Examiners’ reports 2023

Examiners’ reports 2023

LA3002 Equity and Trusts – Zone B

Introduction
The underlying approach of the paper is that marks do not turn on the identification
of the ‘right’ answer but rather on the reasoned explanation of an answer that is
plausible. Of course, errors of law cannot be rewarded but it is possible to make
mistakes and do well. There is also room for legitimate disagreement about the
proper approach to concepts and ideas and there is no intention to require
candidates to take one approach or another.
Where a question is divided into parts, all parts of the question carry equal marks
but the examiners will give a mark for a question that reflects its overall quality
rather than the sum of its parts.
Good answers will deploy relevant case law. The absence of case law inevitably
leads to a less good mark, demonstrating a failure of legal method. It may even
justify a failing mark.

Comments on specific questions

Question 1
Advise whether the following trusts in the will of Timon are charitable or
otherwise valid:
(a) £80,000 to my trustees to build a tennis court for use by the
inhabitants of the village of Fenwick (where I was born);
(b) £160,000 to my trustees so that the Fenwick Primary School can
organise day trips for the children of teachers at the school in
gratitude for the hard work of the teachers;
(c) £320,000 to my trustees to campaign for the abolition of electric
scooters in order to improve road safety; and
(d) £640,000 to my trustees for the preservation of historical monuments.
General remarks
This question concerns the law of charities (Chapter 9 of the module guide) and the
beneficiary principle, including the rule against purpose trusts (found in Chapter 3 of
the module guide). It is important to note that this is not a single topic question:
candidates should always expect a question to cover one or two related topics.

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Law cases, reports and other references the examiners would expect you to
use
Section 3 Charites Act 2011; IRC v Williams; IRC v Baddeley; Oppenheim v
Tobacco Securities; Re Denley; AG v McGovern; Royal Choral Society v IRC; Re
Endacott.
Common errors
A number of candidates wrote about the three certainties but there is no need to
return to these basic issues in every problem concerning the validity of a trust.
General statements about the law of charity also are not relevant in a question
about specific provisions. Some candidates failed to identify that this question
raised more than one ‘topic’.
A good answer to this question would…
establish the specific type of trust in issue: is it a purpose trust, a charity, a valid
purpose trust under special rules? When each provision has been identified, cases
can help establish whether the particular provision falls within (e.g.) charity, or the
Re Denley exception.
Poor answers to this question…
tried to explain the entire law concerning the creation of trusts. They failed to
identify the key issue and instead wrote generally about the beneficiary principle.
Examiners are not able to give meaningful marks for generalised statements. Lack
of case law is a serious disadvantage in problem questions of this type. Weak
answers also just stated the answer, rather than explain it.
Student extract
(c) £320,000 to my trustees to campaign for the abolition of electric
scooters in order to improve road safety
This trust does not fall precisely within any specific heads and there is a long-
standing case law that restricts trusts for political purpose from being
charitable. A trust which involves a change in the law would likely to be
considered as political (McGovern v AG), hence not charitable. It is unlikely
the case where political activity is ancillary. In National Anti-Vivisection
Society v IRC such trust with ancillary political purpose was suggested as
capable of being charitable. But in this case the campaign suggest a direct
political action rather than a research, it aims to the political issue in its core
(pushing amendment of the current regulation). Hence, it is unlikely to be a
charitable trust.
Also, if there is a charitable purpose, the court would analyse if there is a
public benefit (facts suggest that it will improve rod safety), and whether this
benefit outweighs any detriments, e.g. the wider usage of electric scooters
may improve the air quality because less people use cars, also it might be
beneficial for tourism etc. If there are more negativity than benefits (as in
National Anti-Vivisection Society v IRC) the court would not find the purpose
for public benefit.
As a private purpose trust, it lacks certainty of objects and beneficiaries
(Morice). The Re Endacott case suggested that those exceptions are limited
and this is not one of the ‘anomalous case’, and unlike Re Denley's factual
beneficiaries are not clear. So the trust will be invalid. The good-willed aim,
like in Re Astor case, will not be by itself sufficient to recognized the trust as
valid.

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(d) £640,000 to my trustees for the preservation of historical

monuments.
As for charitable purpose, this seems to be more like the situation as the one
in the case in re Verrall. Also it may fall within the head of s. 3(1)(f). De
minimus element of public benefit (availability to the public as in Neville
Estates v Madden) is also likely to be present, because the case facts do not
suggest that someone is to be excluded from the benefit. It is not clear which
monuments are to be preserved, but if the trust is charitable, that uncertainty
might not make it invalid. So the trust might be valid as charitable.
But as non-charitable, the trust is likely to be invalid. Even those there are
cases that allowed trust for maintenance of tombs and monuments (Re
Hopper), this case does not provide a clear answer of what monument is to
be preserved, so the case is similar to the one in Re Endacott (where even
the purpose, ‘some useful memorial’ was not sufficiently clear to be upheld).
Comments on extract
This extract is from a question where the candidate scored a high 2:2 mark: it was
close to a 2:1 mark. Part (c) is a reasonably good answer. It does not attempt to
force the alleged charity into a type but recognises that the ‘trust does not fall
precisely within any specific heads’ (although it would have been better to talk of the
statutory section rather than ‘heads’ – Pemsel is no longer the governing law). The
answer is a little too brief on whether this is a political purpose – the answer is
stated rather than argued, which is why it does not make it to a 60 plus mark. There
is good case law. Part (d) is less good – the candidate has seen the word
‘monument’ and thinks this might be a non-charitable purpose trust. But, the
purpose is the preservation of historic monuments, not a monument to the testator.
It might be a cultural charity. The clear lessons are that the points must be argued;
and the question read carefully. That would have turned this into a 2:1 answer.
Question 2
‘A constructive trust in the law of England and Wales is institutional; remedial
constructive trusts do not exist.’
Discuss.
General remarks
This general essay is about the operation of constructive trusts and is dealt with
fully in the module guide – see Section 3.4 and Chapter 13, especially Section 13.3.
The answer should consider both case law and academic comment and there is no
sense in which there is a ‘right’ answer. It is immaterial whether the candidate
agrees with the quotation or not.
Law cases, reports and other references the examiners would expect you to use
Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd; Gissing v Gissing,
Angove’s v Bailey, Pennington v Waine, Khan v Mahmood, Keech v Sandford.
Lord Neuberger’s speech at the Banking Services and Finance Law Association
Conference, Queenstown ‘The remedial constructive trust – fact or fiction’;
Swadling, W. ‘Constructive trusts and breach of fiduciary duty’ (2012) 18 Trusts and
Trustees 985; Millett, P. ‘Restitution and constructive trusts’ (1998) 114 LQR 399.
Common errors
The question asks specifically whether constructive trusts are institutional or
remedial. A general essay – of which there were many – on constructive trusts does
not answer the question and cannot secure good marks. Again, case law must be
used to illustrate the points made. However, some candidates simply listed cases
without explaining their relevance.

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A good answer to this question would…
discuss what is meant by remedial and institutional constructive trusts, and point out
that in principle remedial constructive trusts do not exist in England and Wales.
Examples of institutional trusts should be give: e.g. no conflict constructive trusts,
unconscionable receipt constructive trusts. However, some cases – e.g. Stack,
Pennington – imply that the courts have a very wide discretion in exercising the
equitable jurisdiction and that a constructive trust can be moulded to achieve an
answer – this is a remedial constructive trust. There is considerable academic
commentary that could be used.
Poor answers to this question…
failed to engage with the question. Some simply wrote an essay on knowing receipt
or dishonest assistance, on the ground that these were examples of constructive
trusts. These read like pre-prepared answers and earned few marks. A number of
candidates appeared to see the words ‘constructive trust’ and wrote in an
undirected way about them, occasionally giving examples.
Student extract
Although many of the English cases concerning constructive trusts are
concerned with institutional constructive trusts, in some instances the line
between institutional constructive trusts and remedial constructive trusts has
been blurred. A remedial constructive trust is '...a judicial remedy giving rise
to an enforceable equitable obligation' (per Lord Browne-Wilkinson
in Westdeutsche). In Pennington v Waine a shareholder had executed a
stock transfer form in favour of her nephew but had failed to deliver it to
the company, instead delivering it to the auditors. The shareholder later died.
The nephew was appointed a director of the company based on the
supposed ownership of the shares. The transfer was however not effectively
completed (as the forms were with auditors and not the company) so he
never actually owned the shares. Arden LJ held that despite the rules for
constitution the transfer not being followed the shares were held on
constructive trust for it would be unconscionable to reverse the transaction.
This reasoning is problematic for the proposition that constructive trusts in
English law are only institutional and never remedial - it contravenes Lord
Sumption's proposition in Angove's. Essentially, the constructive trust would
only ever arise if there was unconscionable conduct - which would ultimately
be decided by a court. Penner, 2022 is equally critical of this conclusion
stating that the rules are now very uncertain and fears an increase in litigation
to determine unconscionability. In effect, the decision
in Pennington undermines the proposition that constructive trusts that are
remedial do not exist as a matter of English law for the court is clearly
creating the constructive trust as a remedy for the unconscionable conduct.
Comments on extract
This is part of a very strong answer to this question – high 2:1 at least. Notice how
the candidate refers to an earlier part of their answer (‘many of the English cases’),
but then critically appraises the whole range of case law. Thus, the distinction
between remedial and institutional constructive trusts ‘has been blurred’. The
candidate carefully links the main points of their answer together: thought has gone
into the construction of the answer. There is a relevant quotation from a case that is
exactly on point. Then, the candidate tackles one of the cases that may reveal that
we do indeed have remedial constructive trusts in England and Wales –
Pennington. There is brief description of the facts but the real marks are in the
critical appraisal of the case: ‘This reasoning is problematic for the proposition that
constructive trusts in English law are only institutional and never remedial’. It does
not matter whether the candidate is right (although they may well be). What matters

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is that they are appraising the matter and reaching a conclusion. There is also
reference to academic comment and a clear conclusion.
Question 3
Bolo is a successful artist. Bolo is the sole owner of Digital pic Ltd, a private
company which sells Bolo’s art on her behalf. Bolo is married to Tipo and
they have a daughter, Dippy. Dippy is 21 years old. When she got married to
Tipo in 2000, Bolo purchased a house with her savings and instructed her
lawyers to register Tipo as the sole owner. She did not tell Tipo at the time,
but she did inform him when Dippy was born in 2002. When Dippy became 18
in 2020, Bolo transferred 1,000 shares in Digital pic Ltd to Dippy, although
Bolo continues to this day to receive the income from the shares.
Tipo has been told of a new business venture by Ego, his friend. Tipo plans to
sell the house and invest the money in this new venture. Bolo says that she
really owns the house and that he should pay the proceeds of sale to her.
Nevertheless, Tipo sells the house and buys shares in Ego’s company, which
Ego predicts will make a fortune. Meanwhile, Bolo has told Dippy that she
wants the shares in Digital Pic ‘returned’ because she fears that Dippy will
sell them and give the money to Tipo.
The shares in Ego’s business have tripled in value and Tipo intends to sell
them and use all the money to buy a limited-edition sports car. Dippy is
refusing to transfer the shares, insisting that she is an adult and can do what
she likes with her property.
Advise Bolo.
General remarks
This question principally concerns resulting trusts (Chapter 12 of the module guide),
although there is reference to the constitution of trusts (Chapter 6 of the module
guide). There is also a straightforward tracing point - Chapter 18 of the module guide.
The question specifically asks that Bolo be advised and this should be the focus of the
answer.
Law cases, reports and other references the examiners would expect you to use
Section 60(3) LPA 1925, Lohia v Lohia, Re Vandervell, NCA v Dong, Paul v
Constance, Richards v Delbridge, Fowkes v Pascoe, Re Tilley.
Common errors
This was, in parts, generally a well-answered question but the most common error
was failure to consider all aspects of the problem. The resulting trust aspects were
dealt with well but many candidates failed to consider the tracing point and the
constitution aspect. To repeat a point made previously, many candidates assumed
that the question was ‘single topic’. Some candidates simply misunderstood what
the question was about and wrote about breach of trust and rules about causation
and liability.
A good answer to this question would…
break down the various parts of the question and deal with each in turn. The
general order of a good answer would be to deal first with the issues concerning
resulting trust, then constitution of trusts and finally the short issue concerning
tracing when a breach has been established. Strong answers dealt with the parties
in turn and did not leap from issue to issue. Good candidates therefore followed the
order of events in the problem – this is always the correct approach as the examiner
may be leading the candidate through the issues. The best answers deployed case
law.

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Poor answers to this question…
failed to explain the details of the law they were applying. In questions like this,
where the issues are reasonably clear, candidates need to explain their reasoning,
rather than simply state their answer. A number of candidates ignored the
instruction to advise Bolo – while not a serious error, it would detract from the marks
available. The absence of case law makes it very difficult to pass this question.
Question 4
‘The rule against purpose trusts is founded in practicality, not principle.’
Discuss.
General remarks
This question relates to issues discussed in Chapter 10 of the module guide. There
is specific reference to the rationale for the rule against private purpose trusts
(Section 10.1 et seq.). This is a very well-known issue, with much academic
comment and some very familiar cases. There are many ways in which the question
could be answered well and candidates could draw cases from across a range of
issues: unincorporated associations, anomalous exceptions, the beneficiary
principle, etc.
Law cases, reports and other references the examiners would expect you to use
Re Denley, Barclays Bank v Quistclose, Twinsectra v Yardley and the anomalous
exceptions in Re Endacott, Re Astor’s ST, Re Shaw, Pettingall v Pettingall.
Low, K. ‘Non-charitable purpose trusts: the missing right to forego enforcement’ in
Nolan, R.C. et al. (eds) Trusts and modern wealth management. (Cambridge:
Cambridge University Press, 2018) [ISBN 9781107170490]; Matthews, P, ‘The new
trust: obligations without rights?’ in Oakley, A.J. (ed.) Trends in contemporary trust
law. (Oxford: Oxford University Press, 1997) [ISBN 9780198262862]; Pawlowski, M.
and J. Summers, ‘Private purpose trusts – a reform proposal’ (2007) Conv 440;
Hayton, D.J. ‘Developing the obligation characteristic of the trust’ (2001) 117 LQR 96.
Common errors
A very common error was that candidates simply gave examples of purpose trusts,
both valid and invalid without any explanation. The question, however, asks for an
analysis of the rationale for the purpose trust rule, not a list of examples of such
trusts. A few candidates thought the question was about charities.
A good answer to this question would…
addressed the underlying rationale of the beneficiary principle. The cases can be
used to illustrate the points made. Clearly, one view is that there is no thread
justifying the exceptions and that they really are just odd examples of exceptions.
Good answers also reflected a range of academic opinion, including the suggestion
that the rule against purpose trusts should be abandoned.
Poor answers to this question…
turned this into an essay on charities, which is clearly wrong. The poorer answers
gave a list of situations where purpose trusts have been held valid, with no
discussion of what they might be so. It would be difficult to score well on this answer
without consideration of academic comment, especially Hayton and Mathews.

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Question 5
Toni held shares in Baker Ltd on trust for Delta. Delta wished to make the
shares over to Eon and instructed Toni to transfer title to the shares to Eon.
Toni signed the transfer form and handed the form to Eon’s solicitor, Kevin,
along with the share certificate. Before Kevin was able to register the shares
in Eon’s name, Toni was killed in a car accident. Unaware of the accident, Eon
declared a trust over the shares, which she believed were registered in her
name, in favour of Falco. Delta has now changed his mind. He has asked
Toni’s personal representative, Ghia, to transfer the shares to Neil absolutely.
It also emerges that Toni held some shares in Street Ltd, also on trust for
Delta. Before Toni died, Delta had instructed him to transfer the legal title in
the shares to Neil and this had been done. Delta is now arguing that he is the
owner of the shares in Street Ltd because he meant Neil only to have the
shares in Baker Ltd.
Advise Neil.
General remarks
This question requires consideration in depth of issues in relation to formalities and
constitution of trusts (Chapters 6 and 7 of the module guide). A good knowledge of
case law is essential. There is no need to start with the three certainties – no marks
are available for discussion of irrelevant material, even if accurate.
Law cases, reports and other references the examiners would expect you to use
Section 53(1) LPA 1925, especially s.53(1)(c) and s.53(2), Milroy v Lord,
Pennington v Waine, Khan v Mahmood, Grange v Wilberforce, Grey v IRC, IRC v
Vandervell.
Common errors
Overall, this question was not done well, with candidates failing to explain what
formality rules were relevant and did what their proper scope was. There was
confusion between the formalities needed to create a trust and formalities needed
to transfer an interest under an existing trust. These are found in s.53 LPA 1925
and are interpreted in various cases.
A good answer to this question would…
identify whether the issue is the creation of a trust or the transfer of an existing
interest under a trust. This can then be linked to the relevant statutory formality
rules. The exceptions to formality need to be identified with care and a strong
candidate might explain if Pennington applies and, if it does, why there might be
unconscionability. When Vandervell is discussed, a good answer will refer to
Nolan’s explanation of that case. An answer cannot score well without consideration
of the key cases identified above.
Poor answers to this question…
mis-identified the issues –the three certainties were popularly discussed but
irrelevant. Many answers also failed to understand the impact of the statutory
formality rules – the difference between creating a trust and assigning an interest
under the trust. It is impossible to pass this question without referencing the key
cases.

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Question 6
‘The liability of strangers to a trust depends on fault or knowledge because it
triggers that person’s personal liability irrespective of whether they have any
trust property. However, what constitutes fault or knowledge is uncertain.’
Discuss.
General remarks
The question raises issues discussed fully in Chapter 16 of the module guide. It
raises very familiar issues and there is a great deal of academic literature. There is
also a wealth of case law and this should be used in the answer.
Law cases, reports and other references the examiners would expect you to use
BCCI v Akindele, Royal Brunei v Tan, Group Seven Ltd v Notable Services LLP,
Twinsectra v Yardly, Ivey v Genting, Barlow Clowes International Ltd v Eurotrust
International Ltd, Re Montague.
Chambers, R. ‘The end of knowing receipt’ (2016) 2 Canadian Journal of
Comparative Contemporary Law 1; Gardner, S. ‘Knowing assistance and knowing
receipt: taking stock’ (1996) 112 LQR 56; Gardner, S. ‘Moment of truth for knowing
receipt?’ (2009) 125 LQR 20.
Common errors
On the whole, this question was well answered, possibly because it is very
conventional in its reach. Chapter 16 of the module guide contains a direct
discussion of these issues, although some students failed to utilise it.
A good answer to this question would…
analyse why the principles for knowing receipt and dishonest assistance are
different, even though many commentators think they should not be. Candidates
may also consider whether the liability for strangers should be strict in all cases,
founded in restitution and subject to a change of position defence. A good
candidate will distinguish between what the law is, from what some commentators
would like it to be. Likewise, the meaning of ‘dishonest’ (Tan, Barlow) and
‘unconscionable/knowing’ should be considered.
Poor answers to this question…
recited the conditions for stranger liability without real discussion. The question
cannot be answered simply by developing a list of cases: there has to be some
understanding about why the tests of liability are different, and not only that they
are different.