the profits resulting from the second tender. Leigh could either claim for equitable compensation in relation to any losses incurred from the equipment purchased or an account for profits for Anisa’s business resulting from the second tender. Leigh could also make a claim for interest and tracing.
Unconscionable Conduct – estoppel
It was reasonable for Leigh to believe that an agreement existed between the parties due there being a signed agreement and lease and furthermore that the business had begun operating and therefore assumed a future state of affairs would exist. The fact that the parties had formed the agreement and commenced the business made it reasonable for Leigh to assume that the parties would continue to work in that manner and therefore led to him investing in the plant and equipment for the site.
There is a basis for estoppel by conduct given that the agreement was signed, the business had commenced and furthermore had put in the Aston Tender. It would also appear that there is a basis for estoppel by representation as the agreement had been signed which suggested a commitment. It might also qualify as a representation that the Aston tender was submitted, albeit unsuccessfully, which supported a sufficient assumption by Leigh that the parties would continue to engage in the business of repairing heavy earth moving equipment together, as the representation can also be inferred from conduct.
Leigh relied on the assumption that the parties would engage in an earth moving business together and would house his rare orchids for cultivation and export (in the lease) and to that extent purchased significant amounts of equipment to facilitate that business. This constitutes an act that resulted from the conduct and representations of Anisa.
The fact that Anisa stopped paying rent and submitted a second ‘Aston Tender’ that did not involve Leigh is a sufficient departure from the assumption that the parties would engage in a business repairing heavy earth moving equipment together to enliven estoppel.
The object of estoppel is the avoidance of detriment so it might be prudent for Leigh to begin seeking to lease his premises to another party so as to demonstrate an attempt to mitigate any loss. Given that the likely remedy would be to fulfil the minimum equity any remedy might account for any actual losses incurred such as compensation for losses on the equipment purchased (when sold), losses on orchids and watering system and potentially lost rent (opportunity forgone).

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