Examiners’ report 2016

Examiners’ report 2016

LA3002 Equity and Trusts — Zone A

Introduction
It is important to take care at the beginning of the examination to read the questions
carefully, determine what each question is about, and decide which four questions
to answer. There is a limited range of topics that might be examined and no two
questions will be about the same topic (although some slight overlap may occur).
Surprisingly, some candidates wrote about secret trusts when answering two
different questions. If you think that two different questions are about the same
issues, then you have misunderstood one or both questions.
The eight questions are set to allow you to demonstrate your knowledge and
understanding of the law and your ability to apply it to specific issues. There are no
trick questions. If you ask yourself why the examiners are asking a question, you
can identify what it is really about and whether it will provide you with a good
opportunity to perform at your best.
Always pay careful attention to the actual question asked. For example, Question 5
concluded as follows: ‘He claims that Caroline holds the house in London and all of
Beatrice’s assets on resulting trust for Beatrice’s estate. Advise Caroline.’ Despite
this clear direction, a surprising number of candidates attempted that question
without discussing resulting trusts.
After you decide which questions to answer, divide the remaining time evenly
among the four questions, and for each question, plan your answer before you
begin writing. This will help ensure that you do not miss important points and that
your answer will be coherent and well presented. While this may leave you with only
30 minutes of actual writing time per question, a shorter, thoughtful, and relevant
answer is much better than a longer, rambling, and sometimes irrelevant one.
As in previous years, the most common reasons why candidates performed poorly
on the examination were because they (a) failed to manage their time properly and
thus did not provide four complete answers, or (b) failed to address questions
properly and wrote one or more answers that were mostly irrelevant.
Some candidates performed poorly on problem questions because they wasted
time describing the law generally before answering the question. Even if the
description of the law is accurate and relevant, it will not demonstrate to the
examiners that the candidate understands how to apply the law to the problem
unless the legal principles are repeated as they are applied. That is a poor use of
time.

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Specific comments on questions
Question 1
In Williams v Central Bank of Nigeria (2014), Lord Sumption said that
dishonest assistants and knowing recipients are not ‘true trustees’.
To what extent, if at all, do you agree with this statement?
General remarks
This question invited students to write an essay on dishonest assistance, knowing
receipt, and the nature of constructive trusteeship. Those issues are discussed in
Chapters 16 and 18 of the subject guide and Chapter 11 of Penner.
Law cases and other references the examiners would expect you to use
Williams v Central Bank of Nigeria [2014] UKSC 10, [2014] AC 1189; Charles
Mitchell and Stephen Watterson, ‘Remedies for Knowing Receipt’ in Charles
Mitchell (ed.), Constructive and Resulting Trusts (Oxford 2010) 115.
Common errors
Writing a general essay about dishonest assistance and knowing receipt without
addressing the specific question asked.
A good answer to this question would…
discuss the nature of constructive trusteeship, in which personal liability can be
imposed by treating the defendant constructively as a trustee even if he or she is
not holding any assets in trust. This should be contrasted with someone who is an
actual trustee of a constructive trust. A good answer would also consider whether
knowing receipt is different from dishonest assistance because the recipient must
be holding assets in trust in order for liability to arise, while the assistant need not
ever be holding assets in trust.
Poor answers to this question would…
discuss the conditions for liability for dishonest assistance and knowing receipt, but
fail to discuss the nature of constructive trusteeship or what was meant by the term
‘true trustees’.
Student extract
In the case of knowing receipt the law also holds the recipient out to be a
constructive trustee. This is supported by one of the leading cases on
constructive trusts, Israel British Bank, where £2 million was mistakenly paid
into the bank account by the defendant’s bank. It was held that the recipient
was holding it in trust for the defendant’s bank.
Comment on extract
The candidate has confused the personal liability for knowing receipt with the
property rights created by the imposition of a constructive trust. In Chase Manhattan
Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105, the parties agreed that
the defendant was personally liable at common law to make restitution of money
had and received. The issue in that case is whether the insolvent defendant held
the traceable proceeds of the mistaken payment in trust for the plaintiff. The case
had nothing to do with knowing receipt. The defendant was an actual trustee and
not merely personally liable as if he were a trustee.

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Question 2
In Schmidt v Rosewood Trust Ltd (2003), the Privy Council advised that the
potential object of a power of appointment contained in a trust had the right
to compel the trustee to account to him.
To what extent does this show that the validity of a private trust depends
more on having someone who can enforce the trust than it does on having
beneficial owners of the trust assets?
General remarks
This question invites students to discuss the ‘beneficiary principle’, which is
discussed in Chapter 11 of the subject guide and Chapter 9 of Penner.
Law cases and other references the examiners would expect you to use
Schmidt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 2 AC 709; Re Denley’s
Trust Deed [1969] 1 Ch 373.
Common errors
Failing to address the specific question asked.
A good answer to this question would…
note that in Schmidt, as in many modern discretionary trusts, the trust assets are
used to benefit people who are not trust beneficiaries, but merely the objects of
powers of appointment. The remainder, if any, goes in default of appointment to a
charity, which is included as the only trust beneficiary merely to ensure the validity
of the trust. It is not intended that the charity should ever be called upon to enforce
the trust. It would discuss whether it is necessary to have beneficiaries or whether it
is sufficient to have someone who can enforce the trust.
Poor answers to this question would…
discuss powers of appoint or discretionary trusts generally, without discussing the
beneficiary principle and the role of enforcers.
Student extract
The ‘beneficiary principle’ has come under some scrutiny — first in Re
Denley’s Trust Deeds where a trust for sports facilities for the benefit of
employees of a certain company and such others as the trustees shall decide
was held valid by Goff J even though it was not entirely clear that the
employees should count as beneficiaries. It was held enough that they could
enforce the trust. Arguably this introduced the concept of the ‘enforcer’ into
trust law although the case been controversial every since.
Obviously Schmidt v Rosewood adds to the debate. By holding that a mere
object of a power of appointment may have the right to compel the trustees to
account to him, the possibility of a trust with no beneficiaries but only objects
becomes conceivable. If that be the case, the idea that Pettingall orders
could be expanded to other classes of private purpose trust seems less
offensive to English public law. After all, both involve the exercise of a mere
power.
Comment on extract
This is thoughtful, demonstrates a good understanding of the law, the authorities,
and the relevant issues, and addresses the specific question asked.
Question 3
Barney was an elderly single man who had been married and divorced twice.
He arranged a meeting with his closest friends, Lily, Marshall, Robin, and Ted,
to discuss the creation of two trusts: (a) the ‘Victoria trust’ for the children

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and grandchildren of his first marriage to Victoria and (b) the ‘Wendy trust’ for
the children and grandchildren of his second marriage to Wendy.
Lily and Marshall agreed to be the trustees of the Victoria trust. The sole trust
asset was to be a pub, which was owned by Barney in fee simple. Barney
executed the form to transfer his registered title to that estate to Lily and
Marshall and handed the form to Lily.
Robin and Ted agreed to be the trustees of the Wendy trust. The trust assets
were to consist of Barney’s shares in a men’s clothing company. Barney said
he would transfer those shares later. One week later, Robin called Barney to
say that she had changed her mind and did not want to be a trustee. Barney
said, ‘Don’t worry, Ted and I will do it.’
Barney died two weeks later. Nothing further had been done to set up the
trusts and nothing about them had been written down. The transfer of the pub
had not been submitted for registration.
Carl and Daphne have been appointed as the executors of Barney’s estate.
They seek your advice about the validity of the Victoria and Wendy trusts.
Advise Carl and Daphne.
General remarks
This problem concerns the formalities and constitution required to create a valid
express trust. These issues are discussed in Chapters 5 and 6 of the subject guide
and Chapters 6 and 8 of Penner.
Law cases and other references the examiners would expect you to use
Re Rose [1952] EWCA Civ 4, [1952] Ch 499; Mascall v Mascall [1984] EWCA Civ
10, 50 P&CR 119; T Choithram International SA v Pagarani [2000] UKPC 46, [2001]
1 WLR 1; Rochefoucauld v Boustead [1897] 1 Ch 196 (CA); LPA 1925, s.53(1)(b).
Common errors
Failing to discuss the formalities needed to create the Victoria trust; failing to
recognise the effect of Barney deciding to become a trustee of the Wendy trust.
A good answer to this question would…
explain that, since Lily has a registrable transfer of the pub, Barney would be
holding it on constructive trust for Lily and Marshall on the basis of Re Rose and
Mascall v Mascall, and therefore the Victoria trust would not fail for lack of
constitution. However, it would be unenforceable for lack of writing and non-
compliance with s.53(1)(b) of the LPA 1925. There does not seem to be any
fraudulent behaviour that might justify the admission of oral evidence of the trust, as
in Rochefoucauld v Boustead.
Writing is not required for the creation of an inter vivos trust of company shares.
When Barney decided to be one of the trustees, the trust would be constituted since
he already owned the shares and would have a duty as trustee to convey them into
the joint names of both trustees: Choithram v Pagarani.
Poor answers to this question would…
fail to recognise that a declaration of a trust of land must be evidenced in writing.
The constructive trust for Lily and Marshall is different from the express trust for the
children and grandchildren and so the problem cannot be avoided by relying on
LPA 1925, s.53(2). A poor answer would fail to recognise that the Wendy trust was
constituted when Barney decided to become a trustee.
Some candidates discussed secret trusts even though they were not relevant. The
arrangements did not involve testamentary dispositions to the intended trustees.

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The fact that Barney died two weeks later did not change the intended inter vivos
trusts into secret trusts.
Student extract
Under the provision of s.53(1)(b) LPA 1925, any kind of transfer of land
should follow the requirements of writing, signing and witnessing by the
testator. In our given facts, Barney has executed the form to transfer his
registered title to his trustees Lily and Marshall, and handed it over to Lily.
Comment on extract
This candidate has confused the formalities required to declare a trust of land with
the formalities required to transfer an interest in land. The transfer of a legal estate
requires the execution and registration of a deed. The declaration of trust merely
needs to be evidenced in writing. LPA 1925, s.53(1)(b) applies to declarations of
trust and not to transfers. The reference to Barney as ‘the testator’ also indicates
some confusion. While trusts are often declared by will, Barney intended to create
two inter vivos trusts as a settlor. He did not intend to create testamentary trusts as
a testator.
Question 4
Eunice died recently. According to her will, the residue of her estate is to be
held in trust as follows:
(a) to establish and fund a research professorship in energy efficiency at
Popping University;
(b) to provide grants to people to help them improve the energy efficiency
of their homes and businesses;
(c) to encourage governments everywhere to pursue policies that foster
the use of environmentally friendly sources of energy.
Felix and Gwyneth have been appointed as the executors of Eunice’s estate
and the trustees of her will trusts. They seek your advice concerning the
validity of those trusts. After extensive searches, they have been unable to
find any institution called ‘Popping University’ or with a similar name.
Advise Felix and Gwyneth.
General remarks
This problem concerns charity, which is discussed in Chapter 10 of the subject
guide and Chapter 13 of Penner.
Law cases and other references the examiners would expect you to use
Charities Act 2011, s.3(1)(b) and (i); Re Harwood [1936] Ch 285; National Anti-
Vivisection Society v Inland Revenue Commissioners [1947] UKHL 4, [1948] AC 31;
Incorporated Council of Law Reporting for England and Wales v A-G [1971] EWCA
Civ 13, [1972] Ch 73.
Common errors
Failing to identify all three heads of charity; not discussing cy près in relation to
clause (a) or misapplying it to clause (b) or (c); arguing that clause (b) concerned
poverty; not linking the political aspect of clause (c) to public benefit.
A good answer to this question would…
consider whether the three clauses created valid trusts for charitable purposes in
compliance with the Charities Act 2011. Clause (a) is for the advancement of
education (s.3(1)(b)). The dissemination of useful knowledge: Incorporated Council
of Law Reporting for England and Wales v A-G. This clause suffers from an initial
impracticality because the named university never existed. The question is whether

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Eunice had a general charitable intention that would allow the application of the
assets cy près to a similar purpose. The fact that the named institution never
existed indicates that her intention was not limited to benefitting that institution: Re
Harwood. The fact that all three gifts of the residue of her estate were concerned
with energy efficiency also indicates a general charitable intention.
Clause (b) is for the advancement of environmental protection or improvement
(s.3(1)(i)), but since the grants would be used to help businesses generate greater
profits, it would not be exclusively charitable.
Clause (c) is also for the advancement of environmental protection or improvement
(s.3(1)(i)), but would fail the public benefit test because it pursues a political
objective of promoting changes to government policies: National Anti-Vivisection
Society v IRC. Also relevant would be a discussion of UK charities designed to
benefit people in other countries.
Poor answers to this question would…
discuss charity generally, without relating it carefully to the clauses of the will, or fail
to identify all three heads of charity. A surprising number of candidates said that
clause (b) was for the relief of poverty, probably because it used the word ‘grants’.
While the improvement of the energy efficiency of homes and business would help
their owners save money, there was nothing to suggest that this clause was
directed at the relief or prevention or poverty or limited in any way to help the poor
only. Businesses exist to earn and distribute profits. Grants to help them save
money and earn greater profits would not be charitable.
Student extract
If the purpose of the charity is political then the charity will be void. According
to the given fact, the charity is the purpose of encourage governments which
is relating to the politics. So it is most likely that the charity will be void.
Comment on extract
This correctly identifies the problem with clause (c), but does not explain why the
political aspect of this clause would make it non-charitable. A gift to the government
is charitable, but a gift designed to change the law or government policy is not
because the court cannot decide whether that change would benefit the public.
Question 5
Beatrice was an elderly widow who owned a house in London in fee simple.
Five years ago, she transferred her title to Caroline as part of an oral
arrangement between them, in which Caroline agreed to hold the house in
trust for Beatrice for life and have the remainder for herself. Caroline became
the registered owner of the fee simple estate. Beatrice continued to live alone
in the house and pay all expenses related to it.
Beatrice died recently. Her will states: ‘I hereby leave all my assets to my
dearest friend Caroline in trust to pay my nephew Dennis £10,000 per year for
ten years.’ Beatrice’s net estate is worth more than £1 million, so there will be
a large surplus after she pays £100,000 to Dennis according to the terms of
the trust. There are no other gifts or trusts in the will.
Dennis has been appointed as the administrator of Beatrice’s estate. As her
only living relative, he is entitled to any part of her estate that has not been
disposed of by her will. He claims that Caroline holds the house in London
and all of Beatrice’s assets on resulting trust for Beatrice’s estate.
Advise Caroline.

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General remarks
This problem concerns resulting trusts, which are discussed in Chapter 12 of the
subject guide and Chapter 5 of Penner.
Law cases and other references the examiners would expect you to use
LPA 1925, ss.53(1)(b), 53(2), 60(3); Re Vandervell’s Trusts (No 2) [1974] EWCA
Civ 7, [1974] Ch 269; Hodgson v Marks [1971] EWCA Civ 8, [1971] Ch 892; Lohia v
Lohia [2001] EWCA Civ 1691; Re Foord [1922] 2 Ch 519.
Common errors
Failing to discuss the evidence of Beatrice’s intention to make a gift to Caroline;
arguing that a presumption of resulting trust can apply to a testamentary gift.
A good answer to this question would…
explain that the transfer of Beatrice’s house to Caroline in trust for Beatrice for life
with remainder to Caroline would be unenforceable as an express trust since it
failed to comply with s.53(1)(b) of the LPA 1925. However, evidence of Beatrice’s
intention to make a gift of the remainder to Caroline would be admissible, since it
would not be offered as evidence of the existence of an express trust but as
evidence of her intention to give: Hodgson v Marks. The presumption of resulting
trust probably does not apply: LPA 1925, s.60(3); Lohia v Lohia. However, since
Beatrice’s intentions are known, the presumption is not needed. Beatrice intended
to make a gift of the remainder to Caroline, so there is no resulting trust, beyond
Beatrice’s life estate, which has come to an end.
The testamentary trust for Dennis has failed to dispose of all the trust assets. The
question is whether there is a resulting trust of the surplus. It was suggested in Re
Vandervell’s Trusts (No 2) that an ‘automatic’ resulting trust arises in this situation
regardless of the settlor’s intention. However, there was evidence to show that
Beatrice intended to make a gift of the surplus to Caroline, so she may be able to
keep the surplus as a testamentary gift: Re Foord.
Poor answers to this question would…
properly discuss whether the presumption of resulting trust applied to the transfer of
the house, but fail to discuss the effect of LPA 1925, s.60(3) or fail to explain that
the presumption is not needed when there is admissible evidence of intention. A
poor answer would suggest that the presumption of resulting trust applies to the
disposition of Beatrice’s estate, but the presumption never applies to testamentary
dispositions: it is assumed that testators intend to give all their assets away. Some
candidates discussed whether the presumption of advancement applied in favour of
Dennis, but that was irrelevant since it was Caroline and not Dennis who received
legal title to the house and all Beatrice’s other assets.
Student extract
The effect of s.60(3) of the Law of Property Act 1925 is that the voluntary
conveyance of land will not give rise to an implication of resulting trust. This is
the decision of the High Court in Lohia v Lohia, affirmed by the Court of
Appeal in Ali v Khan.
In this case, the voluntary transfer of the land to Caroline does not give rise to
a presumption of resulting trust. Beatrice’s estate would therefore need to
lead evidence to prove the resulting trust. They would point to the fact that
Beatrice continued to live at the property and to pay the bills. This might
suffice in convincing the court of the resulting trust, without further evidence
from Caroline that she was intended to take beneficially.
Caroline would therefore want to prove the existence of the oral agreement
and she would characterise this as a declaration of trust of the house by

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 Beatrice. The trouble with this is that a declaration of trust in land must be
manifest and proved in signed writing and, in this case, there is no writing.
Prima facie, Caroline is unable to lead this evidence. However, she might try
to argue that under the doctrine of Rochefoucauld v Boustead it would be
fraudulent for Beatrice’s estate to deny her interest.
Comment on extract
This candidate correctly explained that the presumption of resulting trust does not
apply and so Dennis bears the burden of proving that Caroline is holding the house
on trust for Beatrice’s estate. He or she also correctly pointed out that Beatrice’s
subsequent conduct, treating the house as her own, is relevant evidence that she
did not intend to make a gift. Caroline would then need to respond to prove that
Beatrice intended to make a gift of the remainder. Their oral agreement is
admissible because it is submitted, not to prove the existence of a trust for Beatrice,
but to prove her intention to make a gift to Caroline: Hodgson v Marks. The case of
Rochefoucauld v Boustead [1897] 1 Ch 196 would not help Caroline because she,
as the legal owner, is not using s.53(1)(b) to deny the existence of an express trust
for Beatrice.
Question 6
Horace was an IT consultant who provided advice on buying, installing, and
using computer systems. His biggest customer was Jumpole Co. Horace was
appointed as Jumpole’s agent to purchase computers for all its offices.
Horace accepted £100,000 in secret commissions from Lemon Computers to
buy computers from it on Jumpole’s behalf. Horace opened a new savings
account (which he called his ‘rainy day account’) and deposited all those
commissions in that account.
Kimson Ltd was also one of Horace’s important customers. Kimson paid
£50,000 to Horace by mistake due to its own accounting error. Horace
deposited that money in his rainy day account.
Horace was hired by Marigold, a wealthy widow, to help her set up her new
home computer. Horace found the combination to Marigold’s safe in her desk
drawer. He opened the safe and removed £50,000 in cash. He deposited that
money in his rainy day account.
Horace died recently, leaving many creditors unpaid. Horace had used the
£200,000 in his rainy day account to buy a house as a gift for his son Nick,
who had no reason to suspect that Horace had acquired that money
dishonestly. The house is registered in Nick’s name.
Jumpole, Kimson, and Marigold have discovered what has happened and
claim that Nick is holding his house on constructive trust for them.
Advise Nick.
General remarks
This problem concerns breach of fiduciary duty, constructive trusts, and tracing.
These issues are discussed in Chapters 17, 18, and 19 of the subject guide and
Chapters 4, 11, and 12 of Penner.
Law cases and other references the examiners would expect you to use
A-G Hong Kong v Reid [1993] UKPC 2, [1994] 1 AC 324, [1994] 1 NZLR 1; FHR
European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [2014] 3
WLR 535; Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch
105; Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12,
[1996] AC 669; Foskett v McKeown [2000] UKHL 29, [2001] 1 AC 102.

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Common errors
Failing to focus on the question, which is the existence of a constructive trust of the
house for the three claimants, and paying insufficient attention to the reasons why
the money in the rainy day account would or would not be held on trust for them.
A good answer to this question would…
explain that Horace breached his fiduciary duty as Jumpole’s agent when he
received secret commissions from Lemon, and would be holding that money on
constructive trust for Jumpole: FHR European Ventures LLP v Cedar Capital
Partners LLC. The money can be traced to the purchase of the house in Nick’s
name: A-G Hong Kong v Reid; Foskett v McKeown. Nick is a donee and would be
holding a one-half share of the house on constructive trust for Jumpole, even
though Nick is innocent.
It is not clear whether money paid by mistake is held on trust for the mistaken
payer. It is according to Chase Manhattan Bank NA v Israel-British Bank (London)
Ltd, but that was doubted in Westdeutsche Landesbank Girozentrale v Islington
LBC, where Lord Browne-Wilkinson suggested that a trust cannot arise unless the
trustee is aware of the trust or the facts giving rise to it. If mistake does give rise to
a trust, then so should fraud or theft, but there is no clear English authority on that
point. In Westdeutsche, Lord Browne-Wilkinson suggested that the proceeds of
fraud or theft would be held on constructive trust.
Poor answers to this question would…
spend insufficient time discussing the three different reasons why a constructive
trust might arise for the three different claimants. Many candidates did not discuss
the controversies surrounding the Chase Manhattan case or whether the proceeds
of theft should be held in trust for the victim. Some candidates argued that Horace
was in a fiduciary relationship with Marigold, but their contract fell outside the
traditional categories of fiduciary relationships and there was nothing stated in the
problem to suggest that he owed fiduciary duties to her. If the rainy day account
was held in trust, then the issues regarding tracing and claiming ownership of the
house were straightforward, but many candidates did not discuss them.
Student extract
The monies that Horace received from Kimson by mistake would appear to
create a constructive trust as a result of unjust enrichment. This set of facts
appear to be similar to those in Chase Manhattan Bank v British-Israel Bank
in which it was held that the proceeds were held on trust. This decision can
be contrasted with that of West LB v Islington, in which it was decided that,
whilst the payment was made in error, the evidence indicated that the gift
was intended to be outright, so no trust was created. If Nick were able to
provide evidence that the transfer was intended to be outright, he might be
able to defeat the claim of constructive trust.
Comment on extract
This correctly cites the Chase Manhattan Bank and Westdeutsche Landesbank
cases, but misunderstands the nature of Lord Browne-Wilkinson’s comments in
Westdeutsche criticising the reasons for judgment in Chase Manhattan. While
Westdeutsche did involve a mistake of law, it was not argued on that basis. Lord
Browne-Wilkinson’s comments were obiter. He thought that a constructive trust of a
mistaken payment was justified in cases where the recipient was aware of the
mistake. While that suggestion is controversial, it is worth noting in the answer. The
proper response to a mistaken payment cannot be resolved by asking whether the
mistaken payer intended the payment to be outright. The payer was mistaken at the
time and so intended to make an outright payment, whether as a gift or (as in
Westdeutsche) as payment of a debt due on a contract which turned out to be void.

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Question 7
Is a secret trust an express trust or a constructive trust? Why?
General remarks
This question invites students to write an essay on secret trusts, which are
discussed in Chapter 8 of the subject guide and Chapter 6 of Penner.
Law cases and other references the examiners would expect you to use
Wills Act 1837, s.9; Blackwell v Blackwell [1929] UKHL 1, [1929] AC 318;
Rochefoucauld v Boustead [1897] 1 Ch 196 (CA).
Common errors
Failing to address the specific question asked.
A good answer to this question would…
discuss why secret trusts are enforceable despite non-compliance with the
formalities required by the Wills Act 1837, s.9. They seem to be express trusts since
they give effect to the intentions of the testator as settlor, but then it becomes
difficult to explain why courts are willing to ignore the statute. It may be that fraud
provides a judicial exception to it, as in Rochefoucauld v Boustead, but then it is
difficult to explain Blackwell v Blackwell and most other cases in which the secret
trustees were perfectly honest and merely seeking the court’s directions. If the trust
is constructive, arising by operation of law rather than directly by intention, the
formalities problem is obviated, but we then need a reason for perfecting the
unperfected intentions of the testator. Fraud is problematic, as is unjust enrichment,
but detrimental reliance might provide a satisfactory justification.
Poor answers to this question would…
discuss secret trusts and their justifications generally without addressing the
specific question asked.
Student extract
A constructive trust is implied, imposed by a court, and arises where equity
intervenes to provide a remedy against the rather disputed notion of
‘unconscionability’. This is a construction that lends itself more favourably to
the structure of an FST since the court intervenes to find a remedy and to
discover the true beneficiary. Conversely, an HST identifies the trustee as
such and to that extent it is an ET with the will acting in a similar capacity to a
deed in a non-testamentary context: the trust is established and
communicated, the subject matter is on assumption to be found, and
although the beneficiary may not be identified, the presence of a party who
can sue on breach satisfies the beneficiary principle set out in Morice v
Bishop of Durham.
Comment on extract
This directly addressed the question asked. The suggestion that full secret trusts
are constructive, while half secret trusts are express, was a fairly popular approach
to this question. However, little time was spent addressing the reasons why a
constructive trust might arise nor why the express trust would be enforced despite
non-compliance with the Wills Act 1837, nor does it explain why the reasons for
enforcing full secret trusts would not also apply to half secret trusts and vice versa.
Also, a constructive trust is not imposed by the court as a remedial device. It arises
by operation of law in response to the facts that have occurred. The court merely
declares that it has arisen.

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Question 8
To what extent is it appropriate that trustees can find themselves strictly
liable for breach of trust even when they have acted honestly and
reasonably?
General remarks
This statement invites students to write an essay on liability for breach of trust,
which is discussed in Chapter 16 of the subject guide and Chapter 11 of Penner.
Law cases and other references the examiners would expect you to use
Trustee Act 1925, s.61; Armitage v Nurse [1997] EWCA Civ 1279, [1998] Ch 241.
Common errors
Failing to explain that trustees are strictly liable for unauthorised transactions and
how strict liability differs from liability for breach of the duty of care; writing a general
essay on the liability of trustees without specifically addressing the question asked.
A good answer to this question would…
explain that trustees are strictly liable for any unauthorised transactions even if they
have acted honestly and reasonably. It might give examples in which trustees have
been found liable despite acting honestly and reasonably. It might also note that a
higher standard of care is now expected of professional trustees than of other
trustees: Trustee Act 2000, s.1. It should discuss the power of settlors to mitigate
the harshness of the default rules by the inclusion of exemption clauses in the trust
instrument, which can eliminate personal liability for breach of trust so long as the
trustees act honestly and in good faith: Armitage v Nurse. It should also note the
power of courts to relieve trustees of liability for breach of trust if they have acted
honestly and reasonably and ought fairly to be excused: Trustee Act 1925, s.61.
Poor answers to this question would…
be a general essay on the liability of trustees that did not address the question
asked or did not distinguish between strict liability and liability for failing to take
reasonable care of the trust assets.
Student extract
The trustees have fiduciary duties with the trust. They will carry on their
duties according to the terms of the trust. The trustees do not have the rights
to act against the terms of the trust. They hold the trust rights just like a
custodian and they are not allowed to take any benefit from the trust. The
liability of trustees are strict. It does not matter they have acted honestly.
Once they have breached the trust they are liable for the breach. They will
not be asked why and how they committed the breach. Rather they will be
asked to make good the trust.
Comment on extract
This suggests that an unauthorised disposition of trust assets is a breach of trust,
whether done honestly and reasonably or not, but it would be better if that was
stated more clearly. The trustees’ primary obligation is to obey the trust, which is
different from their fiduciary duties and duties of care. The candidate later went on
to explain that it does matter whether the trustees have acted honestly and
reasonably when considering the defences they might have, such as an exemption
clause in the trust, the consent of the beneficiaries, and the possibility of being
excused under s.61 of the Trustee Act 1925.

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