Examiners’ reports 2017

Examiners’ reports 2017

LA3002 Equity and Trusts (Level 6) – 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 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.

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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
Debbie died recently. According to her will, the residue of her entire estate is
to be held in trust as follows:
a) to promote dance in the United Kingdom;
b) to help needy children learn how to dance;
c) to improve facilities at the Brackett Dance Academy.
Kathy and Tammy were appointed as the executors of Debbie’s estate and the
trustees of her will trusts. They seek your advice concerning the validity of
those trusts. The Brackett Dance Academy was an elite, non-profit dance
school that charged very high tuition fees, but it closed down last year.
Advise Kathy and Tammy.
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) and (f); 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 arts and culture and might also provide for the
advancement of health and amateur sport. Clauses (b) and (c) are for the
advancement of education. The answer would identify the initial failure of the trust
for the Brackett Dance Academy, explain that cy près is only possible if it was
charitable before it closed and discuss whether the exclusion of poor students
would mean that it did not satisfy the public benefit requirement: Independent
Schools. It would discuss whether Debbie’s will indicates a general charitable
intention to promote dance.

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 Examiners’ reports 2017

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. Many candidates suggested that teaching needy children to dance
would prevent or relieve poverty without explaining how it might achieve that.
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.’
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.
Law cases, reports and other references the examiners would expect you to 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.
A good answer to this question would…
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.
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.
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

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 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.
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.
Law cases, reports and other references the examiners would expect you to 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.
A good answer to this question would…
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.
Poor answers to this question…
missed one or more of the important issues, or wasted time discussing the validity
of trust.

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 Examiners’ reports 2017

Student extract
(2) Investment of £100,000 in M’s friend’s (Alex) Business in UK
It is noted that the investment in Alex’s business in UK did not breach the
term (b) of trust instrument. However, if M did not communicate with L—the
other trustee for the relationship of M and Alex as friends, this will lead to the
breach of fiduciary duties—the interest personally conflicts with the trustee’s
duty.
If this happened, it would be a fraud on M for not disclosing the relationship
with Alex. Also, they will face the criticism from V for their (L and M) gross
negligence of not monitoring the trust investment properly, let the investment
business fallen to £80,000. The term (c) of the trust instrument cannot save L
and M for gross negligence and/or fraud. L and M shall personally liable for
personal action for £20,000.
Comments on extract
The whole answer made good use of headings. This passage identified two
breaches. The breach of fiduciary duty would not be avoided by M’s disclosure to L.
Only the beneficiaries can give their consent to and authorise M’s conflict of
interest. M’s failure to disclose her friendship with Alex to L does indicate fraud,
which is relevant to the exemption clause.
The breach of the trustees’ duty of care arises when they select the investment
(without taking suitable advice) and not just because they fail to monitor it properly.
A reference to the Trustee Act 2000 would be appropriate here.
It would be better to discuss the questions of breach of trust and exemption from
liability separately. Ultimately, personal liability does depend on both issues but a
breach of trust can occur honestly without any fraud or gross negligence. Also, the
accounting process should be discussed. It is not sufficient to gloss over it by
describing it as a ‘personal action’.
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.
Law cases, reports and other references the examiners would expect you to 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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A good answer to this question would…
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.
Poor answers to this question…
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 precisely
which assets are the subject matter of the trust, so long as the trustees have
enough assets of the same type that can be used to carry out the trust
properly.’
Discuss.
General remarks
This statement invited candidates to write an essay on certainty of subject matter,
which is discussed in Chapter 5 of the module guide and in Chapter 7 of Penner.
Law cases, reports and other references the examiners would expect you to use
Hunter v Moss [1993] EWCA Civ 11, [1994] 1 WLR 452.
Common errors were
A common error was the failure to address the specific question asked.
A good answer to this question would…
discuss the distinction drawn in Hunter v Moss between tangible and intangible
assets when dealing with a specified part of a bulk of identical assets. It might
mention certainty of intention and certainty of objects but the student should not
write a general essay on the three certainties.
Poor answers to this question…
recited a general essay on the three certainties.
Question 6
In Cowan v Scargill (1985) Megarry VC said: ‘In considering what investments
to make trustees must put on one side their own personal interests and
views.’
Discuss.
General remarks
This quotation invited candidates to write an essay on social or ethical investing,
which is discussed in Chapter 4 of the module guide and in Chapter 10 of Penner.
Law cases, reports and other references the examiners would expect you to use
Cowan v Scargill [1985] Ch 270.
Common errors
A common error was the failure to address the specific question asked.

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A good answer to this question would…

discuss the fiduciary obligation to use investment powers only for the purposes for
which they are given, which is to produce income and maintain the capital value of
the trust assets in order to serve the best financial interests of the beneficiaries.
Poor answers to this question…
discussed investment duties generally, without focusing on the fiduciary obligation
to use investment powers only for proper purposes.
Question 7
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 those agents receive and become
chargeable with some part of the trust property.’
Discuss.
General remarks
This quotation invited candidates to write an essay on knowing receipt, which is
discussed in Chapter 16 of the module guide and in Chapter 11 of Penner.
Law cases, reports and other references the examiners would expect you to use
Re Montagu’s Settlement Trusts [1987] 1 Ch 264; Bank of Credit and Commerce
International (Overseas) Ltd v Akindele [2000] EWCA Civ 502, [2001] Ch 437.
Common errors
A common error was the failure to address the specific question asked.
A good answer to this question would…
discuss the nature of the liability for knowing receipt and what it means when
recipients are ‘made constructive trustees’. It might compare knowing receipt with
dishonest assistance but the student should not write a general essay on accessory
liability.
Poor answers to this question…
merely recited a general essay on dishonest assistance and knowing receipt.
Question 8
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 quotation invited candidates to write an essay on remedial constructive trusts,
which are discussed in Chapter 18 of the module guide and in Chapter 4 of Penner.
Law cases, reports and other references the examiners would expect you to use
Angove’s Pty Ltd v Bailey [2016] UKSC 47, [2016] 1 WLR 3179; Re Polly Peck
International plc [1998] EWCA Civ 789, [1998] 3 All ER 812.
Common errors
A common error was the failure to address the specific question asked.
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 this statement is true. It might draw
on examples of constructive trusts in various situations, including mistaken

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payments, bribes and secret commissions, incomplete gifts, proprietary estoppel,
and family homes.
Poor answers to this question…
discussed constructive trusts generally without focusing on remedial and
institutional constructive trusts and did not demonstrate an understanding of what
those terms mean and the significance of the distinction.
Student extract
It seems that the institutional constructive trust is based on some rules and
principles while the remedial constructive trust is based purely on judicial
discretion and fairness. Thus, the concept was rejected in cases such as
Pettitt v Pettitt, Gissing v Gissing and Re Goldcorp. In Polly Peck, it was said
that the thought of the remedial constructive trust in English law is
inconceivable. Nourse LJ in the same case that remedial constructive trust
seems to be a remedy to someone who has never held the rights before. In
Lonrho v Fayed (No 2), it was also stated that although equity is flexible, it
must be based on some principles. There was no need or place for remedial
constructive trust in English law.
However, there have been signs of such a trust emerging in the Court of
Appeal where they are deciding cases based on unconscionability. The
biggest culprit of all would be the case of Pennington v Wayne where it
concerned an imperfect gift. In this case it was not even similar to Re Rose in
that the person had not done everything in his means to gift the gift. The
court instead decided the case based on whether it was unconscionable for
the person to rescind. It can only be hoped that such stops at the Court of
Appeal or is scrutinised further by the other courts. However, from the recent
cases such as Stack v Dowden and Jones v Kernott (matrimonial cases), it
does not appear so.
Comments on extract
This identifies relevant issues and discusses them with reference to relevant
authority. It could explain more clearly what institutional and remedial constructive
trusts are by pointing out the difference between a trust rising by operation of law in
response to facts that have occurred and a trust created by the court as a remedy.