Trusts L6 Report 2017 A

Examiners’ reports 2017
LA3002 Equity and Trusts (Level 6) – 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 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.
1
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
Carrie died recently. According to her will, the residue of her entire estate is
to be held in trust as follows:
a) to promote awareness of mental health issues;
b) to improve facilities at the Albright Health Centre;
c) to improve facilities at the Burns Clinic.
Helen and Marie were appointed as the executors of Carrie’s estate and the
trustees of her will trusts. They seek your advice concerning the validity of
those trusts. The Albright Health Centre and the Burns Clinic used to provide
treatment for mental illness, but they closed down several years ago. The
Albright Health Centre was a non-profit facility that provided expensive
treatments for wealthy patients. The Burns Clinic was run for profit, but also
provided treatment for poor patients who were unable to pay.
Advise Helen and Marie.
General remarks
This problem question concerns charity, which is discussed in Chapter 10 of the
module 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), (d), and (j); Re Harwood [1936] Ch 285; Independent
Schools Council v Charity Commission for England and Wales [2012] Ch 214.
Common errors
Common errors were failing to identify the relevant heads of charity and
misapplying cy près.
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 and discuss cy près. All three clauses
concern the advancement of health or the relief of those in need because of ill-
heath. Clause (a) might also be for the advancement of education. The answer
would identify the initial failure of the trusts for the Albright Health Centre and the
Burns Clinic and explain that cy près is only possible if those facilities were
charitable before they closed. It would discuss whether the exclusion of poor
patients would mean that the Albright Health Centre did not satisfy the public benefit
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requirement (Independent Schools) and explain that the Burns Clinic was not
charitable because it was run for profit and therefore not exclusively charitable. It
would discuss whether Carrie’s will indicates a general charitable intention to
promote mental health and relieve those suffering from mental illness.
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.
Student extract
Public Benefit
Based on the judgment in Independents Schools Council v Charity
Commission, the public benefit element is satisfied where there is a benefit
and not detrimental to the public, where the purpose is to benefit a wide cross
section of the public (even if the number to benefit at any particular time is
small) and where the poor is not excluded.
The promotion of mental health issues would undoubtedly provide a public
benefit. It affords greater appreciation and tolerance, it helps in saving lives, it
removes stigma and discrimination, among other things. As provided, there
appears to be no impediments to who are able to benefit. …
(b) Albright Health Centre …
(ii) Public Benefit
The requirement for the public benefit was discussed above given the
Independents Schools judgment. The improvement of Albright facilities may
have an issue establishing the public benefit if its services were exclusively
for wealthy patients. While in Independent Schools, students did pay, there
was a system whereby the poor were not excluded. Albright would have to be
established as not to have excluded the poor to benefit as a charitable
purpose.
Comments on extract
The candidate made good use of headings, and identified and discussed the
relevant legal issues as they relate to the facts raised by the question.
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.’
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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:
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.
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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.
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.
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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).
Question 5
‘There is no reason why it should be necessary to be able to identify whether
any given person is or is not a beneficiary of the trust, so long as there are
enough people who are clearly beneficiaries and entitled to enforce the trust.’
Discuss.
General remarks
This quotation invited candidates to write an essay about certainty of objects, the
beneficiary principle and the enforcer principle, which are discussed in Chapters 5
and 11 of the module guide and in Chapters 7 and 9 of Penner.
use
McPhail v Doulton [1971] AC 424; Re Astor’s Settlement Trusts [1952] Ch 534.
Common errors
A common error was the failure to address the specific question asked.
discuss the requirements for certainty of objects and might compare discretionary
trusts with both powers of appointment and fixed trusts. It might discuss the distinction
between the beneficiary principle and the enforcer principle. It might mention certainty
of intention and certainty of subject matter but the student should not write a general
essay on the three certainties.
recited a general essay on the three certainties.
Student extract
This enforcer principle has been put forth before. However, it has its critics as
in contrast to the Charity Commission who are legally bound to enforce the
trust. If standard trusts have an enforcer and no beneficiaries arguable there
is nothing stopping the enforcer to take the trust funds himself for his own
purposes. There would be no legal ramification of this as again this is private
law and the courts are not obligated to enforce the trusts are carried out.
Therefore it seems on its own the enforcer principle should fail.
Comments on extract
This provides a nice contrast between the enforcement of charitable purpose trusts
and private trusts. It misses the point that an enforcer has no incentive to enforce
the trust. Presumably, the trustees would not allow the enforcer to misappropriate
the trust assets for her or his own benefit. Also, it would be better if this argument
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were related carefully to the quotation, which states that the trust should be
enforceable so long as there are beneficiaries able to enforce it.
Question 6
In Barnes v Addy (1874) Lord Selborne said: ‘strangers are not to be made
constructive trustees merely because they act as the agents of trustees in
transactions within their legal powers, transactions, perhaps of which a Court
of Equity may disapprove, unless … they assist with knowledge in a
dishonest and fraudulent design on the part of the trustees.’
Discuss.
General remarks
This quotation invited candidates to write an essay on dishonest assistance, which
is discussed in Chapter 16 of the module guide and in Chapter 11 of Penner.
use
Royal Brunei Airlines v Tan [1995] UKPC 4; Twinsectra Ltd v Yardley [2002] UKHL
12; Barlow Clowes Int Ltd v Eurotrust Int Ltd [2005] UKPC 37.
Common errors
A common error was the failure to address the specific question asked.
discuss what it means when assistants are ‘made constructive trustees’ and how
the Privy Council in Royal Brunei Airlines v Tan (1995) changed the old requirement
that the breach of trust had to be fraudulent. It might compare dishonest assistance
with knowing receipt but should not write a general essay on accessory liability.
merely recited a general essay on dishonest assistance and knowing receipt.
Question 7
In Federal Republic of Brazil v Durant International Corp (2015) Lord Toulson
said: ‘The Board rejects the argument that there can never be backward
tracing, or that the court can never trace the value of an asset whose
proceeds are paid into an overdrawn account. But the claimant has to
establish a co-ordination between the depletion of the trust fund and the
acquisition of the asset which is the subject of the tracing claim, looking at
the whole transaction, such as to warrant the court attributing the value of the
interest acquired to the misuse of the trust fund.’
Discuss.
General remarks
This quotation invited candidates to write an essay on backward tracing, which is
discussed in Chapter 19 of the module guide and in Chapter 11 of Penner.
use
Federal Republic of Brazil v Durant International Corp [2016] AC 297 (PC).
Common errors
A common error was failing to discuss backward tracing.
discuss backward tracing and the problems with tracing through an overdrawn
account. It might compare tracing based on transactional links with tracing based on
swollen assets or on causal connections.
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discussed tracing generally without focusing on backward tracing.
Question 8
In Westdeutsche Landesbank Girozentrale v Islington LBC (1996) Lord
Browne-Wilkinson said: ‘Since the equitable jurisdiction to enforce trusts
depends upon the conscience of the holder of the legal interest being
affected, he cannot be a trustee of the property if and so long as he is
ignorant of the facts alleged to affect his conscience.’
Discuss.
General remarks
This quotation invited candidates to write an essay on the knowledge required in
order to give rise to a constructive or resulting trust and the role of conscience in
this context, which are discussed in Chapter 16 of the module guide and in Chapter
11 of Penner.
use
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105;
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669.
Common errors
A common error was writing an essay on unconscionability in other areas of law,
such as incomplete gifts or family homes, thus ignoring the last half of the quotation.
discuss whether this statement is correct and whether trusts should be imposed on
the innocent recipients of assets transferred in breach of trust or by mistake.
focused on part of the quotation only and missed the central issue.

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Examiners’ reports 2017

Examiners’ reports 2017

LA3002 Equity and Trusts (Level 6) – Zone A

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