Trusts L5 Report 2017 B

Examiners’ reports 2017
LA2002 Equity and Trusts (Level 5) – Zone B
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 to 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). If
you think that two different questions are about the same issues then you have
misunderstood one or both of the 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 4
asked you to advise Daniel and told you that he ‘claims that the house, bank
accounts, cottage, and farm are all held on resulting trust’. Despite this clear
direction, some candidates attempted to answer that question without discussing
resulting trusts.
It is equally important to pay careful attention to the actual question asked, whether
it is a problem question or an essay question. If, for example, you are asked to
discuss a quotation, it is not sufficient to write a general essay on that area of law.
You need to consider carefully what specific issues are raised by the quotation.
After you decide which four questions to answer, divide the remaining time evenly
among them and, for each question, plan your answer before you begin writing.
This will help to 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 does 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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Level 5 and Level 6 examination papers
There were four different examination papers in Equity and Trusts this year, with
Zone A and Zone B papers set for both level 5 (LA2002) and level 6 (LA3002). The
questions were set and marked in order to evaluate the achievement of different
learning outcomes at each level (see the Module descriptor). Level 5 candidates are
expected to ‘classify types of trusts and identify their main distinctive features and
purposes’, while level 6 candidates are expected to ‘compare and contrast types
of trusts and explain their main distinctive features and purposes’. Level 5
candidates are expected to ‘identify appropriate available remedies’, while level 6
candidates are also expected to ‘evaluate’ them. Level 5 candidates are expected
to ‘explore key issues in judicial decision making’, while level 6 candidates are
expected to ‘evaluate’ them.
Comments on specific questions

Question 1
Bill died recently. According to his will, the residue of his entire estate is to be
held in trust as follows:
a) to provide training for soldiers;
b) to provide uniforms for soldiers serving in Bill’s old regiment;
c) to encourage the government to increase military spending.
Fred and Simon were appointed as the executors of Bill’s estate and the
trustees of his will trusts. They seek your advice concerning the validity of
those trusts. Bill’s old regiment was disbanded last year.
Advise Fred and Simon.
General remarks
This problem question concerns charity, which is discussed in Chapter 10 of the
subject guide and Chapter 13 of Penner.
Law cases, reports and other references the examiners would expect you to
use
Charities Act 2011, s.3(1)(b) and (l); Re Harwood [1936] Ch 285; National Anti-
Vivisection Society v Inland Revenue Commissioners [1947] UKHL 4, [1948] AC 31.
Common errors
Common errors were failing to identify the relevant heads of charity; not discussing
cy près in relation to (b) or misapplying it to (a) or (c); not linking the political aspect
of (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. All three clauses are for the promotion of
the efficiency of the armed forces of the Crown. Clause (a) is also for the
advancement of education. Clause (b) suffers from an initial impracticality because
Bill’s old regiment was disbanded before the trust was created. The question is
whether Bill had a general charitable intention that would allow the application of the
assets cy près to a similar purpose. Re Harwood suggests that the donor had only a
specific intention when he or she makes a gift to a particular charity that used to
exist. However, the fact that all three clauses are concerned with the armed forces
indicates that Bill had a general charitable intention. Clause (c) would fail the public
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benefit test because it pursues a political objective of promoting changes to

government policies: National Anti-Vivisection Society v IRC.
Poor answers to this question…
discussed charity generally without relating it carefully to the clauses of the will,
failed to identify the relevant heads of charity, or failed to discuss cy près or
misapplied it.
Question 2
Jamie told his friend Nina that he was going to leave some money to her
when he died. He gave a sealed envelope to her and asked her to open it
when he died and follow the instructions inside. Nina agreed.
Later that week, Jamie met with his solicitor and made his will, which stated:
‘I leave £300,000 to Nina to be used according to my wishes.’
One year later, Jamie gave another sealed envelope to Nina and asked her to
open it when he died, follow the instructions inside, and ignore the first
envelope. Nina agreed.
Jamie died recently, his will was probated, and Nina received £300,000 from
his estate. Nina opened both of the sealed envelopes that Jamie had given to
her. The first envelope that Nina had received said: ‘Please give half the
money you get from my estate to Sandy and keep the rest for yourself.’ The
second envelope said: ‘Please give one-third of the money you get from my
estate to Sandy, give one-third to Titus, and keep the rest for yourself.’
Nina seeks your advice. What should she do with the money?
Advise Nina.
General remarks
This problem question concerns secret trusts, which are discussed in Chapter 8 of
the module guide and in Chapter 6 of Penner.
use
Wills Act 1837, ss.9 and 20; Re Keen [1937] Ch 236 (CA).
Common errors
A common error was the failure to address one or more of the main issues.
discuss the distinction between fully and half secret trusts and whether this trust
was fully secret or half secret, depending on whether the phrase in the will ‘to be
used according to my wishes’ imposed on obligation or merely expressed a wish.
The words ‘to be used’ appear to be mandatory and not precatory, so it is likely that
the trust is half secret. Whatever the candidate decides on this issue, s/he should
discuss the alternative. The answer would explain and criticise the timing of
communication required for half secret trusts and communication by delivery of a
sealed envelope: Re Keen. Since the subject matter of the trust was money, s.53 of
the Law of Property Act 1925 was not relevant.
missed one or more of the important issues, or discussed theories of secret trusts
without relating them to the facts of the problem.
Question 3
Ellen settled £3 million in trust, with her daughters Linda and Maggie as
trustees. Under the terms of the trust:
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a) the trustees may distribute the income and capital as they see fit
among the settlor’s children and grandchildren for 50 years and
then shall distribute any remainder assets as they see fit among the
children and grandchildren then living;
b) the trustees shall invest the trust assets only within the UK;
c) the trustees shall not be liable for any breach of trust unless it is
caused by their own fraud or gross neglect.
With the UK economy struggling, Linda and Maggie decided to invest
£250,000 of trust money in France and £250,000 of trust money in Germany.
The French investments have risen in value to £300,000, but the German
investments have fallen in value to £200,000.
Maggie’s friend Alex owns a UK business that needed money to continue
operating. Maggie convinced Linda that it would be a good investment, so
they invested £100,000 of trust money in Alex’s business. That investment
has fallen in value to £80,000.
Ellen asked Linda and Maggie if they could use the trust to help Florence,
who is Ellen’s friend and has always been ‘like a daughter’ to Ellen. Linda and
Maggie paid £10,000 from the trust to Florence.
Vivienne is Ellen’s granddaughter. She is unhappy with the way in which
Linda and Maggie have been performing the trust.
Advise Vivienne.
General remarks
This problem question concerns liability for breach of trust, breach of fiduciary duty,
an exemption clause and a beneficiary’s right to an account, which are discussed in
Chapter 16 of the module guide and in Chapter 11 of Penner.
use
Trustee Act 2000, ss.1–6; Armitage v Nurse [1998] Ch 241 (CA); Walker v Stones
[2001] QB 902 (CA).
Common errors
Common errors were failing to discuss breach of fiduciary duty and suggesting that
the settlor had the power to direct the trustees or vary the terms of the trust.
explain that Vivienne is a beneficiary of a power of appointment and a discretionary
trust and therefore she has standing to sue the trustees and call for an account
even though she might not receive any benefits from the trust. It would explain that
the investments in France and Germany were contrary to the terms of the trust and
in breach of trust; that the investment in Alex’s business was permitted by the terms
of the trust but likely in breach of the trustee’s duty of care and clearly in breach of
Maggie’s fiduciary duty as a conflict of interest; that the payment to Florence was
unauthorised and in breach of trust. It would then explain that the account could be
falsified to remove unauthorised disbursements and surcharged to add income that
should have been earned from proper investments; that the beneficiaries could
elect to adopt the successful investments in France and reject the German
investments. Finally, it would discuss whether the trustees are protected from
personal liability by the exemption clause.
missed one or more of the important issues, or wasted time discussing the validity
of trust.
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Question 4
Karen was an elderly widow with three adult children: Aurelia, Colin, and
Daniel. Karen transferred her house and bank accounts into the joint names
of herself and Aurelia. Karen then used money from the bank accounts to buy
a holiday cottage in Colin’s name and to buy a small farm in the name of her
niece Natalie.
Karen died recently and Aurelia became the sole legal owner of the house and
the bank accounts. Daniel claims that the house, bank accounts, cottage, and
farm are all held on resulting trust for Karen’s estate, which is to be divided
equally among her three children.
Advise Daniel.
General remarks
This problem question concerns resulting trusts, which are discussed in Chapter 12
of the module guide and Chapter 5 of Penner.
use
Law of Property Act 1925, ss.53(1)(b), 53(2), 60(3); Lohia v Lohia [2001] EWCA Civ
1691.
Common errors
A common error was the failure to apply s.60(3) of the Law of Property Act 1925
properly.
discuss whether Karen’s transfers of her house and bank accounts into joint names
with her daughter Aurelia were intended as gifts of joint ownership to Aurelia or
were to be held in trust by both of them for Karen, either for life or absolutely. It
would discuss the application of the presumptions of resulting trust to apparent gifts
from mothers, whether the presumption of advancement should apply instead, and
the effect of s.60(3) on transfers of land. It would then discuss the presumptions
that apply to the purchases of land in the names of Colin and Natalie, noting that
s.60(3) does not apply to purchases. A very good answer would explain that those
purchases were at the expense of either Karen alone or both Karen and Aurelia,
depending on whether the bank accounts were held in trust for Karen or not.
misapplied the presumptions or failed to distinguish between transfers and
purchases of land for the purpose of s.60(3).
Student extract
Bank Account to Aurelia
The bank account to Aurelia, her daughter, is voluntary conveyance of
personalty. There is a presumption of resulting trust back to Karen’s estate
unless there is evidence to the contrary. Aurelia is her daughter, which states
that there is evidence to the contrary because of the presumption of
advancement. However, the presumption of advancement does not include
from a mother to a child, but the persuasive Australian case of Bennett v
Bennett states that there can be a presumption of advancement from a
mother to a child. With this being said it is in keeping with the spirit of the
Equality Act. However s.199 of the Equality Act states the abolition of the
presumption of advancement but the Act has not yet come into effect so the
presumption of advancement still stands. In addition, with Karen using the
money from the bank account to make purchases, such as the house and the
farm, does not necessarily seem to rebut the presumption of advancement.
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This is because she created it as a joint account to her and Aurelia, so she
can therefore use it for her everyday life expenses. In keeping with what was
stated above there is no presumed intention of resulting trust back to Karen’s
estate for the bank account.
Comments on extract
This is a good attempt to address the issues in relation to the bank account but it
makes a few mistakes. The presumption of advancement is not evidence but an
assumption made in the absence of evidence of the relevant intention. The fact that
Aurelia is Karen’s daughter is a fact that is relevant to the question whether Karen
intended a gift. The persuasive Australian case is Nelson v Nelson [1995] HCA 25,
184 CLR 538, not Bennett v Bennett. It is only persuasive and does not resolve the
question whether the presumption of advancement should apply in England to
apparent gifts from mothers. Karen’s subsequent use of the bank accounts is
relevant to the question whether she and Aurelia regarded those accounts as really
belonging to Karen.
Question 5
In Re Astor’s Settlement Trusts (1952) Roxburgh J said: ‘The typical case of a
trust is one in which the legal owner of property is constrained by a court of
equity so to deal with it as to give effect to the equitable rights of another.
Prima facie, therefore, a trustee would not be expected to be subject to an
equitable obligation unless there was somebody who could enforce a
correlative equitable right.’
Discuss.
General remarks
This quotation invited candidates to write an essay on private purpose trusts, the
beneficiary principle and the enforcer principle, which are discussed in Chapter 11
of the module guide and in Chapter 9 of Penner.
use
Re Astor’s Settlement Trusts [1952] Ch 534.
Common errors
A common error was failing to focus on the question asked.
note that the quotation raises both the beneficiary principle and the enforcer
principle, explain what they are and how they differ from each other.
simply described the normal rule that trusts for private purposes without
beneficiaries are invalid and the anomalous exceptions to that rule, without
considering the issues regarding beneficial ownership and the nature of private
legal rights and relationships.
Question 6
In Papadimitriou v Crédit Agricole Corp and Investment Bank (2015) Lord
Sumption said: ‘Whether a person claims to be a bona fide purchaser of
assets without notice of a prior interest in them, or disputes a claim to make
him accountable as a constructive trustee on the footing of knowing receipt,
the question what constitutes notice or knowledge is the same.’
Discuss.
6
General remarks
This quotation invited candidates to write an essay on the degree of knowledge or
notice required for liability on the basis of knowing receipt, which is discussed in
Chapter 16 of the module guide and in Chapter 11 of Penner.
use
Re Montagu’s Settlement Trusts [1987] 1 Ch 264; Bank of Credit and Commerce
International (Overseas) Ltd v Akindele [2000] EWCA Civ 502, [2001] Ch 437;
Papadimitriou v Crédit Agricole Corp and Investment Bank [2015] UKPC 13, [2015]
1 WLR 4265.
Common errors
A common error was the failure to address the specific question asked.
discuss whether notice is sufficient to make the recipient liable and what it means to
be ‘accountable as a constructive trustee’. It might compare this statement with the
reasons in Re Montagu’s Settlement Trusts (1987) and BCCI v Akindele (2000). It
might also compare knowing receipt with dishonest assistance but should not be a
general essay on accessory liability.
were general essays on liability for knowing receipt that did not address the specific
question asked.
Student extract
Lord Sumption contradicted Montagu and Akindele. In Montagu, Megarry VC
made clear distinction between notice and knowledge. Liability in Akindele
depended on conscience being affected. Notice was not enough. Honest
people can have notice of things they would have discovered if they had
taken care. That means they cannot be bona fide purchasers without notice
but it should not make them personally liable for knowing receipt if they are
honest.
Comments on extract
This is too brief, but focused on the essential issue and referred to the relevant
authorities.
Question 7
In Bristol & West Building Society v Mothew (1996) Millett LJ said: ‘The
expression ‘fiduciary duty’ is properly confined to those duties which are
peculiar to fiduciaries and the breach of which attracts legal consequences
differing from those consequent upon the breach of other duties. Unless the
expression is so limited it is lacking in practical utility.’
Discuss.
General remarks
This quotation invited candidates to write an essay on fiduciary duties, which are
discussed in Chapter 17 of the module guide and in Chapter 12 of Penner.
use
Bristol & West Building Society v Mothew [1996] EWCA Civ 533, [1998] Ch 1.
Common errors
None. Most candidates who answered this question did fairly well unless they
missed relevant issues or ran out of time.
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explain what a fiduciary duty is and how it is different from other duties owed by
trustees, including the duty of care, duty to obey the trust and duty to account. It
might also discuss the remedies for breach of fiduciary duty.
failed to focus on the issues raised by the quotation.
Question 8
In Pennington v Waine (2002) Arden LJ said: ‘a principle which animates the
answer to the question whether an apparently incomplete gift is to be treated
as completely constituted is that a donor will not be permitted to change his
or her mind if it would be unconscionable, in the eyes of equity, vis-à-vis the
donee to do so.’
Discuss.
General remarks
This quotation invited candidates to write an essay on incomplete gifts, which are
discussed in Chapter 6 of the module guide and in Chapter 8 of Penner.
use
Re Rose [1952] EWCA Civ 4, [1952] Ch 499; Mascall v Mascall [1984] EWCA Civ
10, 50 P&CR 119; Pennington v Waine [2002] EWCA Civ 227, [2002] 1 WLR 2075.
Common errors
A common error was the failure to focus on Pennington v Waine and its use of
unconscionability.
explain the treatment of incomplete gifts in equity, the rule in Re Rose [1952] Ch
499, and Mascall v Mascall [1984] EWCA Civ 10 and the change in the law
introduced in Pennington v Waine [2002] EWCA Civ 227 in which the court asked
whether it would unconscionable not to treat the gift as complete.
merely recited a general essay on the completion of gifts and constitution of trusts.

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Examiners’ reports 2017

Examiners’ reports 2017

LA2002 Equity and Trusts (Level 5) – Zone B

Comments on specific questions

benefit test because it pursues a political objective of promoting changes to

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