Examiners’ reports 2017

Examiners’ reports 2017

LA2002 Equity and Trusts (Level 5) – Zone A

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
Alan died recently. According to his will, the residue of his entire estate is to
be held in trust as follows:
a) to help needy actors, artists, and musicians;
b) to help teach drama, arts, and music at Alan’s old school;
c) to encourage national and local governments to provide more
funding for the arts.
Hans and Freddie were appointed as the executors of Alan’s estate and the
trustees of his will trusts. They seek your advice concerning the validity of
those trusts. Alan’s old school closed down last year.
Advise Hans and Freddie.
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)(a), (b), and (f); Re Harwood [1936] Ch 285; National Anti-
Vivisection Society v Inland Revenue Commissioners [1947] UKHL 4, [1948] AC 31.
Common errors
Common errors were failing to identify the relevant heads of charity; not discussing
cy près in relation to (b) or misapplying it to (a) or (c); not linking the political aspect
of (c) to public benefit.
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. Clause (a) is for the relief of poverty, (b) is
for the advancement of education, and (c) is for the advancement of arts and
culture. Clause (b) suffers from an initial impracticality because the school closed
down before the trust was created. The question is whether Alan had a general
charitable intention that would allow the application of the assets cy près to a similar
purpose. Re Harwood suggests that the donor had only a specific intention when he
or she makes a gift to a particular charity that used to exist. However, the fact that
all three clauses are concerned with the arts indicates that Alan had a general
charitable intention. Clause (c) would fail the public benefit test because it pursues

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a political objective of promoting changes to government policies: National Anti-

Vivisection Society v IRC.
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.
Student extract
It is impossible or impracticable to carry out the trust as it is. This is apparent
due to the initial failure of the trust since the school is now closed. For cy-
près to apply it must be shown … that there was a general charitable intent.
The entire will seems to have the aim of furthering arts and culture which is
charitable but the court has said that it is easier to find a charitable intent
where the organisation never existed than where it existed but is now defunct
as is the case here. Further to that they have said that where it was for the
purposes of the organisation rather than to the specified organisation cy-près
could apply… It seems that there is no way to save the second trust.
Comments on extract
This answer correctly identifies the relevant issues. It would be improved by citing
relevant authority. Also, an explanation of the difference between initial and
subsequent failures would have helped.
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

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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
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

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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.
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.
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).

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Question 5
In Re Denley’s Trust Deed (1969) Goff J said: ‘Where the trust, though
expressed as a purpose, is directly or indirectly for the benefit of an
individual or individuals, it seems to me that it is in general outside the
mischief of the beneficiary principle.’
Discuss.
General remarks
This quotation invited candidates to write an essay on private purpose trusts and
the beneficiary principle, which are discussed in Chapter 11 of the module guide
and in Chapter 9 of Penner.
Law cases, reports and other references the examiners would expect you to
use
Re Bowes [1896] 1 Ch 507; Re Denley’s Trust Deed [1969] 1 Ch 373.
Common errors
A common error was the failure to discuss the beneficiary principle or writing about
charity.
A good answer to this question would…
discuss the beneficiary principle, the reasons why private purpose trusts are
normally invalid if they lack beneficiaries and the approach taken in Re Bowes
[1896] 1 Ch 507 and Re Denley’s Trust Deed [1969] 1 Ch 373 of interpreting a trust
for a private purpose as a trust for the persons who would benefit from its
performance.
Poor answers to this question…
failed to discuss the beneficiary principle or Re Denley’s Trust Deed.
Question 6
In Twinsectra Ltd v Yardley (2002) Lord Hutton said: ‘I think that it would be
less than just for the law to permit a finding that a defendant had been
‘dishonest’ in assisting in a breach of trust where he knew of the facts which
created the trust and its breach but had not been aware that what he was
doing would be regarded by honest men as being dishonest.’
Discuss.
General remarks
This quotation invited candidates to write an essay on dishonest assistance, 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
Royal Brunei Airlines 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
A common error was the failure to focus on the question asked and the central
issue regarding the meaning of dishonesty in this context.
A good answer to this question would…
discuss the standard of knowledge required for liability, the subjective and objective
tests for dishonesty, how they were introduced in Royal Brunei Airlines v Tan [1995]
UKPC 4 and how they were treated in Twinsectra Ltd v Yardley [2002] UKHL 12
and Barlow Clowes Int Ltd v Eurotrust Int Ltd [2005] UKPC 37.

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Poor answers to this question…

merely recited a general essay on dishonest assistance and knowing receipt.
Question 7
In Mascall v Mascall (1984) Browne-Wilkinson LJ said: ‘The basic principle
underlying all the cases is that equity will not come to the aid of a volunteer.
Therefore, if a donee needs to get an order from a court of equity in order to
complete his title, he will not get it. If, on the other hand, the donee has under
his control everything necessary to constitute his title completely without any
further assistance from the donor, the donee needs no assistance from equity
and the gift is complete.’
Discuss.
General remarks
This quotation invited candidates to write an essay on incomplete gifts, which are
discussed in Chapter 6 of the module guide and in Chapter 8 of Penner.
Law cases, reports 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
A common error was the failure to focus on Mascall v Mascall and Browne-
Wilkinson LJ’s explanation of the constructive trust of an incomplete gift.
A good answer to this question would…
explain the treatment of incomplete gifts in equity, the rule in Re Rose [1952] Ch
499 and Browne-Wilkinson LJ’s explanation of it in Mascall v Mascall [1984] EWCA
Civ 10. It might go on to discuss the change in the law introduced in Pennington v
Waine [2002] EWCA Civ 227, in which the court asked whether it would
unconscionable not to treat the gift as complete.
Poor answers to this question…
merely recited a general essay on the completion of gifts and constitution of trusts.
Student extract
In Mascall v Mascall … it is seen that the donee, the son, had everything
necessary to constitute his title—this is what is referred to as the power
analysis that Penner highlighted in his text. There are issues with the power
analysis, as Penner himself does not agree with it because it can be argued
that the mere fact that the father took the certificate from the son, he did not
have everything under control, as is contrasted with Re Rose.
Comments on extract
Although the discussion of the power analysis was too brief, it did identify the
important issue raised by the quotation, referred to relevant academic literature, and
offered some criticism of that approach.
Question 8
In Chase Manhattan Bank NA v Israel-British Bank (London) Ltd (1981)
Goulding J said: ‘a person who pays money to another under a factual
mistake retains an equitable property in it and the conscience of that other is
subjected to a fiduciary duty to respect his proprietary right.’
Discuss.

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General remarks
This quotation invited candidates to write an essay on constructive trusts of
mistaken payments, which are discussed in Chapter 18 of the module guide and
Chapter 4 of Penner.
Law cases, reports and other references the examiners would expect you to
use
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105;
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12, [1996]
AC 669.
Common errors
A common error was the failure to focus on the question asked.
A good answer to this question would…
discuss the controversy over whether mistaken payments are (or should be) held in
trust for the payer. It would note Lord Browne-Wilkinson’s criticisms in
Westdeutsche of the reasoning in Chase Manhattan and his view that a trust cannot
arise unless the trustee is aware of the trust or the facts giving rise to it. It might go
on to note the views expressed by Lord Sumption in Angove’s Pty Ltd v Bailey
[2016] UKSC 47, [2016] 1 WLR 3179. It might discuss fiduciary duties or appeals to
conscience more generally in the law of trusts but it should not stray too far from the
central issues concerning trusts of mistaken payments.
Poor answers to this question…
missed the issues raised by the quotation.