Examiners’ report 2014

Examiners’ report 2014

LA3002 Law of trusts – 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 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 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.
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 any 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 either failed to manage their time properly
and thus did not provide four complete answers, or failed to address questions
properly and wrote one or more answers that were mostly irrelevant.

Specific comments on questions

Question 1
“A right of property, whether legal or equitable, cannot exist in the air,
hovering over an undifferentiated mass of property; it can only exist in
relation to property which is specifically ascertained… In particular, equity
should not develop its own ‘flexible’ notion of certainty of subject matter just
in order to provide the sympathetic result in a particular case.” (JE Penner,
The Law of Trusts, 2012)
Discuss.
General remarks
This quotation from the main textbook invited candidates to write an essay on
certainty of subject matter, which is discussed in Section 5.2 of the subject guide.

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Law cases, reports and other references the Examiners would expect you to
use
Palmer v Simmonds (1854); Re Golay’s WT [1965] 1 WLR 969; Hunter v Moss
[1993] EWCA Civ 11; White v Shortall [2006] NSWSC 1379; Pearson v Lehman
Brothers Finance SA [2010] EWHC 2914 (Ch).
Common errors
Failing to focus on the question and failing to discuss Hunter v Moss.
A good answer to this question would…
explain what certainty of subject matter is, why it is important, and the particular
problems addressed or created by Hunter v Moss. It might begin with an
introduction to the three certainties, but should not be an essay generally about
them. It should focus on the particular problem that arises when the subject matter
of the trust is defined as a portion of a larger bulk of identical assets. It would note
the law’s different treatment of money in an account, company shares and fungible
goods and whether and how that might be defensible. It would also note the
solution proposed in Pearson v Lehman Brothers of treating company shares as co-
ownership of the company.
Poor answers to this question…
would be a general essay about the three certainties that did not properly focus on
the issue of certainty of subject matter.
Question 2
“It is not clear how ‘unconscionability’ helps to explain equity’s willingness to
perfect imperfect gifts in these cases. There was no unconscionability
whatsoever in Re Rose itself. The gift was completed, and the only effect of
the rule was a tax saving. It is also not clear why it was unconscionable for
the father to change his mind about making a gift of land to his son in
Mascall.” (JE Penner, The Law of Trusts, 2012)
Discuss.
General remarks
This quotation from the main textbook invited candidates to write an essay on the
Re Rose principle, with particular reference to its extension in Pennington v Waine.
This is discussed in Section 6.2 of the subject guide.
Law cases, reports and other references the Examiners would expect you to
use
Milroy v Lord [1862] EWHC Ch J78, 4 De GF&J 264, 45 ER 1185 (CA); Re Rose
[1952] EWCA Civ 4, [1952] Ch 499; Mascall v Mascall [1984] EWCA Civ 10, 50
P&CR 119; T Choithram International SA v Pagarani [2000] UKPC 46; Pennington v
Waine [2002] EWCA Civ 227, [2001] 1 WLR 1, [2001] 2 All ER 492.
Common errors
Failing to focus on the question and failing to discuss Pennington v Waine.
A good answer to this question would…
explain the problems created by incomplete gifts and incompletely constituted trusts
in which the donor or settlor has no duty to complete the transaction. It would
explain the Re Rose principle, which gives rise to a constructive trust for the donee
once the donor has provided the donee with the documents needed to complete the
gift through registration. It might also explain that this is an exception to the normal
rule that ‘equity will not assist a volunteer’ and might note that this principle was
explained in Mascall v Mascall as a situation in which the normal rule did not apply
because the donee had the power to complete the gift without the donor’s help and

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therefore did not need assistance. It would note that this did not occur in
Pennington v Waine, which used the principle of ‘unconscionability’ to extend the
Re Rose principle, and discuss whether this was legitimate in the absence of the
kind of detrimental reliance normally required to create a proprietary estoppel.
Poor answers to this question…
would be a general essay about incomplete gifts that did not properly focus on the
issues of unconscionability and how it relates to the Re Rose principle.
Question 3
“If the property of the association is the property of its individual members,
there does not appear to be any explanation of why that should cease to be
the case if the membership falls below two.” (Lewison J in Hanchett-Stamford
v Attorney General, 2008)
Discuss.
General remarks
This quotation from Hanchett-Stamford v AG invites candidates to write an essay on
the way in which property is held by an unincorporated association and how it
should be divided on the dissolution of that association. This is discussed in
Chapter 13 of the subject guide.
Law cases, reports and other references the Examiners would expect you to
use
Re West Sussex Constabulary’s Widows, Children and Benevolent (1930) Fund
Trusts [1971] Ch 1; Re Recher’s Will Trusts [1972] Ch 526; Re Lipinski’s Will Trusts
[1976] Ch 235; Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly
Society [1979] 1 All ER 623; Conservative and Unionist Central Office v Burrell
[1981] EWCA Civ 2, [1982] 2 All ER 1, [1982] 1 WLR 522; Hanchett-Stamford v AG
[2008] EWHC 330 (Ch), [2009] Ch 173.
Common errors
Failing to focus on the question and failing to discuss Hanchett-Stamford v AG.
A good answer to this question would…
note that an unincorporated association is not a separate legal person and so the
property of that association must be held in trust, and then discuss the difficulties
the law has had working out the terms of that trust and how it is created. It would
explain the modern solution in which the assets are held in trust for the members,
who are subject to a contract regarding the use of those assets. It would note that
the association will be dissolved if there is only one member, since the contract
would no longer exist, and the trust will cease to exist since the trustee and
beneficiary will be the same person. It would then discuss Lewison J’s rejection of
the suggestion, in previous cases, that the assets would become ownerless and
belong to the Crown as bona vacantia.
Poor answers to this question…
would merely recite the various theories about how unincorporated associations
hold property without discussing the dissolution of the association and the approach
taken in Hanchett-Stamford v AG.
Question 4
Beatrix died recently and Norman was appointed as the executor of her
estate. Norman seeks your advice regarding the nature and validity of the
following clauses in Beatrix’s will:
“(a) £250,000 to promote the worship of animals;

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(b) £250,000 to campaign for harsher punishments for animal cruelty;

(c) the remainder of my estate to St Francis Girls’ School.”
Beatrix attended St Francis Girls’ School when she was a girl. It closed five
years ago due to falling enrolments, mostly because of the very high fees it
charged.
Advise Norman.
General remarks
This problem concerns the law of charities, with particular reference to the
advancement of religion, the advancement of animal welfare, the advancement of
education, public benefit and the problem of political causes, and cy près. This is
discussed in Chapter 10 of the subject guide.
Law cases, reports and other references the Examiners would expect you to
use
Charities Act 2011, ss.3(2)(b), (c), and (k), 4; Re Harwood [1936] Ch 285;
McGovern v AG [1982] Ch 321; Independent Schools Council v Charity
Commission [2011] UKUT 421 (TCC), [2012] Ch 214.
Common errors
Failing to identify the heads of charity properly, missing the issues concerning
public benefit, and not applying the cy près rules properly.
A good answer to this question would…
discuss whether each of the three clauses of B’s will created a valid gift for charity.
It would begin by explaining that a gift is not charitable at law unless it falls under
one of the recognised heads of charity set out in s.3(1) of the Charities Act 2011
and provides a benefit to the public. Clause (a) raises the possibility of a gift for the
advancement of religion under s.3(1)(c), which requires worship, but no longer
requires belief in a god. Clause (b) appears to be for the advancement of animal
welfare under s.3(1)(k), but fails to satisfy the public benefit requirement because it
promotes a political cause of advocating a change to the law: McGovern v AG.
Clause (c) is a gift for the advancement of education under s.3(1)(b), but since the
intended donee ceased to exist before the will was probated, this creates an initial
impossibility which might be fixed cy près. There are two problems. First, the gift
might not be charitable if the school failed to provide a public benefit because it
excluded the poor: Independent Schools Council v Charity Commission. Second, it
is harder to find a general charitable intention when a gift is made to an organisation
that has ceased to exist: Re Harwood.
Poor answers to this question…
would miss some of the basic issues.
Question 5
Larry was involved in the following transactions:
(a) Five years ago, Larry and Maria purchased a 99-year lease of a flat as
joint tenants at law for £180,000. Larry paid the deposit of £60,000.
The balance of £120,000 was obtained by their joint mortgage. Larry
and Maria were good friends and not romantically involved with each
other. Larry never lived in the flat and Maria made all the mortgage
payments.
(b) Three years ago, Larry transferred all the assets of his business,
including the stock in trade, contracts, and the lease of a shop, to his
father, Vince. Larry was in financial trouble at the time and worried

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that his creditors might take his business. Larry’s finances improved
and he continued to operate the business until he died. The leasehold
estate is worth £100,000 and the other assets are worth £50,000.
(c) Last year, Larry opened a joint bank account for himself and Chloe,
who is Maria’s 15-year-old daughter. Larry paid £20,000 into the
account, but never told Chloe or anyone else about the account.
Larry died recently. His ex-wife, Patricia, is the sole beneficiary of his estate
under his will. She claims that all the assets described above are held in trust
for Larry’s estate.
Advise Patricia.
General remarks
This problem concerns the presumption of resulting trust and illegal purposes. This
is discussed in Chapter 12 of the subject guide.
Law cases, reports, and other references Examiners would expect you to use
LPA1925, s.60(3); Re Vinogradoff [1935] WN 68; Tinsley v Milligan [1993] UKHL 3,
[1994] 1 AC 340; Tribe v Tribe [1995] EWCA Civ 20, [1996] Ch 107; Lohia v Lohia
(2000) ITELR 117, [2001] WTLR 101, affirmed Lohia v Lohia [2001] EWCA Civ
1691; Ali v Khan [2002] EWCA Civ 974.
Common errors
Failing to discuss the presumption of resulting trust, s.60(3) LPA1925, and the
effect of illegality. Misapplying s.60(3) LPA1925 to transfers of personal property or
purchases.
A good answer to this question would…
explain the possible application of the presumptions of resulting trust and
advancement, along with the effects of s.60(3) LPA1925 and illegality.
(a) L’s contribution to the purchase price of a flat in M’s name would raise a
presumption of resulting trust for L in proportion to his contribution to the
purchase, which is £120k (the deposit plus half the mortgage, i.e. 2/3 of the
purchase price). Therefore, unless the presumption can be rebutted by
evidence of intention to make a gift or loan, L and M would hold their joint
legal title in trust for themselves as tenants in common, 2/3 for L and 1/3 for
M. M would acquire sole legal ownership as the surviving joint tenant, but
continue to hold a 2/3 share in trust for L’s estate. Since L and M were not
romantically involved and did not live together, the law regarding
constructive trusts of the family home would not apply.
(b) L’s transfer of assets to his father, V, would raise a presumption of resulting
trust for L, except for the transfer of the leasehold estate if s.60(3) LPA1925
prevents the presumption from arising: Lohia v Lohia; Ali v Khan. The
transaction was for an illegal purpose and if any creditors were prejudiced,
evidence of that purpose would be inadmissible: Tinsley v Milligan; Tribe v
Tribe.
(c) L’s deposit of £20k in a joint account with C would raise a presumption of
resulting trust (Re Vinogradoff) unless L stood in loco parentis to C, but
there is no indication of this. There is no evidence of L’s intention to rebut
the presumption.
Poor answers to this question…
would ignore the issues of the effects of s.60(3) LPA1925 and illegality.

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Question 6
Five years ago, Daniel made a will which stated, “I hereby leave my cottage to
my dear friend, Edmund, to use as we discussed, and the remainder of my
estate to my son, Ryan.” The will was witnessed by Edmund and Judy. Later
that same day, Daniel told Edmund that he and Judy had once had a secret
affair while she was married and that he wanted her to have the use of his
cottage for life.
Two months ago, Ryan was overseas when he received an email from
Edmund, which said, “Your father is ill. Come home as soon as you can. He
has some big news and a big favour to ask.” Ryan replied by email, “On my
way. Tell him he can count on me.” He flew home, but Daniel died before he
arrived. Edmund gave Ryan a sealed envelope which contained a letter from
Daniel. The letter revealed that Daniel was secretly the father of Judy’s
daughter, Kate, and asked Ryan to share Daniel’s estate equally with Kate.
Ryan wants to know who is entitled to the cottage and who is entitled to the
remainder of Daniel’s estate. Advise Ryan.
General remarks
This problem concerns secret trusts, with both fully secret and half-secret trusts and
issues concerning the timing of communication to the secret trustees, witnesses to
the will and an oral trust of an interest in land. This is discussed in Chapter 8 of the
subject guide.
Law cases, reports and other references the Examiners would expect you to
use
Wills Act 1837, ss.9, 15; LPA 1925, ss.53(1)(b), 53(2); Cresswell v Cresswell (1868)
LR 6 Eq 69; Re Boyes (1884) 26 Ch D 531; Blackwell v Blackwell [1929] UKHL 1,
[1929] AC 318; Re Keen [1937] Ch 236 (CA); Re Browne [1944] IR 90; Re Young
[1951] Ch 344; Ottaway v Norman [1972] Ch 698; Re Snowden [1979] Ch 528;
Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532.
Common errors
Failing to identify the trusts properly as half-secret and fully secret, respectively, and
failing to discuss the potential problem created by the witnesses to the will and s.15
of the Wills Act 1837.
A good answer to this question would…
identify the intended trust of the cottage as a half-secret trust (HST) and the
intended trust of the remainder of the estate as a fully secret trust (FST). To create
a secret trust, the testator must intend to impose a legal obligation and not just a
moral obligation on the trustee (Re Snowden). This appears to be true of both the
HST and FST.
Cottage: potential problems which should be discussed are timing of
communication, the secret trustee as witness, and an oral trust of land. The objects
of the HST must be communicated to the trustee on or before the execution of the
will (Re Keen), although this has been doubted abroad (Re Browne; Ledgerwood v
Perpetual Trustee) and they must be consistent with the terms of the will, which
here refers to past communication. Communication on the same day, although after
execution, may count. There should not be a problem with E as both trustee and
witness (Cresswell v Cresswell). There is a question whether a secret trust of land
is an express trust which must comply with s.53(1)(b) LPA 1925 or is a constructive
trust, which is exempt under s.53(2). An oral secret trust of land was permitted in
Ottaway v Norman, but without comment on that point.

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Remainder of estate: potential problems which should be discussed are timing of

communication and the secret beneficiary as witness. The terms of the FST must
be communicated to the trustee before the death of the testator. It is possible to ‘sail
under sealed orders’ (Re Keen), but the instructions must be delivered before death
(Re Boyes). Although R said that D could ‘count on’ him, R did not know what
favour D was going to ask. J witnessed the will, but this did not prevent the
beneficiary from keeping the gift in Re Young. It might also be mentioned that the
remainder of the estate may include interests in land.
Poor answers to this question…
would discuss the theories regarding secret trusts without applying them properly to
the facts of the problem.
Question 7
“We can understand why the knowing recipient is traditionally called a
constructive trustee. He is not an express trustee, of course, because he did
not agree to hold the property on trust when he received it; rather, equity
imposes upon him the duty of custodian trusteeship.” (JE Penner, The Law
of Trusts, 2012)
Discuss.
General remarks
This quotation from the main textbook invites candidates to write an essay on the
nature of liability for knowing receipt of property transferred in breach of trust. This
is discussed in Section 16.6 of the subject guide.
Law cases, reports and other references the Examiners would expect you to
use
Barnes v Addy (1874) LR 9 Ch App 244; 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; Williams v Central Bank of Nigeria [2014]
UKSC 10; Mitchell, C. and S. Watterson ‘Remedies for knowing receipt’ in C.
Mitchell (ed) Constructive and resulting trusts. (Oxford: Hart Publishing, 2010)
[ISBN 9781841139272] p.115.
Common errors
Failing to focus on the question concerning the obligation imposed on the knowing
recipient of property transferred in breach of trust.
A good answer to this question would…
explain liability for knowing receipt, why the recipient is traditionally called a
constructive trustee, and what this means. It might compare this to liability for
dishonest assistance, but should not be an essay generally about both types of
liability. It might also contrast personal liability with the proprietary claim to trust
assets still held by the recipient. It would consider the theory put forward by Mitchell
and Watterson that recipient liability is essentially liability for wrongfully failing to
preserve and restore the trust assets once he or she becomes aware of the breach
of trust. It might also consider how this relates to the views recently expressed in
Williams v Central Bank of Nigeria that the constructive trust imposed on the
recipient is not a ‘true trust’.
Poor answers to this question…
would be a general essay about accessory liability or constructive trusts without
properly focusing on the question.

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Question 8
Jeffrey owned and operated a small food and wine shop, and had a separate
bank account for business income and expenses. It was usually overdrawn,
and the overdraft was secured by a registered mortgage of Jeffrey’s house.
Every month, Big Bank paid about £10,000 into that account, which was the
total received from customers who paid with credit cards each month.
Three months ago, Big Bank paid £110,000 into Jeffrey’s account. The amount
due was £10,000, but an extra £100,000 was paid because of a clerical error.
When that payment was made, Jeffrey’s account was overdrawn by £50,000
and so the balance in the account was raised to £60,000 in Jeffrey’s favour.
Jeffrey used £20,000 from that account to buy a new car for his daughter,
Maude. He used another £30,000 to pay off a long overdue debt to his friend
Walter, who was surprised and asked Jeffrey where he got the money.
Jeffrey said, “Somebody made a big mistake. They’ll be wanting their money
back soon, so you better take it while you can.” Walter paid the £30,000 into
his bank account, raising the balance to £40,000. He then used £10 from that
account to buy a lottery ticket, which turned out to be a winning ticket worth
£100,000. Walter paid that money into that same account.
Big Bank recently discovered its mistake and wants its £100,000 back, but
Jeffrey is now bankrupt. Advise Big Bank whether it has any claims to
Jeffrey’s house, Maude’s car, and Walter’s bank account (which now has a
balance of £120,000)?
General remarks
This problem concerns a possible constructive trust of a mistaken payment, the law
of tracing, the claims that can be made to the traceable proceeds of that payment,
and the defence of bona fide purchase for value with notice. This is the subject of
Chapter 19 and Section 4.1.1 of the subject guide.
Law cases, reports and other references the Examiners would expect you to
use
Pilcher v Rawlins (1872) LR 7 Ch App 259; Chase Manhattan Bank NA v Israel-
British Bank (London) Ltd [1981] Ch 105; El Ajou v Dollar Land Holdings plc [1993]
3 All ER 717 (Ch D), reversed [1993] EWCA Civ 4, [1994] 2 All ER 685; Boscawen
v Bajwa [1995] EWCA Civ 15, [1995] 4 All ER 769, [1996] 1 WLR 328;
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12, [1996]
AC 669; Foskett v McKeown [2000] UKHL 29, [2001] 1 AC 102; Smith, L. ‘Tracing
into the payment of a debt’ (1995) 54 Cambridge LJ 290.
Common errors
Failing to discuss whether the mistaken payment was held in trust and failing to
discuss the relevant tracing rules. Some candidates discussed the personal liability
of the parties even though they were asked to advise Big Bank about claims it may
have to three specific assets.
A good answer to this question would…
discuss whether the mistaken payment was held in trust for BB, whether the
payment can be traced into J’s house, M’s car and W’s bank account, and what
claims BB might have to those assets. Candidates are not expected to work out the
amounts or proportions that can be traced into particular assets, but should be able
to identify the principles involved.
According to Chase Manhattan, a mistaken payment is held in trust for the payer.
This was doubted in Westdeutsche, with the suggestion that a trust will arise once
the recipient becomes aware of the mistake, which occurred here. The trust may be

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necessary in order to use equitable tracing rules, although Millett J said that the
equitable rules could be used in even in the absence of a fiduciary relationship: El
Ajou. The £100k paid by mistake was mixed with the £10k due to J. This creates an
evidential difficulty since it is not possible to know exactly how much of the mistaken
payment was used to pay off the £50k overdraft and how much of it remained in the
£60k balance of the account.
J’s house: the mistaken payment was used to pay from £40k to £50k of the
overdraft, which was secured by a mortgage over the house. BB can claim to be
subrogated to the mortgagee’s rights for that amount: Boscawen v Bajwa.
Candidates might also discuss the possibility of backwards tracing: L. Smith.
M’s car: From £10k to £20k of the mistaken payment was used to purchase the car.
This was a gift to M, who was therefore not a bona fide purchaser for value with
notice. Regardless of her knowledge or notice, M might hold the car in trust wholly
or partly for BB in proportion to the amount contributed. BB might claim a lien,
although Lord Millett suggested in Foskett v McKeown that this would be unfair to
the innocent recipient in a case where the asset depreciated.
W’s bank account: From £20k to £30k of the mistaken payment was used to pay
W, which was then mixed with £10k to £20k of W’s own money in W’s bank
account. Although W gave value for the payment, he was not a bona fide purchaser
because he had notice of the mistake: Pilcher v Rawlins. BB will want to trace this
money into the winning lottery ticket and its proceeds and then back into W’s bank
account. It is not known how much, if any, of the proceeds of BB’s money was used
to buy the ticket. If BB and W are treated as innocent parties who share the lottery
proceeds pro rata (Foskett v McKeown), then BB could argue that £30k of its
money was combined with £10k of W’s money in W’s account, which was then
shared in the proportion so that 3/4 of the lottery winnings belong to BB.
Poor answers to this question…
would miss some of the basic issues.