Denning Law Academy Huzaifa Muqadam

Law of Trust Past Papers April 2018

BREACH OF TRUST (PAST PAPERS)

2017/3

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.

2016/8

To what extent is it appropriate that trustees can find themselves strictly liable for breach of trust even
when they have acted honestly and reasonably?

2015/7

“Knowing receipt should be called dishonest receipt. No one will be personally liable for receiving
money in breach of trust unless they choose to spend it with actual knowledge of the breach, and that
is dishonest.”
Discuss.

2012/7

James and Penny share a flat. James has just bought a new car with his credit card and is now £1,500
in debt to the credit card company. He steals £2,000 in cash from Penny’s desk. He uses £1,500 of the
money to clear his credit card balance and pays the rest into his bank account. A day later, his wage
cheque for £1,000 is paid into the same account. He then withdraws £10 from the account, making a
written note to himself that this sum is taken from his wages, and not from the money he has stolen
from Penny. He spends the £10 on lottery tickets and wins £10,000.
Denning Law Academy Huzaifa Muqadam
Law of Trust Past Papers April 2018

Advise Penny.

2011/ 6

Harry was the sole trustee of a trust for Sally. The trust deed provided that the trust rights could not be
invested in any company that made or sold genetically modified organisms or foods. It further
provided that the trustees would not be liable for any breach of trust unless they were guilty of ‘gross
neglect or dishonesty’.

Harry relied heavily on the investment advice of John, who has been his friend since college and has
become a successful investment broker. His advice has been good and the trust investments have
performed well as a result. Those investments include 10,000 shares in Mondiablo, a company
specialising in genetically modified food crops. Harry did not know what Mondiablo did and John did
not know about the prohibition in the trust deed. Harry bought the shares five years ago for £100,000.
They were worth £200,000 two years ago, but Mondiablo is now insolvent and the shares are
worthless.

Last year, John advised Harry to invest in New Age Dance Studios, a company owned by John’s
mistress, Marie. Harry did not know about John’s relationship with Marie. Harry used £250,000 of
trust money to purchase shares in the company from Marie for the trust. John knew it was a risky
investment, but had promised Marie he would find investors for her business. The company is now
insolvent and the shares are worthless.

Advise Sally of any claims she may have against Harry, John, and Marie.

2010/8

Carl was the manager of a large investment fund. For many years, he operated a fraudulent scheme to
misdirect investment funds to his wife, Alison. Many of the investors contributed to the fund regularly
by direct debit. They did so by signing instructions for money to be transferred electronically each
month from their own bank accounts to one of the fund’s accounts. When Carl prepared a direct debit
instruction for signing by an elderly investor, he sometimes listed the payee as the name and account
of his own company, which had a similar name to that of the fund. Carl then transferred money from
his company’s account to Alison’s bank account. Alison had no idea that this money had been
obtained by fraud. She thought it was Carl’s money being paid through his company to avoid taxes.

Carl’s fraud was uncovered and he absconded leaving no assets behind. Over the years, Alison
received £1 million through Carl’s fraudulent scheme, £200,000 of which still remains in her bank
account. The other £800,000 has been spent as follows: (a) £200,000 to discharge a loan secured on
Alison’s title to her house; (b) £200,000 to purchase company shares; (c) £200,000 for travel, holiday,
and ordinary living expenses; and (d) £200,000 to pay off a bank loan. With the loan monies, Alison
had bought a car (now worth £30,000) and a boat (now worth £70,000), both of which she still has.

Advise the defrauded investors.