Examiners’ reports 2019

Examiners’ reports 2019

LA3002 Equity and Trusts Level 6 – 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 4, 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
‘The rules relating to certainty of subject matter are illogical. There is no good
reason to treat company shares and bank accounts differently from gold
ingots or identical cases of wine. If a trust to provide a reasonable income is
acceptable, then there is nothing wrong with a trust of the bulk of an estate.’
Discuss.
General remarks
This was an essay question on certainty of subject matter, as discussed in Chapter
5 of the module guide.
Law cases, reports and other references the examiners would expect you to use
Re London Wine (1986); Re Goldcorp (1995); Hunter v Moss (1994); Pearson v
Lehman Bros Finance SA (2010); Palmer v Simmonds (1854); Re Golay’s WT
(1965).
Common errors
None.

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A good answer to this question would…
have focused specifically on the problem of identifying part of a bulk and the
distinction sometimes drawn between tangible and intangible ‘things’. It would note
the difference between, for example, a trust of 50 out of 950 shares, and one in
which the beneficiaries are tenants in common in the same proportions, and the
analysis in Pearson v Lehman Brothers Finance SA (2010). It would also discuss
the problem of conceptual uncertainty in relation to ‘the bulk of an estate’ (Palmer v
Simmonds) and ‘reasonable income’ (Re Golay).
Poor answers to this question…
talked generally about the so-called ‘three certainties’, whereas the question was
only concerned with subject matter. Even those candidates who did focus on
subject matter often ignored the question and just churned out their lecture notes on
the topic. A common omission was discussion of the hugely important Lehman
Brothers case.
Student extract
In regards to certainty of subject matter (SM) there are different objective and
subjective trusts under which the subject is thought to be certain and not,
which under different case-law can be explained. Subject matter as ‘to bulk of
my estate’ as in Palmer v Simmonds would constitute to be uncertain as in
the case it was said that the bulk of the estate clearly mentions more than
half and more than 50% but doesn’t tell us how much of a bulk of estate is to
be considered as it may be 58%, 68% or 78%, all of which is bulk, so the
subject matter failed to be certain.
The leading case of discussion would be Re London Wines and Hunter v
Moss. The reason being the nature of the subject matter. In Re London Wine,
the subject matter was tangible, whereas in Hunter v Moss, the subject
matter was intangible. So the courts held that tangible assets, upon their
different price of purchasing and different value must be segregated in order
to be considered certain, whereas the shares, intangible property, being of
the same value, and same price, must not be segregated as it won’t make
much difference because it would be identifiable and quantifiable.
So a subject matter must be certain, identifiable and quantifiable and under
this maxim we could see the bottles of wine not identifiable when not
segregated and the shares identifiable even when not segregated, as they
had same value. So getting to know exact shares wasn’t an issue as they
were suggested that to get a fraction of the total shares to get value and get
the subject matter certain, for example, 950/6.
These were the main reasonings that were held between the decision making
of the cases of Re London Wine and Hunter v Moss and when we evaluate
them we can argue that they are not illogical and they might help us a lot on
the decisions of the separate natures of cases under these heads because if
they were treated equally, one of them would not be decided according to the
equity that preserves justice to every situation under the situation equally and
accordingly to their own facts.
Comments on extract
The answer as a whole contained much waffle and repetition, although the extract
demonstrates that it did display a basic knowledge of the law, even though the
account is somewhat incoherent. The biggest problem in the question as a failure to
even mention, let alone engage with, the reasoning of Briggs J in the Lehman Bros
case. The answer as a whole scored a low 2:2.

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 Examiners’ reports 2019

Question 2
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.
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.
Question 3
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.
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

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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.
Student extract
The question invites us to consider whether the secret trusts set up by the
Testator Albion are valid. In fact, although s.9 of the Wills Act 1837 imposes
that testamentary dispositions must be made in writing, signed and
witnessed, secret trusts fall outside the ambit of the Act. There was some
debate as to why secret trusts, which ensure that the identity of the person
the testator intends to confer a benefit on in secret, do not have to comply
with the formalities under the Wills Act. Matthews supports the view that s.9
only applies to the transfer of the legal title. He argues that the provision does
not require the testamentary trust of personalty to be itself in writing. Hence
he concludes that there is no need for a doctrine of secret trusts as they are
perfectly valid. However, courts seem to think that s.9 does apply to
testamentary trusts which I agree with; otherwise, why would Parliament
have bothered to enact the provision? Courts subsequently developed the
fraud theory to justify their validity. Following the theory, only in case of actual
fraud, i.e. where the legatee induced the property owner to leave him
property in order to perpetrate a fraud, should equity intervene and enforce
the promise made to the testator as a trust obligation. This is because the
court will not allow a statute enacted to prevent fraud to be used as an
instrument of fraud, thus the legatee cannot rely on the Wills Act to invalidate
his promise. What necessary fraud is was discussed by the House of Lords in
McCormick v Grogan. The narrow view is that fraud is where D induces the
owner to leave him all his property or not make a will as he will take on his
intestacy, where D misrepresents his true intentions and falsely promises to

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give effect to the testator’s wishes. The wider and current view is however
merely that D refuses to carry out the testator’s wishes when he gets the
property.
The fraud theory was discussed in relation to half-secret trusts in Blackwell v
Blackwell, where it was held that the fraud was a fraud on the beneficiaries.
However, as Sheridan points out, there is no fraud where a gift fails for
invalidity. The question should thus be whether secret trusts are valid means
to make someone a beneficiary despite the Wills Act. If the answer is no,
then there is no fraud. If the answer is positive, then there will be one.
The court later developed a second theory, the dehors the will theory.
Basically, a secret trust is considered to be an inter vivos trust which will only
be completed on the death of the testator. The idea is that secret trusts are
not testamentary dispositions, therefore they fall outside the ambit of the Wills
Act. Some academics like Penner think that they are indeed testamentary
dispositions as they are perfectly revocable at any time before the testator’s
death. However, one may point out that so is property of an incompletely
constituted trust, such as in Re Ellenbrough, where the settlor could decide
not to settle after all as the beneficiary has given no consideration in return.
The fraud theory and the dehors the will theory are the prominent theories
behind secret trusts, and provide justifications of why they fall outside the
ambit of the Wills Act. They are subject to their own rules, set out clearly in
Ottoway v Norman, which we will consider, when analysing the two apparent
secret trusts of the question.
Comments on extract
This answer was given a mid-2:2 mark. The introduction, which is reproduced
above, was far too long; it should have been one paragraph, not two pages. It had
little relevance to the issues raised in the question and no attempt was made to
relate what was said to the problem. In the question itself, too little time was spent
on issues which were relevant. There was, for example, no discussion of the
applicability of s.53(1)(b) LPA 1925. Nor did the candidate spot the issue of
Britannia’s husband being a witness, nor see the issue of the wording of will.
Although the candidate stated and applied the rule in Re Keen, their answer
contained no criticism. Finally, the candidate stated the communication rule for
FSTs in Re Boyes wrongly, omitting the crucial element that the communication
must take place before the death of the testator.
Question 4
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
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.

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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…
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 5
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

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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.
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’).

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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 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 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 private purpose trusts and the beneficiary principle, as
discussed in Chapter 10 of the module guide. It was not a popular question.
Law cases, reports and other references the examiners would expect you to use
Re Endacott; Leahy v A-G for NSW; Re Denley; Re Sanderson; Re Osoba.
Common errors
None.
A good answer to this question would…
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…
simply reproduced a general answer on private purpose trusts and failed to engage
with the question.