Examiners’ reports 2019

Examiners’ reports 2019

LA2002 Equity and Trusts Level 5 – Zone B

Introduction
The Equity and Trusts paper once again required students to answer three
questions from six.
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.
Student extract
For a trust to be valid, the trust property must be vested successfully in the
trustee. If not, the trust will not be constituted, and will be invalid. As Ethel
has not registered the shares in her name, despite having all the documents
to do so means that the legal title is not vested in her. The rule in Milroy holds
that this trust will fail. The legal principles being based on ‘equity will not
assist a volunteer’ and ‘equity will not perfect an imperfect gift’. Milroy lays
out three ways a gift can be performed. There are, transferring the subject
matter completely to the donee, declaring a trust and vesting the trust
property in the trustee, and finally be declaring that you hold the trust
property on trust for a particular beneficiary. The court has ruled in cases
such as Jones v Lock that if the transferor fails to make a gift when
attempting one of these modes, then the court will not infer that the transferor
was actually making another of the modes to perfect the imperfect gift. So
here, the court would not infer that Lucy was actually creating a self-declared
trust, for the reason that this was not the settlor’s intention. So, at the
moment we appear to have a failed trust.
However, the courts over the years have found ways to circumvent the strict
rule in Milroy. The most appropriate rule to apply in this case would be under
Re Rose. The court held that if the transferor had done all that was required
of them in transferring the subject matter then the court would treat this as
completed from this point. The court gets around the perfection point, not by
saying they will perfect the gift, but that the gift is already perfected from the
point the transferor completes all that they are required to do. On this basis
then, it appears a valid trust been created.
Comments on extract
Although an accurate statement of the law, the candidate takes too long to state the
basic rules and should instead have moved far more quickly to the Re Rose
exception, where some criticism of the doctrine would not have gone amiss. The
candidate should have also identified exactly who was the beneficiary of the Re
Rose trust. The answer scored a high 2:2 overall.
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

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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. Although
popular, it was generally poorly done.
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.
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.

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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
Penelope died recently and Cyclops was appointed executor of her estate.
Cyclops seeks your advice on the validity of the following clauses in
Penelope’s will:
a) ‘£100,000 to promote the worship of Neptune, the Sea-God;
b) £100,000 to campaign for free medical treatment of animals;
c) the remainder of my estate to the Odyssey Sailing Club.’
The Odyssey Sailing Club closed five years ago, because of the high fees it
charged.
General remarks
This was a problem question on charities, 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; McGovern v AG; Re South Place Ethical Society; Independent
Schools Council v Charity Commission; Re Harwood.
Common errors
Poor application of cy près doctrine.
A good answer to this question would…
have discussed whether each of the three clauses of Penelope’s will create valid
gifts for charity. The answer should begin by explaining that a gift is not charitable
unless it falls under one of the recognised heads of charity set out in s.3(1) of the
Charities Act 2011 and provides a benefit to the public. Clause (a) raises the
possibility of a gift for the advancement of religion under s.3(1)(c), which requires
worship. Clause (b) appears to be for the advancement of animal welfare under
s.3(1)(k) but fails to satisfy the public benefit requirement because it promotes a
political cause of advocating a change to the law: McGovern v AG. Clause (c) is
possibly a gift for the advancement of amateur sport under s.3(1)(g) but, since the
intended donee (which may be either a corporation or an unincorporated
association) ceased to exist before the will was probated, this creates an initial
impossibility that might be saved by the cy près doctrine. There are, however, two

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problems. First, the gift might not be charitable if the club failed to provide a public
benefit because it excluded the poor: Independent Schools Council v Charity
Commission. Secondly, it is harder to find a general charitable intention when a gift
is made to an organisation that has ceased to exist: Re Harwood.
Poor answers to this question…
failed to spot the cy pres issue or applied it badly.
Question 4
‘Under an institutional constructive trust, the trust arises by operation of law
as from the date of the circumstances which give rise to it: the function of the
court is merely to declare that such trust has arisen in the past. The
consequences that flow from such trust having arisen (including the possibly
unfair consequences to third parties who in the interim have received the
trust property) are also determined by rules of law, not under a discretion. A
remedial constructive trust … is different. It is a judicial remedy giving rise to
an enforceable equitable obligation: the extent to which it operates
retrospectively to the prejudice of third parties lies in the discretion of the
court.’ (Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v
Islington LBC (1996)).
Discuss.
General remarks
This was an essay question on constructive trusts, as discussed in Chapters 3 and
13 of the module guide.
Law cases, reports and other references the examiners would expect you to use
Neste Oy v Lloyds Bank; Re Goldcorp; Re Polly Peck (No 2); Westdeutsche
Landesbank Girozentrale v Islington; Pennington v Waine; Angove’s Ltd v Bailey.
Common errors
None.
A good answer to this question would…
have explained the difference between ‘institutional’ and ‘remedial’ constructive
trusts. Having explained this difference, it would then ask whether English law
recognises the remedial variety, making reference to cases such as Re Polly Peck,
Re Goldcorp and Angove’s v Bailey on the one side and Pennington v Waine on the
other. It might also ask whether Lord Browne-Wilkinson’s dichotomy is correctly
drawn in that all constructive trusts might be seen as remedies.
Poor answers to this question…
failed to address the question, candidates simply writing all they knew about
constructive trusts.
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
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.

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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
‘I think there may be a purpose or object trust, the carrying out of which would
benefit an individual or individuals, where that benefit is so indirect or
intangible or which is otherwise so framed as not to give those persons any
locus standi to apply to the court to enforce the trust, in which case the
beneficiary principle would, as it seems to me, apply to invalidate the trust,
quite apart from any question of uncertainty or perpetuity. … The present is
not, in my judgment, of that character… The beneficiary principle… is confined
to purpose or object trusts which are abstract or impersonal. The objection is

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not that the trust is for a purpose or object per se, but that there is no
beneficiary or cestui que trust.’ (Goff J in Re Denley’s Trust Deed (1969)).
Discuss.
General remarks
This was a question on purpose trusts and the beneficiary principle, as discussed in
Chapter 10 of the module guide.
Law cases, reports and other references the examiners would expect you to use
Re Endacott; Leahy v A-G for New South Wales; Re Sanderson’s WT; Re Osoba;
Re Denley.
Common errors
None.
A good answer to this question would…
be able to compare the contrasting augments of Hayton and Matthews and discuss
the place of trusts of the type of Re Denley, Re Sanderson and Re Osoba within the
orthodox approach to ‘purpose’ trusts.
Poor answers to this question…
failed to see the potential inconsistency between Re Endacott and Re Denley.
Student extract
The beneficiary principle states that a valid trust must be for the benefit of
ascertainable individuals. As Sir William Grant MR said in Morice v Bishop of
Durham (1804) that there must be somebody, in whose favour the court can
decree performance. Goff J’s view that the beneficiary principle apply to
invalidate the trust as there is no beneficiary or cestui que trust comes close
to Sir William Grant MR’s view. Debates have been ongoing as to rights
principle and enforcer principle. Apparently, Goff J’s view is inclined to them
both.
Both rights principle and enforcer principle are applicable to private purpose
trust as in Re Denley that the right principle concerns with the view that if
there is no one with rights against the trustee, then there is no one who can
enforce the trust and thus no trust. Whereas the enforcer principle concerns
that as the settlor has nominated an enforcer who is usually carrying the right
of beneficiary or right of taking the trustee to equitable remedy if trustee fail to
act properly. Both principles are not mutually exclusive and contradictory to
the generalised beneficiary principle.
Comments on extract
The extract comprises the candidate’s introduction to this question. Although quite
difficult to read at times, it does at least distinguish between two possible views of
private purpose trusts, viz. that such trust are void because they have no
beneficiary, a rule espoused by the Court of Appeal in Re Endacott, or a more
relaxed view, that they are only void if there is no-one to enforce them: cf. the
doctrine of locus standi in public law. This is indeed the main issue is the subject of
private purpose trusts and the answer was awarded a mid-2:2 overall.