Examiners’ report 2012

Examiners’ report 2012

LA3002 Law of trusts – Zone B

Introduction
As in past years, answers were marred by a reliance on prepared essays. This is
dangerous, for at least two reasons. First, the prepared answer will most probably
not be an answer to the question asked. In this respect, candidates should note that
Examiners are not fooled by ‘top and tailed’ answers, where a paragraph at the start
and another at the end are added to the prepared answer to make it appear
relevant to the question posed. Second, the prepared answers are usually written
by people who themselves are poor lawyers. As a consequence, even if relevant to
the question, they can be riddled with error. By using them, candidates not only fail
to address the specific question, but produce answers which are legally suspect.
A further worrying feature is that candidates are obviously not using the subject
guide provided by the University of London, preferring instead the rote answers
mentioned above and the lecture notes provided by private colleges. It cannot be
stressed enough that the subject guide must take precedence over all other
teaching materials, for the simple reason that the subject guide is almost always
written by the people who set and mark the exams. If candidates want to know how
their Examiners think and what are the current areas of controversy in their subject,
in the same way that internal students can, they should use the subject guide and
the books there recommended. Indeed, if an institution is not urging its students to
read the subject guide, students should ask themselves whether they are getting
value for money and consider moving elsewhere.
Yet another worrying feature was the inability of candidates to reproduce accurately
the wording of statutes. Thus, despite the fact that s.53(1)(b) Law of Property Act
(LPA) 1925 is concerned with ‘declarations’ of trust of land, many saw it as
concerned with ‘transfers’, with ‘dispositions’ or with ‘conveyances’.
Finally, there was a tendency for candidates to pay little attention to the question
posed and just regurgitate lecture notes on the topic. Such answers will be given
the fail mark they deserve.

Specific comments on questions

Question 1
Alfred covenanted with Bertie, his brother, to convey any property he might
receive under his father’s will worth more than £25,000 to Bertie to hold on
trust for Cathy. He also covenanted with Bertie to transfer to him his current
shareholding in Greenback plc on the same trusts. Although Alfred
subsequently received a painting valued at £1,000,000 under his father’s will,
he failed to convey it as promised. He attempted to convey the Greenback plc

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shareholding but the transfer was ineffective because he used a deed rather
than a registered transfer. Alfred has now fallen out with Cathy and is
refusing to perform either covenant.
Advise Cathy.
How would your answer differ if Alfred was now dead, he was solvent at his
death, Bertie was his residuary legatee, and the painting and shares were not
otherwise disposed of by Alfred during his lifetime?
General remarks
This was a question on covenants to settle, covering both present and after-
acquired ‘property’. Candidates needed to address the question of whether Cathy
could enforce the covenant herself, and if so, how, and whether it would help her if
she could persuade Bertie to sue. There was also the added twist of an imperfect
transfer, so the question was whether this fell within any of the exceptions to Milroy
v Lord. The only possibility would seem to be the ‘unconscionability’ exception in
Pennington v Waine, the argument perhaps being that it would be unconscionable
for Alfred to resile from the gift given that to do so would amount to a breach of
covenant. Of course, this was a covenant which equity will not enforce, so one
question would be whether that had any bearing on the matter. As to the alternative
at the end, this raised the correctness of Re Ralli’s WT in light of Re Brooks’ ST.
The question was generally poorly answered, with most candidates failing to spot
what it was about because they did not notice the word ‘covenant’ in the opening
sentence. As a consequence, most gave very vague answers on imperfect gifts.
Many also discussed issues surrounding the ‘three certainties’, when no such
issues arose, or spoke about the ‘trust’ being valid, when of course the problem was
that there was no trust at all.
Question 2
Adam made a written declaration of trust of 50 shares in a privately held
company, with Calvin as sole trustee and Eve as sole beneficiary. Adam sent
the declaration to Calvin, along with a completed share transfer form and the
share certificates. Calvin put the declaration, transfer form and certificates in
a safety deposit box.
Later, Eve orally agreed to sell her interest under the trust to Troy for £25,000.
Troy then orally declared that he held any interest he received from Eve on
trust for Helen. Helen orally assigned her interest under this trust to Sophie.
Discuss.
What difference, if any, would it make if the shares were in a public company?
General remarks
This was a problem question on formalities. There is clearly no transfer of the
shares from A to C, but arguably C would hold an interest under a constructive trust
under the rule in Re Rose, which he would then hold on trust for E. C would not
drop out of the picture so that A held directly on trust for E because of Nelson v
Greening & Sykes. There are no formalities required for E to make a contract to sell
her interest under the sub-trust to T, and because her interest is in shares in a
private company the contract will be specifically enforceable, meaning that there is
a sub-sub-trust in favour of T, Oughted v IRC notwithstanding. As to T’s oral
declaration of trust in favour of H, this would not amount to a disposition of an
equitable interest and so will be valid, despite s.53(1)(c): Nelson v Greening &
Sykes. However, H’s oral assignment to S will be void for failure to comply with

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s.53(1)(c). If the shares were in a public company, then E's contract with T is not
specifically enforceable, and there will be no constructive trust for T.
This question was generally poorly answered. Few knew of the important decision
in Nelson v Greening & Sykes, and many were unable to distinguish between an
agreement to sell and the performance of that agreement. Moreover, many
candidates made the mistake of thinking that s.53(1)(c) applies to a transfer of
shares (presumably because many of the s.53(1)(c) cases concern shares) and that
therefore the shares passed to Calvin, thereby missing the point of the question. A
simple reading of the statute would have prevented such an error.
Question 3
“In Westdeutsche Landesbank Girozentrale v Islington LBC (1996), Lord Browne-
Wilkinson said that resulting trusts give effect both to the common intention of
the parties and to the presumed intention of the trustee. However, a resulting
trust can arise even though the trustee is entirely unaware of the transaction, as
in Re Vinogradoff (1936), where the trustee was a four-year old girl.”
Discuss.
General remarks
This question asked whether Lord Browne-Wilkinson in Westdeutsche was correct
to say that resulting trusts gave effect to the common intention of the parties. Re
Vingradoff is cited as apparently contradicting what he said, though a good answer
would notice that that decision was badly argued and would no doubt have gone the
other way had Fowkes v Pascoe been cited to the judge. Even then, there is no
authority for Lord Browne-Wilkinson’s pronouncement, with Lord Nottingham in
Cook v Fountain speaking only of proof by presumption of a declaration of trust, not
a declaration communicated to the transferee, though it would only rarely be the
case that the declaration was not made to the transferee. A good answer would
also discuss the viability of the Birks/Chambers thesis, which is in no sense based
on the common intention of the parties.
This question was poorly answered. Most candidates used prepared essays on the
Birks/Chambers versus Swadling debate, paying little attention to the precise
question asked. Many were content to describe Re Vinogradoff as an ‘atrocity of a
decision’ (following Penner), without explaining that it was decided per incuriam
Fowkes v Pascoe.
Question 4
To what extent is it correct to say that charitable purposes must benefit the
public?
General remarks
A good answer would explain the two senses of public benefit to be found in the
case law, that concerned with public benefit in the abstract (does the purpose
benefit the public generally?), and that concerned with public benefit in the
particular (does the purpose benefit a sufficient section of the public, or merely a
collection of private individuals?). It would then go on to ask what difference, if any,
the enactment of the Charities Act 2006 (now 2011) has made to the law in this
area, in particular, whether s.3(2), which abolished the so-called ‘presumption’ of
public benefit, is effective. What, for example, would be the current status of the
trust in Dingle v Turner? A good answer might have also asked whether the Upper
Tribunal was right in the Independent Schools case to say that an educational trust
which excluded the poor could not benefit the public in the second sense of that term.

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Most answers to this question failed to focus on the issue of public benefit, instead
producing obviously prepared answers on the Charity Act 2006 (now 2011). Given
that candidates have the statute book in the examination, they should realise that
no marks are awarded for the copying out of vast chunks of statutory material.
Question 5
Gerry telephoned his friend, Russell, saying, “I am going to make my will and
provide you with a sizeable legacy. Please keep £10,000 for yourself and then
pay the rest to my mistress, Helen.” Russell agreed to do this. Three months
later, Gerry executed his will, which contained a legacy to Russell of
£100,000. It also contained a devise to Russell of title to a small cottage called
Red Gables “in trust as privately agreed”. Claudia, Gerry’s illegitimate
daughter, was a witness to the will.
Two months later, Gerry telephoned Russell again and said, “I made my will
and left you the legacy we discussed. I am also devising Red Gables to you in
trust secretly for Claudia. Can you take care of this as well?” Russell said he
would.
Gerry died the following year. On his desk was found a typewritten letter in a
sealed envelope addressed to Russell, explaining that Gerry had found a new
mistress, Lydia, and asking Russell to divide the legacy equally between
Helen and Lydia.
Advise Gerry as to what he should do with the £100,000 and the title to Red
Gables.
General remarks
This was a problem question on secret trusts. A good answer would very briefly
explain why such trusts are problematic (because of s.9 WA 1837) and how courts
get round this problem. As to the fully secret trust of the £100,000, the first issue
was whether Russell can take the £10,000 beneficially. The decision in Re Rees
would say that he could not, though that case concerned a half-secret trust. As to
the balance, the question is whether Helen is entitled to the whole, or whether she
has to share it with Lydia. The argument for Helen would be that the letter was
communicated to Russell only after Gerry’s death and so cannot be admitted into
evidence: Wallgrave v Tebbs; Re Boyes. Of course, both these decisions were
reached on the basis of the fraud theory, and a good candidate would ask whether
the result would be the same using the dehors theory. So far as the half-secret trust
of the title to Red Gables is concerned, there are questions of timing, the
applicability of s.53(1)(b) Law of Property Act (LPA) 1925, and the fact that the
beneficiary was a witness to the will.
Though popular, this was on the whole not a well answered question. Many
candidates missed the obvious point about s.53(1)(b), or said that the issue was
resolved by Ottaway v Norman, when it clearly was not.
Question 6
‘We must continue to do our best with the accepted formulation of the liability
in knowing receipt, seeking to simplify and improve it where we may. While in
general it may be possible to sympathize with a tendency to subsume a
further part of our law of restitution under the principles of unjust enrichment,
I beg leave to doubt whether strict liability coupled with a change of position
defence would be preferable to fault-based liability in many commercial
transactions …’ (per Nourse LJ in BCCI v Akindele (2000)).
Discuss.

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General remarks
This was an essay question on personal liability for receipt of trust rights dissipated
in breach of trust. In Akindele, it was argued that the law should follow Lord Nicolls’s
suggestion of seeing recipient liability as part of the law of unjust enrichment, with
liability being strict subject to a defence of change of position, though with a fault-
based tort claim available for consequential loss. A good answer would have
explained the thinking behind this view and whether it stands up to scrutiny. It would
have also asked whether Nourse LJ’s alternative, unconscionability, fares any
better.
Most candidates failed to take up the challenge of this question, which is to see
whether it is possible to fit recipient liability within an unjust enrichment framework,
a point discussed at length in the subject guide. Instead, general accounts of
personal liability in equity were given, often with detailed discussion of the meaning
of dishonesty in assistance cases, which was of course not relevant to the question.
Question 7
“It seems to me that there is a real case for saying that the decision in A-G for
Hong Kong v Reid (1994) is unsound. In cases where a fiduciary takes for
himself an asset which, if he chose to take, he was under a duty to take for the
beneficiary, it is easy to see why the asset should be treated as the property of
the beneficiary. However, a bribe paid to a fiduciary could not possibly be said
to be an asset which the fiduciary was under a duty to take for the beneficiary.
There can thus be said to be a fundamental distinction between (i) a fiduciary
enriching himself by depriving a claimant of an asset and (ii) a fiduciary
enriching himself by doing a wrong to the claimant” (Lord Neuberger MR in
Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (2011).
Discuss.
General remarks
This question asked whether Lord Neuberger MR was right as a matter of principle
(rather than precedent) to refuse to follow Lord Templeman’s reasoning in A-G for
Hong Kong v Reid. A good answer would set out Lord Templeman’s reasoning in
Reid and subject it to criticism. Is there, for example, a duty on the fiduciary to
convey any bribe received to his principal in specie? Even if there is, does the
application of the maxim ‘equity looks upon that as done which ought to be done’
generate a trust? Assuming Reid to have been indeed wrongly decided, the
question would then be whether Lord Neuberger’s distinction between those
situations where a trust is and is not justified stands up to scrutiny.
Despite the fact that this topic is treated at length in the subject guide, most
candidates simply wrote all they knew about constructive trusts, which in some
cases was not very much. Often, they included discussion about trusts of the family
home, which is a million miles from the topic of the question and therefore received
low marks.
Question 8
By his will, Fred made the following bequests:
(a) £500,000 for distribution as my trustees shall in their
absolute discretion see fit to any person of full age excepting my wife and my
children;
(b) £500,000 for distribution amongst such persons as my trustees shall
decide it was unconscionable for me not to make provision;

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(c) £1,000 for each undergraduate law student currently registered on the
London International Programmes LLB who is devoutly religious; and
(d) £500,000 to my executors, with a power to appoint to such of my good
friends as they in their absolute discretion think fit.
Advise Fred’s executors as the validity of these bequests.
General remarks
The question concerned the validity of certain trusts and powers. As to (a), this is
clearly a discretionary trust. There is no doubt that the objects satisfy the ‘any given
postulant’ test, but the question is whether it will nevertheless fail for administrative
unworkability and/or capriciousness. As to (b), the question is whether this
discretionary trust will fail for uncertainty of objects. Is ‘unconscionable’ conceptually
certain? Although one would have thought it was not, there are certain judges who
insist that it is workable as a touchstone of liability in particular instances (e.g. Nourse
LJ, who used it as a test of liability in cases of unauthorised receipt of rights held on
trust). On the other hand, it was rejected by the Privy Council in Royal Brunei v Tan
as unworkable in the context of assistance liability. As to (c), this is a gift subject to
condition precedent. Does it satisfy the relaxed test espoused in Re Barlow’s WT? If it
does, was Re Barlow’s WT rightly decided? Finally, with regard to (d), is a power of
appointment for good friends valid? Re Barlow upheld a gift subject to a condition
precedent for such persons, but said it would have failed had it been a discretionary
trust. By the same reasoning, it should also fail as a power of appointment.
Many candidates managed to state the relevant principles of law, though without
progressing to the next stage and applying that law to the facts at hand. As to part
(c), many wrongly thought this would fail merely on the ground that the class was
too large (see McPhail v Doulton, where the class must have numbered millions,
but where no objection on the ground of size was made), while others bizarrely
thought that it involved a charitable trust, presumably because the words ‘devoutly
religious’ were used.