Examiners’ reports 2019

Examiners’ reports 2019

LA2002 Equity and Trusts Level 5 – Zone A

Introduction
The Equity and Trusts paper once again required students to answer three
questions from six. As usual, there were three essay questions and three problem
questions.
A perennial problem is a failure by students to address the question asked. There is
no mystery to doing well in law exams: those who answer the question do well;
those who do not, fail. So, in a problem question, what examiners want is for
candidates to identify the particular issues, state the law relevant to those issues,
and apply the law to the facts. What candidates often do, however, is simply write
out all they know about the particular area of law, rather than the specific issue, and
spend very little time, if any, applying the law to the facts. As an example, in
question 3, a problem question on charities, many candidates decided to engage in
a history lesson, explaining the move from the Statute of Elizabeth, to Pemsel, to
the 2006 Act and then to the 2011 Act, often taking two or three pages to do so.
None of this was relevant to the question and so no marks were awarded for it.
Likewise, with essay questions, what the examiner wants is engagement with the
specific question asked, not a general recitation of lecture notes around the topic.
Those who did what the examiner asked for were rewarded accordingly, although
they were few and far between.

Comments on specific questions

Question 1
Lucy declared a trust in writing of 75 shares in a private company, with Ethel
as sole trustee and Fred as sole beneficiary. Lucy sent the declaration of trust
to Ethel, along with a completed share transfer form, and the share
certificates. Ethel put the declaration, transfer form, and certificates in her
wall safe.
Fred then orally agreed to sell his interest under the trust to Ralph for
£50,000. Ralph orally declared that he held any interest he received from Fred
on trust for Alice. Alice orally assigned her interest under this trust to Norton.
Discuss.
General remarks
This was a question on formalities and the constitution of trusts, as discussed in
Chapters 6 and 7 of the module guide.
Law cases, reports and other references the examiners would expect you to use
Re Rose; Oughtred v IRC; Nelson v Greening and Sykes; s.53 LPA 1925.

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Common errors
None.
A good answer to this question would…
identify that there is no transfer of the shares from L to E but arguably E is a
beneficiary of a constructive trust of the shares under the rule in Re Rose and she
holds her interest on trust for F. E does not drop out of the picture so that L does
not hold directly on trust for F: Nelson v Greening and Sykes. There are no
formalities required for F to make a contract to sell his interest under the sub-trust to
R and, because his interest relates to shares in a private company, the contract will
be specifically enforceable, meaning that there is a sub-sub-trust in favour of R,
Oughtred v IRC notwithstanding. As to R’s oral declaration of trust in favour of A,
this will not amount to a disposition of an equitable interest and so will be valid,
despite s.53(1)(c) LPA 1925: Nelson v Greening and Sykes. However, A’s oral
assignment to N will be void for failure to comply with s.53(1)(c).
Poor answers to this question…
failed to engage with the s.53(1)(c) LPA 1925 issues.
Question 2
Nixon was a solicitor who, with his sister Pat, was a trustee of the Bush
Family Trust set up by their grandfather. He knew that Pat was not interested
in financial matters and was happy to go along with his decisions. She was in
the habit of signing blank cheques and share transfer forms to enable him
expeditiously to deal with all trust matters. Nixon was also sole surviving
trustee of the Watergate Family Trust set up by his wife’s grandfather.
Nixon’s mistress was his wife’s sister Mamie, who owned 40 per cent of the
shareholding in White House Co Ltd and was its managing director. Four
years ago, in breach of trust, Nixon gifted to Mamie an 11 per cent
shareholding in White House, which formed part of the Bush Trust, believing
that his wife would soon die and that he would be free to marry Mamie. Mamie
suspected that the shares might be trust rights but chose not to make any
inquiries. Six months ago, the value of her by now 51 per cent shareholding
dropped to zero because of an accounting fraud by the chief accountant that
caused the company to be liquidated.
Two months ago, Nixon added to the £1,000 balance in his current account,
£10,000 from the Bush Trust and later £5,000 from the Watergate Trust. He
then withdrew £12,000 in cash, giving it to his wife Rosalyn to buy a diamond
ring to celebrate their 25th wedding anniversary. She paid £11,995 to a Hatton
Garden Diamond dealer for a ring and spent the remaining £5 on lottery
tickets, one of which won £3 million. The diamond dealer was surprised to be
paid in cash but asked no questions. On her way home, Nixon’s wife was
mugged and her new ring stolen.
The beneficiaries of the Bush Trust and the Watergate Trust seek your advice.
General remarks
This was a problem question on breach of trust, tracing and the personal liability of
third parties, as discussed in Chapters 17 and 19 of the module guide.
Law cases, reports and other references the examiners would expect you to use
Re Hallett; Re Montagu; BCCI v Akindele; Foskett v McKeown; Barlow Clowes v
Vaughan.
Common errors
None.

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A good answer to this question would…

have distinguished the personal liability of both Nixon and Pat, the potential
personal liabilities of the various third parties and the possibility of proprietary
claims following tracing.
Nixon and Pat are jointly and severally liable. And although Pat might have a claim
for an indemnity from Nixon if solvent, that is of no concern to the beneficiaries. It is
possible that under s.61 Trustee Act 1925 the court could relieve Pat of liability as
she is a lay trustee, if she was entitled to have any doubts put to rest by co-trustee
solicitor advising qua trustee with particular expertise: Re Partington.
The 11 per cent White House shareholding is now worthless so no equitable
following claim would be made, although there is the possibility of a personal claim
against Mamie. She is not an innocent recipient as her suspicions gave her
knowledge under Baden v Société Générale, Re Montagu’s ST and Twinsectra.
Nixon was acting in breach of trust by mixing trust monies with his own, so the
beneficiaries can cherry pick against him (Foskett v McKeown, Shalson v Russo).
Since both sets of beneficiaries are equally innocent, the FIFO rule of Clayton’s
Case is displaced and the loss is borne in proportionate shares: Russell Cooke v
Prentis, Barlow Clowes International v Vaughan, so £12,000 will be regarded as
two-thirds Bush Trust and one-third Watergate Trust.
If Rosalyn had sufficient knowledge (Baden v Société Générale, Re Montagu’s ST),
then she will be personally liable for the £11,995 spent on the ring and for the lottery
winnings. If she is innocent, there is an argument that she may be able to claim
change of position for the ring (in other words, the money is as good as dissipated,
and she, being innocent, is not personally liable) and only suffer a lien for the £5 on
the lottery winnings. Moreover, if the ring could have been traced but lost now –
query whether money can be followed into hands of dealer. Query whether cash
payment might have put him on alert of dirty dealings, so was he fixed with
constructive knowledge. According to MacMillan v Bishopsgate, the answer is that
he was probably not (where, according to Millet LJ, ‘the facts made it imperative for
[the defendant] to seek an explanation because … it was obvious that the
transaction was probably improper’).
Finally, the beneficiaries can trace into the lottery ticket winnings, so could claim the
whole profit. However, that would be an unjust windfall at the expense of an
innocent volunteer, so it is more likely that, following Re Tilley’s WT, the court would
give a lien only, in order to put the trust back into the position it was before the
breach, given that Rosalyn could have bought the lottery ticket with her own money.
Poor answers to this question…
failed to get beyond personal liability issues.
Question 3
Charlie died recently. In his will, Charlie stipulated that his entire estate
should be sold and the proceeds held in trust and invested, with the income
to be used each year as follows:
a) ‘£50,000 to be used to help my children and grandchildren should
they become impoverished and otherwise to educate the British
public on the need for food banks;
b) the remainder to be used to further the purposes of the Brotherhood
of St Linus.’
The Brotherhood of St Linus was a group of monks who lived a cloistered,
self-sufficient life in a medieval hall house. Once a year, they opened the

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house to the public and invited people in to pray with them. The Brotherhood
was dissolved five years ago and the house has been sold.
Patty has been appointed as Charlie’s executor and seeks your advice
regarding the validity of these trusts.
General remarks
This was a problem question on charitable trusts, as discussed in Chapter 9 of the
module guide.
Law cases, reports and other references the examiners would expect you to
use
Charities Act 2011; Re Scarisbrick (1951); A-G v Charity Commission (2012); Re
Hopkinson (1949); Gilmour v Coates (1949); Re Harwood (1936).
Common errors
Thinking that cy près applies to any case where a purported charitable purpose fails
to qualify as such. Thinking there is a certainty of subject matter problem with
‘remainder of my estate’.
A good answer to this question would…
have noted that clause (a) appears to create a trust for the relief of poverty and the
advancement of education, while clause (b) appears to create a trust for the
advancement of religion. It would have cited the relevant provisions of the Charities
Act 2011 and discussed the potential problems with each clause with respect to the
public benefit requirement. Is the trust for the relief of needy children and
grandchildren valid as a trust for poor relations (Re Scarisbrick (1951)) or did s.4(2)
of the Charities Act 2011 change the law? In this respect, discussion of the decision
in A-G v Charity Commission for England and Wales [2012] UKUT 420 (TCC) was
necessary. Is the trust for education regarding food banks really for political
purposes (Re Hopkinson (1949))? Did the interaction of the Brotherhood of St Linus
with the public for one day each year provide a sufficient public benefit (Gilmour v
Coats (1949))? A good answer would have also considered the possibility of the
rights being used cy près if the trust in clause (b) was charitable. Note that this is a
case of initial failure and so it would be necessary to find that Charlie had a general
charitable intention. While gifts to named charitable institutions are normally
regarded as gifts intended specifically for those institutions (Re Harwood (1936)), it
might be noted that the trust was ‘to further the purposes of the Brotherhood of St
Linus, which could indicate a general charitable intention.
Poor answers to this question…
wasted time discussing the meaning of poverty. Failed to engage with the public
benefit requirement and failed to notice the potential politics issue. Were very poor
on cy près, seeming to think that any trust that failed to qualify as charitable
attracted the operation of the doctrine. Those that knew when cy près applied often
gave a poor or non-existent treatment of the general charitable intent issue. And, as
noted in the introduction, there was too much general material on charities.
Question 4
In Angove’s Pty Ltd v Bailey (2016), Lord Sumption said: ‘English law is
generally averse to the discretionary adjustment of property rights, and has
not recognised the remedial constructive trust favoured in some other
jurisdictions. It has recognised only the institutional constructive trust.’
Discuss.
General remarks
This was an essay question on remedial constructive trusts, as discussed in
Chapters 3 and 13 of the module guide.

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Law cases, reports and other references the examiners would expect you to
use
Re Rose (1952); Neste Oy v Lloyds Bank (1983); Re Goldcorp (1995);
Westdeutsche Landesbank Girozentrale v Islington (1996); Pennington v Waine
(2002).
Common errors
None.
A good answer to this question would…
discuss the differences between remedial and institutional constructive trusts, the
meaning of those terms and the extent to which the statement of Lord Sumption is
true. It might draw on examples of constructive trusts in various situations, including
mistaken payments, bribes and secret commissions, incomplete gifts, proprietary
estoppel and family homes but the focus should be the discretionary relief to which
Lord Sumption alludes.
Poor answers to this question…
contained very general discussions of constructive trusts, with little reference to the
concept of the remedial constructive trust.
Student extract
Lord Sumption’s statement in Angove’s Pty Ltd v Bailey on how the English
court is averse to the discretionary adjustment of property rights and so has
not recognised the remedial constructive trust shows the willingness of the
English court to follow laid down rules in the implying of constructive trust in
cases.
The institutional constructive trust which the English court favours deals with
laid down laws when the court is faced with cases that imply constructive
trust. The remedial constructive trust which the courts uses their discretion in
the deciding of cases mean that the court will have to look at what is fair and
reasonable in the situation in a particular case, so in the case of Pennington v
Waine, the court held that would be unconscionable not to allow the trust to
be valid since the settlor had done all that was required, here the standard of
reasonableness and fairness will be looked at objectively to determine
whether it will be conscionable or unconscionable for the court to make
certain decisions. This means that individuals who have the aim of seeking
redress in the court will have no idea about what the court will decide
because no specific laws are laid down to enable individuals have prior
knowledge of what their rights are before entering the court to either seek
redress or defend themselves.
Comments on extract
Although the extract shows an appreciation on the part of the candidate of the two
types of constructive trust, the answer was in the main directed to the institutional
variety. A more balanced account was necessary, with especial discussion of cases
such as Neste Oy and Angove’s itself. As a result, the answer scored a very low
2:2.
Question 5
By his will, Albion left his title to his house to Britannia ‘on trust for such
person or persons as I shall communicate to her’. A week after making his
will, Albion phoned Britannia. Britannia was out, and so Albion left a message
on her answering machine, telling her to hold the title on trust for Caledonia.
In his will, Albion also left his title to a yacht to Dania ‘to do with as Dania in
her absolute discretion pleases’. In fact, he wrote to Dania after making his

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will, asking her to hold the title on trust for Europa. Europa and Gaul,
Britannia’s husband, witnessed the will.
Albion has now died. Advise Caledonia and Europa.
General remarks
This was a problem question on secret trusts, as discussed in Chapter 14 of the
module guide.
Law cases, reports and other references the examiners would expect you to use
Wills Act 1837; LPA, s.53; Re Baillie (1886); Blackwell v Blackwell (1929); Re Keen
(1937); Re Young (1951).
Common errors
Despite warnings in the module guide, many candidates continue to insist that
Ottaway v Norman (1972) decided that secret trusts are constructive trusts and
therefore exempt from the requirements of s.53(1)(b) LPA 1925. The case, of
course, decided no such thing, so all such candidates did was disclose to the
examiner that they had not read the case. A number of candidates also thought that
Re Young (1951) is applicable to the witnessing of the will by a trustee of a secret
trust as much as a beneficiary. There was also the usual failure to accurately state
the rule s.53(1)(b) LPA 1925 lays down. In this respect, candidates should realise
that it has nothing to do with transfers of rights; nor is it a rule directing settlors how
to create trusts of titles to land.
A good answer to this question would…
identify the problem with secret trusts as the lack of admissible evidence to prove
the declaration of trust. As to the title to the house, the question was whether any of
the explanations for disapplying s.9 of the Wills Act 1837 (fraud theory, dehors
theory) and admitting the answerphone message (assuming it is still extant) apply
on the facts of the case. The more specific problems are the timing of the
communication (this being a half-secret trust), the fact that Britannia did not agree
to be a trustee, and the fact that the admission of the answerphone message would
also fall foul of s.53(1)(b) LPA 1925. As to the first issue, a good answer would
explain why Re Keen (1937) was possibly wrongly decided. As to the third, it would
discuss the question of whether secret trusts are express or constructive and
whether, even if express, s.53(1)(b) should present a problem (invoking the
Rochefoucauld doctrine). Finally, the issue of Gaul, Britannia’s husband, witnessing
the will should be discussed. Most argue that this is not a problem in the case of a
half-secret trust, although candidates need to explain why. As to the title to the
yacht, the question is whether it would be possible to admit written but unattested
evidence contradicting the terms of the will: cf. re Keen. The other issues were
Europa’s witnessing the will and whether re Young was correctly decided.
Poor answers to this question…
failed to spot issue with the fully secret trust of the of the yacht (inconsistent
wording). Candidates should realise that all the facts given in a problem question
are relevant, or at least should be. Many also failed to deal with the s.53(1)(b) point,
which is surprising since it flagged up in the module guide. Finally, there was in
general no criticism of the highly dubious decision in Re Keen.
Question 6
‘The notion that there is such a thing as a ‘presumed’ resulting trust is a
myth. All resulting trusts arise by operation of law.’
Discuss.

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General remarks
This question asks why resulting trusts arise, as discussed in Chapter 12 of the
module guide.
Law cases, reports and other references the examiners would expect you to use
Vandervell v IRC; Westdeutsche Landesbank Girozentrale v Islington LBC.
Common errors
None.
A good answer to this question would…
discuss the view of Lord Browne-Wilkinson in Westdeutsche that all are based on a
presumption of intent to create a trust, a view diametrically opposed to the view of
Birks and Chambers, that this is true of none. A good answer would note that there
is no logical opposition between ‘presumed’ and ‘operation of law’ and, although
Birks and Chambers see all resulting trusts as arising by operation of law, they
accept that this is sometimes because of the operation of a presumption. It would
then go on to ask whether the so-called ‘automatic resulting trust’ is really capable
of explanation on the basis of a presumed intent and, if not, what. A discussion of
whether the views of Birks and Chambers are tenable would also be required.
Poor answers to this question…
gave a general description of resulting trusts and failed to address the question.