Trusts L5 report 2018 B - past papers PDF

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Examiners’ reports 2018

Examiners’ reports 2018 LA2002 Equity and Trusts (Level 5) – 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 six 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 question asked. For example, Question 1 tells you that Robert’s will was probated. Despite being given this information, some candidates still spent time discussing whether Robert’s will was valid. It is equally important to pay careful attention to the 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. 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

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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 Robert invited his friend Julie over for dinner. He showed her a copy of his will, which he had executed two months ago. Julie was surprised to see that she was named as the sole beneficiary of the residue of his estate. Robert asked Julie if she would keep £10,000 for herself and hold the rest in trust for their friend Alex. Julie agreed. Robert died three months later. His will was probated and Laura was appointed as his executrix. The residue of Robert’s estate consists of a house, its contents, and £25,000. There is no mention of any trusts in the will. Julie told Laura about her conversation with Robert. Laura cannot find any documents relating to the trust that Julie described. Laura seeks your advice. Who is entitled to the house, its contents, and the £25,000? Advise Laura. What difference, if any, would it make if Robert’s will stated ‘I leave the residue of my estate to my friend Julie to use as we agreed’? General remarks This is a problem question about secret trusts, which are discussed in Chapter 14 of the module guide and Chapter 6 of Penner. Law cases, reports and other references the examiners would expect you to use Re Boyes (1884) Ch D 531, Blackwell v Blackwell [1929] AC 318, Re Gardner [1920] 2 Ch 523, Kasperbauer v Griffiths [2000] WTLR 333, Ottaway v Norman [1972] Ch 698, Re Young [1951] Ch 344, McCormick v Grogan (1869) 4 App Cas 82, Re Keen [1937] 1 All ER 452, s.9 Wills Act 1837, s 53(1)(b) LPA 1925. Common errors Common errors included confusing half-secret trusts with fully secret trusts. A good answer to this question would… identify the fully secret trust and discuss the justifications for enforcing it despite its not complying with s.9 Wills Act 1837. It might discuss whether the trust is express or constructive and whether the purported trust of the house must also comply with the formality requirement under s.53(1)(b) LPA 1925. It would also address the alternative question involving a half-secret trust and query whether the timing of the communication should make any difference. Poor answers to this question… identified this as a gift via donatio mortis causa or omitted the alternative question.

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Examiners’ reports 2018

Question 2 May and Stuart are an elderly married couple with three adult children: Charlie, Harriet, and Rose. May and Stuart decided to create a family trust for the benefit of Charlie and Harriet. Rose, who was no longer in contact with May and Stuart following a quarrel, was not included in the family trust. The trust assets are worth £2 million. Harriet was an experienced investment advisor, and May and Stuart relied heavily on her investment advice. She advised them to invest in Tony’s new business, so they paid £250,000 to him in exchange for shares in his new company. May and Stuart did not know that Harriet and Tony had agreed that Tony would keep £200,000 for his business and pay £50,000 to Rose. Harriet was unhappy that Rose had not been included as a trust beneficiary and knew that she badly needed money. Tony paid £50,000 to Rose. She thought that it was a friendly loan and did not know that it came from the family trust. Charlie discovers what has happened and seeks your legal advice. He does NOT want to make any claims against May and Stuart, but wants to know if he has any claims against Harriet, Rose, and Tony. Advise Charlie. General remarks This is a problem question about dishonest assistance and knowing receipt, which are discussed in Chapter 17 of the module guide and 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, Re Montagu’s Settlements [1987] Ch 264, El Anjou v Dollar Holdings plc [1994] EWCA Civ 4, Agip (Africa) Ltd v Jackson [1990] EWCA Civ 2, C. Mitchell and S. Watterson ‘Remedies for knowing receipt’ in C. Mitchell (ed.) Constructive and resulting trusts (Hart, 2010) 115. Common errors Common errors included treating this as a question on tracing. A good answer to this question would… consider that H may be personally liable for her own breach of fiduciary duty as her parents’ investment advisor but is liable for dishonestly assisting a breach of trust, even if her parents acted honestly (Royal Brunei v Tan). T may be liable for dishonest assistance and knowing receipt but candidates should discuss whether he is liable for knowingly receiving the £50,000 as he did not receive it for his own benefit (Agip, El Anjou). R is not liable for knowing receipt because she acted honestly without knowledge of the breach of trust (Re Montagu’s). A very good answer would discuss whether a lower standard of notice is sufficient or even whether R should be strictly liable on the basis of unjust enrichment. Poor answers to this question… simply restated the rules on knowing receipt and dishonest assistance or introduced tracing. Question 3 Ophelia received a large envelope in the post. It contained a certificate for 500 shares in Winthorpe Corp registered in the name of her friend Louis, a form to transfer those shares to Ophelia which was properly executed by Louis, and a letter from Louis which stated: ‘Dear Ophelia, I want you to keep some of these shares for yourself and use the rest to make gifts to our mutual friends as you see fit. Yours truly, Louis.’

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Ophelia tried to discuss this with Louis the next day, but discovered that he had died that morning. Ophelia now seeks your legal advice about the shares, which are worth £1,000 per share. Advise Ophelia. General remarks This is a problem question about declaration and constitution of trusts, which are discussed in Chapters 5 and 7 of the module guide and Chapters 7 and 8 of Penner. Law cases, reports and other references the examiners would expect you to use Knight v Knight (1840) 3 Beav 138, Jones v Lock (1865) 1 Ch App 25, Re Barlow’s Will Trusts [1979] 1 All ER 296, Milroy v Lord (1862) 4 De GF&J 264, Re Rose [1952] Ch 499. Common errors Common errors included treating this as solely a question on either declaration of trusts and the certainties or on constitution. Less common but more distressing were those candidates who saw this a question on secret trusts simply because they focused on the fact that had made an oral declaration and had then died shortly thereafter. A good answer to this question would… recognise that L held the shares on constructive trust for O under Re Rose. There could be no express trust as L’s words and conduct do not meet the standard for expressing an intention as set out in the case law. The mention of ‘some’ and ‘rest’ raises problems of certainty of subject matter and, for this reason, the trust in favour of the friends would fail. Poor answers to this question… assume that because L had died, the ‘trust’ took the form of a testamentary trust, even though no will was ever mentioned. Other poor answers would mention irrelevant issues from the same guide chapter, such as donatio mortis causa. Student extract What is the definition of ‘mutual friends’? The confusion here is how they define people they know in common are regarded as friends by both parties. In Re Barlow, ‘friends’ failed for conceptual certainty, which means that the concept of the object is too vague or subjective to be defined for O to map a class of qualified ‘friends’. While the principle is easy to state, the application is difficult and there are many views on this. Comments on extract The candidate correctly assesses the point about conceptual vagueness, but, despite an attempt to grapple with the difficulty of defining subjective concepts, does not go far enough. S/he should have referred to the arguments in Re Barlow and elsewhere. S/he also does not mention the outcome in that case, which was to treat it as a series of gifts to individuals rather than as a trust. Overall, the answer was a good 2:1. Question 4 ‘Any jurisdiction that permits trusts without beneficiaries for charitable purposes can have no objection to trusts for non-charitable purposes.’ Discuss. General remarks This was an essay question about the beneficiary principle and trusts for private purposes, discussed in Chapters 9 and 10 of the module guide and in Chapters 9 and 13 of Penner.

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Law cases, reports and other references the examiners would expect you to use Morice v Bishop of Durham (1804) 10 ves 522, Re Denley’s Trust Deed [1969] 1 Ch 373, Re Osoba [1978] 2 All ER 1099, Re Sanderson’s Trust (1857) 3 K&J 497, the ‘Enforcer principle’ debate between Hayton and Matthews. Common errors The most common error was to misread the question as a question solely on charitable trusts. A good answer to this question would… discuss the difference between charitable trusts, which, although they have no beneficiaries, are enforced by the Charity Commission on behalf of the Crown and (anomalous) non-charitable purpose trusts that are not enforced as they have no beneficiaries nor any other enforcer. It would also discuss whether an enforcer principle could replace the beneficiary principle, as discussed in the literature. Poor answers to this question… gave a simple description of the law on charitable trusts with no reference to the question. Student extract In Church of Scientology v Kaufman, Justice Goff describes scientology as nonsense and would not find it charitable. Even in Hubbard v Kasper, Lord Denning stated that scientology was dangerous material and cannot qualify under the head of religion. This shows that it was not that there was no beneficiary but the trust itself failed to meet the requirement set by the court. However, for non-charitable purposes it is important to have beneficiaries because then the trust will go back to the residuary testator. There won’t be any beneficiaries and it will not be valid. Therefore it is important for noncharitable purposes to have beneficiaries unlike in charitable purposes. Comments on extract This is the conclusion. The candidate has devoted the question to a description of how certain types of activity may be categorised as charitable, which was not the point of the question. S/he has gone into detail discussing the various heads of charity, which were not at all relevant to the question. The difference between beneficiaries and enforcers is never addressed. The candidate never mentions the role of the Charity Commission, nor why trusts must otherwise have beneficiaries; the argument never gets beyond saying that trusts must have beneficiaries (with no indication as to why), so that if a trust for a purpose is not charitable it will fail. Moreover, s/he shows a fundamental misunderstanding by saying that the trust in Kaufman had not failed as a charitable trust for want of a beneficiary: it would not have failed for that reason in any case, because charitable trusts do not have beneficiaries. The candidate received a mid-third-class mark.

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Question 5 In Re Vandervell’s Trusts (No.2) (1973), Megarry J said: ‘The distinction between the two categories of resulting trusts is important because they operate in different ways. Putting it shortly, in the first category, subject to any provisions in the instrument, the matter is one of intention, with the rebuttable presumption of a resulting trust applying if the intention is not made manifest. For the second category, there is no mention of any expression of intention in any instrument, or of any presumption of a resulting trust: the resulting trust takes effect by operation of law, and so appears to be automatic. What a man fails effectually to dispose of remains automatically vested in him, and no question of any mere presumption can arise.’ Discuss. General remarks This is an essay question about 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 Vandervell v IRC [1966] Ch 261, Re Vandervell (No.2) [1974] 1 All ER 47, Pettit v Pettit [1970 AC 777, Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, Tinsley v Milligan [1993], Air Jamaica v Charlton [1999] Patel v Mirza [2016] UKSC 42, s.54(2) LPA 1925, R. Chambers Resulting trusts (OUP, 1997). Common errors These included confusing the different types of implied trusts. A good answer to this question would… focus on the quotation and consider whether Megarry J is helpful when he distinguishes between presumed and automatic resulting trusts and what the role of intention plays, if any. Poor answers to this question… treated this an invitation to muse generally on resulting and constructive trusts. Question 6 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. General remarks This is an essay question about constructive trusts and mistaken payments, which are discussed in Chapter 13 of the module guide and Chapters 4 and 5 of Penner. Law cases, reports and other references the examiners would expect you to use Chase Manhattan NA v Israeli British Bank (London) Ltd [1979] 3 All ER 1025, Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, Pettit v Pettit [1970] AC 777. Common errors These included treating this as a general question on constructive trusts and not referring to the quotation. A good answer to this question would… discuss whether a mistaken payment should give rise to a constructive trust and the possible justifications for that. It would critically analyse the justifications based on

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retention of equitable interests, the imposition of fiduciary duties, or conscience. It would consider the obiter dicta of Lord Browne-Wilkinson in Westdeutsche. Poor answers to this question… treated this as an opportunity to recite the general rules about constructive trusts with no reference to the quotation.

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