Examiners’ reports 2015

Examiners’ reports 2015

LA3002 Law of trusts – Zone B

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 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).
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 are the examiners asking me this question’,
you can identify what the question 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 5
concluded as follows: ‘Zach now claims that the Eastco Ltd shares, Blackacre, and
Whiteacre were all held on resulting trust for Margaret when she died and therefore
form part of her estate. Advise Zach.’ Yet a surprising number of candidates
attempted this question without discussing resulting trusts. Similarly, Question 6
asked, ‘What proprietary claims, if any, does Felix have?’ Again, a surprising
number of candidates spent a long time discussing his personal claims.
After you decide which questions to answer, divide the remaining time evenly
among the four questions, and for each question, plan your answer before you
begin writing. This will help 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.

Comments on specific questions

Question 1
Leonard telephoned his good friend George to say that he (Leonard) was
meeting his solicitor next week to make a will and to ask George to be one of
the trustees of the will trusts. George agreed. They did not discuss any of the
terms of those trusts.
One week later, Leonard met with his solicitor and had his will prepared and
executed, with Leonard’s dear friend Nichelle as one of the witnesses. There

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was no mention of any trusts in the will. It made bequests of £10,000 each to
George and Bill and then left the residue of Leonard’s estate to George and
Bill as joint tenants.
One year later, Leonard showed his will to George, who was surprised to be
receiving a large bequest and half the residue, with no trusts imposed.
Leonard said that the bequests were gifts to George and Bill, but that the
residue was meant to be held secretly in trust for Nichelle for life, with the
remainder for her children. George agreed to carry out the trust, but did not
discuss this with Bill.
Leonard died recently. His estate consists mostly of real property and is
worth over £5 million. Leonard never discussed the terms of his will with Bill,
who wants to keep half the residue for himself. George does not know what to
do and seeks your advice.
Advise George.
General remarks
This problem concerns secret trusts, which are discussed in Chapter 8 of the
subject guide and in Chapter 6 of Penner.
Law cases and other references the examiners would expect you to use
Wills Act 1837, s.15; Law of Property Act 1925, s.53(1)(b); Re Stead [1900] 1 Ch
237; Re Young [1951] Ch 344.
Common errors
Failing to address one or more of the main issues.
A good answer to this question would…
note that this is a fully secret trust with three potential problems. First, Bill never
accepted the trust, but since he and George are joint tenants of the residue, then
according to Re Stead [1900] 1 Ch 237, both are bound if the communication to
George was made before the will was executed, but only George would be bound if
communication occurred later, even though this is a fully secret trust. It is debatable
whether George’s initial agreement by telephone counted as acceptance, but that
issue should be discussed. Secondly, Nichelle witnessed the will, so a gift to her
should be void under s.15 of the Wills Act 1837. However, according to Re Young
[1951] Ch 344, that does not apply to beneficiaries of secret trusts, which operate
outside the will. Thirdly, the residue consists mostly of real property and an express
trust of an interest in land is unenforceable unless evidenced by signed writing: LPA
1925, s.53(1)(b). However, there are several answers to the objection, including the
exceptions for fraud and for constructive trusts.
Poor answers to this question…
missed one or more of the important issues, or discussed theories of secret trusts
without relating them to the facts of the problem.
Student extract
In the case of Re Stead, it was held that where joint tenants are notified
before the execution of the will, all of them are liable but where
communication takes place after execution, those who know of it are bound.
Hence in our scenario Bill has never been notified until the last moment.
Comment on extract
This was all that was written in relation to this important issue. It could be improved
in three respects. First, it does not state the law adequately. The law deals with the
problem when two secret trustees receive assets as co-owners and the secret trust
is communicated to and accepted by only one of them. If they are tenants in
common, then they have distinct shares in the assets and the secret trust will bind

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only the share of the one who accepts the trust. However, if they are joint tenants
(as in the problem), then they do not have distinct shares in the assets. A distinction
has been drawn based on whether communication and acceptance by one trustee
occurs before or after execution of the will. Second, a good answer would discuss
and criticise this distinction and its rationale. Third, the law should be applied
properly to the facts of the problem. The fact that Bill did not accept the trust is the
reason why the problem exists, but the issue is whether George’s acceptance can
bind Bill as well and this depends on whether his agreement before execution of the
will counts as acceptance of the secret trust.
Question 2
“The duties imposed upon trustees with respect to the distribution of trust
assets are essentially the same whether they hold those assets subject to a
discretionary trust in favour of a class of beneficiaries or subject to a
fiduciary power of appointment in favour of that class. Since it is perfectly
acceptable to confer an intermediate power of appointment on trustees, it
must now be acceptable to create an intermediate discretionary trust for
everyone in the world except the trustees.”
Discuss.
General remarks
This statement invites you to write an essay on the objects of discretionary trusts
and powers, which are discussed in Section 5.3 of the subject guide and in Chapter
7 of Penner.
Law cases and other references the examiners would expect you to use
McPhail v Doulton [1971] AC 424; Re Manisty’s Settlement [1974] Ch 17; Re Hay’s
Settlement Trusts [1981] 3 All ER 786, [1982] 1 WLR 202.
Common errors
Writing an essay on certainty of objects and failing to note that certainty is not a
problem for intermediate powers or trusts.
A good answer to this question would…
explain the difference between trusts and powers and what is meant by an
intermediate power and an intermediate trust. It would note the test set out in
McPhail v Doulton [1971] AC 424 for certainty of objects for discretionary trusts and
powers and discuss the treatment of intermediate powers in Re Manisty’s
Settlement [1974] Ch 17 and Re Hay’s Settlement Trusts [1981] 3 All ER 786,
[1982] 1 WLR 202. It would then consider the problem of administrative
unworkability and how it affects trusts and powers. Trustees holding an intermediate
power would have to consider from time to time whether to exercise it and to
identify the persons or a core class of persons in whose favour it might be exercised
in order to perform the trust properly. Is an intermediate trust impossible because
the trustees also have a duty to distribute and why should that make a difference?
Poor answers to this question…
merely discussed certainty of objects (or even all three certainties) without focusing
on the question concerning the duties of trustees with respect to powers of
appointment and discretionary trusts.
Student extract
Although it is perfectly acceptable to confer a intermediate power of
appointment on trustees, a intermediate discretionary trust for everyone may
not be possible or acceptable. For case of a hopelessly wide beneficiaries,
such as in the case of R v District Auditors ex parte West Yorkshire
Metropolitan County Council, the wide class of beneficiaries would be

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problematic. The cost incurred in surveying and administrating such a trust

with huge beneficiaries will exhaust the trust fund and render it impractical to
be beneficial to the beneficiaries and to comply with the intention of the
settlor. Also, in case of collapsing the trust, the equal distribution is not
possible.
While in the case of intermediate power, it is possible as there are no such
duty to survey (Re Manisty Settlement) and the done of the intermediate
holder can simply adopt the is or is not test to exercise the power.
Comment on extract
While this addresses the appropriate issue, it does not consider fully the duties of
those who hold an intermediate power of appointment as trustees or otherwise in a
fiduciary capacity. The use of the ‘is or is not’ test for certainty of objects is not
wholly irrelevant since it would be a breach of duty to appoint to someone excluded
from the class of objects. However, everyone else in the world would be within the
class and surely it would also be a breach of duty to randomly select objects to
receive. To carry out their duties properly, the power holders would have to exercise
it only for the purposes for which it was granted and therefore would have to identify
potential objects or a core class of potential objects in order to consider whether to
exercise it. Discretionary trustees are in a similar position. As established in
McPhail v Doulton, equal distribution is not appropriate for discretionary trusts in
favour of a large class and it is not necessary to survey the entire class before
distributing.
Question 3
In AIB Group (UK) plc v Mark Redler & Co (2014), Lord Reed said:
“Compensation for the breach of an obligation generally seeks to place the
claimant in the position he would have been in if the obligation had been
performed. Equitable compensation for breach of trust is no different in
principle: it aims to provide the pecuniary equivalent of performance of the
trust.”
Discuss.
General remarks
This quotation from AIB Group (UK) plc v Mark Redler & Co [2014] UKSC 58 invites
you to write an essay on the personal liability of trustees for breach of trust, which is
discussed in Section 16.2 of the subject guide and in Chapter 11 of Penner. The
subject guide discusses the judgment of the Court of Appeal, but the Supreme
Court decision was discussed in Recent developments 2015, which was made
available to students in February 2015.
Law cases and other references the examiners would expect you to use
AIB Group (UK) plc v Mark Redler & Co [2014] UKSC 58.
Common errors
Failing to discuss accounting and equitable compensation as remedies for breach
of trust and how they are different.
A good answer to this question would…
explain that trustees are liable to account for the trust assets, and by falsifying or
surcharging the account, they can be made personally liable to pay for their
breaches of trust. It would explain that equitable compensation is a different remedy
which is most often used to compensate for losses caused by a breach of fiduciary
duty. It would then discuss whether it is appropriate to use equitable compensation
or apply the same principles to trustees who are liable to account. A discussion of
the facts of AIB would helpfully illustrate differences between the two remedies.

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Poor answers to this question…

focused on breach of trust rather than on the remedies for breach.
Student extract
According to Professor Penner (2010), the breaches should be divided into
breach of fiduciary duty and breach of trust. The fraudulent act of breach
would constitute to misfeasance while the negligent act (i.e. omission) would
constitute to nonfeasance. Respectively, the settlor could choose ‘account to
falsify’ for fraud and ‘account to surcharge’ for omission. In accordance with
case law, Tang Man Sit v Capricious Investment Ltd would allow the claimant
to choose whichever action is more advantageous to himself. If the
wrongful/unauthorized act results in gain of capital, the claimant could choose
to adopt the current status of trust property.
The compensation to the breach of trust is of strict liability and a recovery of
money or specific performance is measured at the time of breach and
duration when it is found: (i) if found immediately, only the loss of trust
property needs to be compensated; (ii) if the duration is considerably long,
the accused must compensate all the risk and loss associated with the trust
property. In regards to defence, there are multiple ways to make himself out
of liability: (i) liability between trustee inter se, the trustees are jointly liable
(Bricklin); (ii) beneficiary consents to the breach, the beneficiary must be of
sui juris (Saunder v Veutier) and have knowledge of the relevant facts (Re
Pauling’s ST).
Comment on extract
These are the opening two paragraphs of the answer. It raised some initial hope
that the main issues raised by the quotation would be addressed, but the answer
soon revealed confusion about the relevant law and then moved on to irrelevant
issues. The case of AIB was not mentioned. When asked to discuss a quotation
from a case, it is almost always a good idea to discuss that case, while focusing on
the issues raised by the quotation.
Question 4
Roald died recently. According to his will, his entire estate is to be sold and
the proceeds are to be held in trust to be invested, with the income to be used
each year as follows:
“(a) £25,000 to relieve my children and grandchildren from needy
circumstances should they fall on hard times and otherwise to
educate the British public regarding the aims and
achievements of the Campaign for Nuclear Disarmament;
(b) the remainder to be used to further the purposes of the Sisters
of St Matilda.”
The Sisters of St Matilda were nuns who lived in an enclosed community,
maintained beautiful gardens, and prayed. Once each year, on the feast of St
Matilda, members of the public were invited to join the nuns for prayers and
enjoy their gardens for the day. The community was dissolved five years ago
and the gardens are now a public park owned by the local government.
Danny was appointed as Roald’s executor and seeks your advice regarding
the validity of these will trusts.
Advise Danny.

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General remarks
This problem concerns charity, which is discussed in Chapter 10 of the subject
guide and in Chapter 13 of Penner.
Law cases and other references the examiners would expect you to use
Charities Act 2011; Re Harwood [1936] Ch 285; Gilmour v Coats [1949] UKHL 1;
Re Scarisbrick [1951] Ch 622.
Common errors
Failing to discuss whether the clause ‘to relieve my children and grandchildren from
needy circumstances should they fall on hard times’ could be a charitable purpose
for the relief of poverty. Treating it instead as a private purpose trust without
beneficiaries, which is not the case as the children and grandchildren would be a
class of beneficiaries if the trust was not charitable.
A good answer to this question would…
note that clause (a) appears to create a trust for the relief of poverty and
advancement of education, while clause (b) appears to create a trust for the
advancement of religion. You should cite the relevant provisions of the Charities Act
2011 and discuss 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 does s.4(2) of the
Charities Act 2011 change the law? Is the trust for education regarding the
Campaign for Nuclear Disarmament really for political purposes (Re Hopkinson
(1949))? Did the interaction of the Sisters of St Matilda with the public for one day
each year provide a sufficient public benefit (Gilmour v Coats (1949))? You should
also consider the possibility of the assets 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 Roald 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 Sisters of St Matilda’, which might indicate a general charitable
intention.
Poor answers to this question…
failed to consider the problem of public benefit as it affects each of the three
clauses of the trust.
Student extract
The second step is to see whether the clause is beneficial to the public or a
section of it. … [P]ublic benefit is to be understood in two senses: the nature
of the purpose addressed by the charity must be a benefit to the public, and
those who benefit from the charity must be sufficiently numerous in order to
constitute a section of the public as opposed to a private class of individuals.
If this can be proved, then the trust will be held to be beneficial to the public.
Finally, it must be for exclusively charitable purposes. The issue is whether
this is for exclusively charitable purposes or whether the objective is a
political one. If the trust is ‘tainted with politics’ (has political aims) then it is
not valid as a charitable trust (McGovern v AG). Therefore it must be shown
that the trust is not tainted with politics and that it does not seek to change
any laws.
Comment on extract
This part of the answer relates to the clause: ‘to educate the British public regarding
the aims and achievements of the Campaign for Nuclear Disarmament’. It could be
improved in three ways. First, it states the law without applying it to the facts of the
problem. It should offer an opinion about whether the clause is valid or not. Second,

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it does not adequately explain the distinction between ‘a section of the public’ and ‘a
private class of individuals’. A very large class will not be a section of the public if it
is defined in relation to the settlor (e.g. an employer of a large company providing a
trust fund to educate its employees and their families). Third, the problem of politics
relates to the question whether the purpose is beneficial to the public and not to
whether the trust is exclusively charitable. The court is unable to determine whether
a change to the law would be beneficial to the public or not.
Question 5
Margaret was a wealthy widow. In 2009, she transferred 500 shares in Eastco
Ltd to her son Alan. She also paid the purchase price for a fee simple estate
in Blackacre to be conveyed to her friend Dan. After the transactions were
complete, Margaret telephoned Dan and told him that Blackacre was
purchased in his name to be held in trust for Margaret’s infant daughter Ellen.
In 2010, fearing she would have to sell her fee simple estate in Whiteacre in
order to satisfy her creditors, Margaret transferred it to her niece Bella. Bella
orally agreed to re-transfer the estate to Margaret if the creditors cancelled
the debt.
In 2011, Margaret married Zach. In 2012, she made a new will naming Zach as
the sole beneficiary of her estate and she also repaid all her creditors.
Margaret died in 2014. Zach now claims that the Eastco Ltd shares, Blackacre,
and Whiteacre were all held on resulting trust for Margaret when she died and
therefore form part of her estate.
Advise Zach.
General remarks
This problem concerns resulting trusts, which are discussed in Chapter 12 of the
subject guide and in Chapter 5 of Penner.
Law cases and other references the examiners would expect you to use
Law of Property Act 1925, s.53(1)(b), s.60(3); Tinsley v Milligan [1994] 1 AC 340;
Tribe v Tribe [1996] Ch 107; Lohia v Lohia [2001] EWCA Civ 1691; Ali v Khan
[2002] EWCA Civ 974.
Common errors
Failing to apply s.60(3) of the Law of Property Act 1925 properly. Applying it to
Blackacre instead of Whiteacre or to both, or discussing it in relation to Whiteacre
but then forgetting about it when discussing the effect of Margaret’s illegal purpose.
Discussing secret trusts in relation to Blackacre even though the purchase for Dan
was inter vivos and not a testamentary disposition. Suggesting that the presumption
of advancement might apply in favour of Ellen even though Blackacre was
purchased in Dan’s name.
A good answer to this question would…
discuss whether the apparent gift (i.e. unexplained transfer) of shares from the
widow Margaret to her son Alan would attract the presumption of advancement or
the presumption of resulting trust and note that either presumption can be rebutted
by evidence of intention. It would note that Margaret’s purchase of Blackacre for her
friend Dan would raise the presumption of resulting trust. Her phone call would
confirm that she did not intend to give Blackacre to Dan, but would not be sufficient
to create an enforceable express trust for her daughter Ellen because of the lack of
signed writing required by LPA 1925, s.53(1)(b). Margaret’s transfer of Whiteacre to
her niece Bella would probably not raise a presumption of resulting trust: LPA 1925,
s.60(3); Lohia v Lohia [2001] EWCA Civ 1691; Ali v Khan [2002] EWCA Civ 974.
Whether evidence of Margaret’s intention to create a trust for herself and hide

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Whiteacre from her creditors was admissible would depend on whether any of those
creditors were prejudiced by her illegal purpose: Tinsley v Milligan [1994] 1 AC 340;
Tribe v Tribe [1996] Ch 107.
Poor answers to this question…
misapplied the presumptions and s.60(3) and misunderstood the effect of illegality.
Student extract
Margaret provided the purchase money of Blackacre and therefore it may be
argued that a resulting trust in favour of Margaret. However, under s 60(3) of
Law of Property Act 1925, in a voluntary conveyance of interest involving
land, a resulting trust not be presumed merely because the property was not
expressly transferred for the use of benefit of the grantee. Following Lohia v
Lohia, court require evidence showing that the transferor/conveyor, that is
Margaret, had the intention to retain equitable interest in the property. …
Regarding the Whiteacre, Zach may also want to rely on the general principle
of pretend intention resulting trust. … However, as mentioned above,
following s 60(3) of LPA 1925 and Lohia v Lohia, a resulting trust is not
presumed merely because the property was transferred voluntarily and was
not expressly transferred for the use and benefit of the grantee. Following Ali
v Khan, Zach may have to adduce evidence to show Margaret had a
continuous intention to retain the equitable interest.
Also, following Tinsley v Milligan, a person can only prove his/her interest in a
property without relying on his/her impropriety. Here, to prove Margaret had
intended to retain Whiteacre’s equitable interest, Zach might have to adduce
evidence that Margaret’s arrangement with Bella was to avoid legitimate
creditor from claiming Margaret’s asset in case of default.
Having said that, Zach may seek to rely on Tribe v Tribe and withdrawal
principle. In that case, the court allow evidence of wrongful purpose if the
person had withdrawn from the wrongful transaction before the wrongful
purpose was fully or partly carried out.
Comment on extract
This candidate made the common error of thinking that s.60(3) applied to
Margaret’s purchase of Blackacre in Dan’s name, which was not a ‘voluntary
conveyance’ from her to Dan. They did correctly apply s.60(3) to the transfer of
Whiteacre to Bella, which meant that Zach had the onus of proving that it was not
intended as a gift and that Margaret’s illegal purpose might make that difficult.
Question 6
Oscar is the trustee for Felix of a bank account with Unger Bank. In January,
there was £50,000 on deposit in that trust account.
Vinnie is Oscar’s closest friend. Vinnie lost his job and was struggling to
make the monthly payments due on the mortgage over his house. In
February, Oscar withdrew £25,000 from the trust account and used it to
discharge Vinnie’s mortgage. Vinnie was unaware of Oscar’s breach of trust
and thanked him for his generosity.
In March, Oscar withdrew £10,000 from the trust account and used it to
discharge his own personal loan from Madison Bank. Oscar had obtained the
loan last November in order to buy a new car. The loan was unsecured.
In April, Oscar received a cheque for £200 as a birthday gift from his aunt. He
deposited that cheque in the trust account. He then withdrew £10 from the
trust account and used it to buy a lottery ticket. Oscar wrote a note to himself

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that the lottery ticket was purchased using the money he received from his
aunt and not from the money held in trust for Felix. Oscar won £20,000 with
the lottery ticket and deposited that money in his own bank account with
Madison Bank.
In May, Oscar became bankrupt. His only significant assets are his car (now
worth £8,000), the £20,000 in his bank account with Madison Bank, and the
£15,190 remaining in the trust account.
Felix has discovered what has happened and seeks your advice. He knows
that his personal claim against Oscar for breach of trust may have little value
now that Oscar is bankrupt. What proprietary claims, if any, does Felix have?
Advise Felix.
General remarks
This problem concerns tracing and proprietary claims to recover misappropriated
trust assets, which are discussed in Section 19.2 of the subject guide and in
Chapter 11 of Penner.
Law cases and other references the examiners would expect you to use
Re Hallett’s Estate (1879) 13 Ch D 696 (CA); Re Oatway [1903] 2 Ch 356;
Bishopsgate Investment Management Ltd v Homan [1995] Ch 211; Boscawen v
Bajwa [1995] EWCA Civ 15; Foskett v McKeown [2001] 1 AC 102.
Common errors
Not recognising or properly explaining the claim for subrogation as a security
interest in Vinnie’s house, but thinking that Felix would share ownership of the
house with Vinnie under a constructive trust. Misapplying the tracing rules that
would apply to the mixture of Oscar’s own money with the money in the trust
account. Suggesting that the lowest intermediate balance rule was relevant even
though the balance in the trust account following the mixture never dropped below
£15,190 and the question was whether the £10 withdrawn from that account
belonged to the trust or to Oscar.
A good answer to this question would…
focus on the actual question asked regarding Felix’s proprietary claims and not
waste time discussing the personal liabilities of Oscar or Vinnie. Felix should claim
a right to an equitable mortgage over Vinnie’s house by way of subrogation:
Boscawen v Bajwa [1995] EWCA Civ 15. He could try to claim a trust of Oscar’s car
through backwards tracing: Smith, L. ‘Tracing into the payment of a debt’ (1995);
Bishopsgate Investment Management Ltd v Homan [1995] Ch 211. He could also
claim a trust of Oscar’s Madison Bank account on the basis that the entire balance
of £20,000 is the traceable proceeds of the £10 withdrawn from the trust account to
buy the lottery ticket: Foskett v McKeown [2001] 1 AC 102. Oscar should not be
allowed to resolve in his own favour the evidential difficulty created by his wrongful
mixture of his own assets with the trust funds. However, if we treated this as a
presumption that Oscar acted honestly, rather than as a presumption against
wrongdoers, we would have to assume that he used his own money to buy the
ticket.
Poor answers to this question…
misunderstood subrogation and the theory of backwards tracing and misapplied the
tracing rules.
Student extract
Oscar withdrew £25,000 from the trust account and used it to discharge
Vinnie’s mortgage. It is submitted that according to Boscawen v Bajwa,
subrogation can be done. That is, Felix is entitled to replace the original

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mortgagee in respect of the £25,000. Felix is therefore can secure the

misused £25,000 by holding interest in Vinnie’s house.
In March, Oscar further withdrew £10,000 from the trust fund and used it to
discharge his own personal loan from Madison Bank. It was also told that
Oscar had obtained the loan last November to buy a new car, which is now
worth £8,000 and the loan was unsecured. As the loan was unsecured, it is
not worth to apply the subrogation principle but Felix is entitled to trace the
money into the car. In Bishopsgate Investment v Homan, if a but-for test is
satisfied, the backward tracing can be performed. The test is that if it is
proved that the money borrowed is for the purpose of the relevant purchase
of the property, the claimant is entitled to claim the property. Therefore, on
the facts, Felix is entitled to claim Oscar’s car.
Comment on extract
The candidate correctly applies subrogation to the discharge of Vinnie’s mortgage
and explains why there is no point using it for the car loan. The candidate also
considers backwards tracing, but misunderstands it. Backwards tracing is really
only a theory without direct judicial support. It seems unlikely that Oscar purchased
the car intending to pay for it with misappropriated trust money. There would be no
need to get a loan if that was his intention.
Question 7
“Dishonest assistance should be called knowing assistance. The essential
question is simply whether the assistant knew that he or she was involved in
a breach of trust. Nothing is added by calling that dishonesty.”
Discuss.
General remarks
This statement invites you to write an essay on dishonest assistance, which is
discussed in Section 16.5 of the subject guide and in Chapter 11 of Penner.
Law cases and other references the examiners would expect you to use
Royal Brunei Airlines Sdn Bhd 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
Confusing the reference to ‘knowing assistance’ in the statement with knowing
receipt.
A good answer to this question would…
focus on the standard of knowledge required for liability, how the test of dishonesty
was introduced in Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4, and how
that was treated in Twinsectra Ltd v Yardley [2002] UKHL 12 and Barlow Clowes Int
Ltd v Eurotrust Int Ltd [2005] UKPC 37. You could compare this with the test of
unconscionability for knowing receipt, which was introduced in BCCI v Akindele
[2000] EWCA Civ 502, and discuss whether the standard of knowledge should be
the same for both forms of liability.
Poor answers to this question…
were merely general essays on dishonest assistance and knowing receipt.
Student extract
The crucial thing to note here is that what is required for ‘knowing assistance’
is that it requires actual knowledge, not constructive knowledge. Actual
knowledge is a subjective test while constructive knowledge is objective. It is
not that the assistor ‘ought’ to know, he actually needs to know that he was
assisting in a breach.

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Therefore if there is actual knowledge, then by Lord Millett’s reasoning we

can return to the ruling in Barne v Addy that determined that ‘knowing
assistance’ would be enough to find liability and conclude that adding the
requirement of dishonest adds nothing to the test but rather confuses the
issues and makes it harder to find liability.
Comment on extract
This is a good conclusion to a thoughtful essay that discussed the relevant
authorities and focused on the relationship between knowledge and dishonesty.
Question 8
“After Pennington v Waine (2002), no lawyer can safely advise a client about
the legal effect of an incomplete gift without making a costly application to
the court to seek the opinion of a judge.”
Discuss.
General remarks
This statement invites you to write an essay on incomplete gifts, which are
discussed in Section 6.2 of the subject guide and in Chapter 8 of Penner.
Law cases and other references the examiners would expect you to use
Re Rose [1952] Ch 499; Mascall v Mascall [1984] EWCA Civ 10; Pennington v
Waine [2002] EWCA Civ 227.
Common errors
Failing to focus on Pennington v Waine and its use of unconscionability in this
context, instead merely discussing the various exceptional ways in which gifts might
be completed or trusts constituted.
A good answer to this question would…
… explain the treatment of incomplete gifts in equity, the rule in Re Rose [1952] Ch
499, and Mascall v Mascall [1984] EWCA Civ 10, and the change in the law
introduced in Pennington v Waine [2002] EWCA Civ 227, in which the court asked
whether it would be unconscionable not to treat the gift as complete.
Poor answers to this question…
were merely general essays on the completion of gifts and constitution of trusts.
Student extract
Pennington v Waine deals with unconscionability. Situations where it is
unconscionable for the courts not to have perfected the gift. Lawyers may
face major doubts in advising clients because courts have not given an
exhaustive list of unconscionable conduct.
Comment on extract
The candidate stated the rule that ‘equity will perfect an imperfect gift’ and then ran
through the main exceptions to that rule. The extract above was all that was said
about Pennington v Waine. The answer could be improved by spending
considerable time discussing that case and the difficulties caused by the exception
based on unconscionability. It is important to read the question carefully, address it
properly, and not just write a general essay on the area of law.

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