Law of Trusts ZA 2007

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					Law of trusts

Examiner’s report 2007
    Zone A

    General remarks
            The 2007 paper followed the normal format of four essays and four
            problems. The standard criticisms of answers apply, the most common
            being that many candidates failed to address the questions set and were
            instead content to write all they knew about the topic. They should know
            that examiners are never content with this type of answer. More worrying
            this year, as previous, was the large number of almost identical prepared
            answers to essay questions. As before, these had obviously been written by
            staff at institutions preparing candidates for the examination, and then
            reproduced by rote in the exam. This was a particular problem with
            question 3 (resulting trusts), where all sorts of nonsense were attributed to
            one of the main protagonists in the debate, and question 7 (recipient
            liability). Not only were these answers of poor quality, they were very
            often completely wide of the mark. Examiners ask very specific questions
            about topics, and it is virtually impossible to second-guess what these will
            be. As a consequence, pre-prepared answers will always fail to hit the
            target. Institutions therefore do their students no favours in producing this
            sort of material. It is not done for students studying internally at any of the
            colleges of the University of London, and it should not be done for students
            studying externally. Examiners are looking for students who can think for
            themselves. Students should therefore reject any prepared answers their
            private colleges may seek to foist on them. Indeed, they should think twice
            before enrolling at a college which carries on such a practice, remembering
            that there are no short-cuts in law.

    Specific comments on questions
    Question 1
            This essay question asked candidates to discuss a quote from the dissenting
            speech of Lord Guest in McPhail v Doulton. A good answer would have
            explained how, prior to McPhail v Doulton, trusts, both fixed and
            discretionary, required an ability in the trustees to identify all potential
            beneficiaries (IRC v Broadway Cottages) and how that this rule was
            overturned by a majority of the House of Lords in McPhail in respect of the
            discretionary trust. It would also explain why the Court of Appeal in
            Broadway Cottages had insisted on a complete list, how convincingly Lord
            Wilberforce in McPhail dealt with its reasoning, and describe the test he
            put in its place. Most importantly, the answer would end up discussing
            why the minority in McPhail thought this new test illegitimate and who in
            that debate was right.
            Unfortunately, few candidates answered this question well. Many simply
            wrote all they knew about the ‘three certainties’, and failed to address the
            specific issue raised by the question at all. Such answers did not pass.
            Other candidates produced general essays on the certainty of objects, and
            these were given bare pass marks. Of the minority who did address the
            question, few seemed to notice that the quote they were asked to discuss

                                                                 Examination papers and Examiners’ reports 2007

      was from a dissenting speech (even though the question told them this),
      and of the few that did take that on board, the idea of a dissenting speech
      seemed unknown to them. The lesson to take from this question is that, as
      was stated above, the examiners expect candidates to be able to think for
      themselves in the examination room and to apply the knowledge they have
      learned to the specific question in hand. Candidates who are not prepared
      to do this should not be studying for a degree at all.
      The following information needs reiterating, in order that students do not
      repeat it again:
      i. Morice v Bishop of Durham (1805) did not lay down the ‘complete list
         test’ for certainty of objects of a trust; and
      ii. a discretionary trust does not give the trustees power to decide who are
          the ‘potential’ beneficiaries.

Question 2
      This was a problem question on secret trusts. As with all issues concerned
      with secret trusts, the ultimate question was the admissibility of evidence
      which did not meet the requirements of section 9 of the Wills Act 1837.
      As far as part (i) was concerned, the first question was whether this was a
      fully or a half-secret trust. Since the words used by the testator were
      precatory (‘in the expectation that, good man and friend that he is, he will
      observe my wishes’), this was clearly a fully secret trust. The next issue
      was whether Brian could take a benefit, the question being whether re Rees
      applies where there was no possibility of a contradiction of the terms of the
      will. Moreover, even if it did not, did it make a difference that Brian was
      possibly not the testator’s solicitor? The next issue, assuming the evidence
      was admissible, was the effect of Brian’s witnessing of the will on his
      beneficial devise. This was followed by the more difficult issue of the effect
      of his witnessing on the devise as a whole. Though arguably not a problem
      in the case of a half-secret trust, the question in a fully secret trust is
      whether the bequest fails in limine on the ground that the two-stage
      process set out in Viscount Sumner’s version of the dehors theory (rules of
      probate vesting the right in the trustee, then equity taking over) never
      takes off because the right never vests. A good answer would have asked
      whether the same result applied if the fraud theory was used to get the
      evidence in. The next issue was whether the communication to Brian was
      effectively made at the point at which the letter was opened, in which case
      it would fall foul of the rule in re Boyes, or whether the ‘sailing under
      sealed orders’ rule from re Keen can apply to a case where the recipient
      does not know if he is being asked to act as a trustee. Finally, there was
      the issue of the change of mind by Brian. Given that both the fraud and
      the dehors theories emphasise the fact that the trigger for admissibility is
      the acceptance of the trust by the secret trustee, it could be argued that
      where that acceptance is revoked, the justification for admitting the
      evidence contrary to the Wills Act is gone.
      As to part (ii), this was clearly a half-secret trust. There was the obvious
      point about David seeking to admit evidence to show that he takes under
      the will, and the question of whether re Rees applied. Discussion was here
      needed on re Tyler. There was then an issue as to the witnessing of the
      will, which all commentators seem to agree is not problematic in the case
      of a half-secret trust (though it would of course be problematic were David
      to argue that some of the money was for him beneficially). And finally,

Law of trusts

            there was the fact that the communication post-dated the execution of the
            will. Candidates at this point were expected to argue as to the correctness
            of the reasoning of the Court of Appeal in Re Keen.

            Part (iii) was concerned with a fully secret trust and raised the question
            whether the secret trustee can disclaim so as to take beneficially in another
            way. This is thought not to be possible in a half-secret trust, but the
            position with regard to a fully secret trust is less clear. There is no law on
            this, only obiter dicta. In re Maddock, it was said that the trust would fail,
            but in Blackwell there is dicta to the contrary. Oakley, Parker & Mellows:
            The Modern Law of Trusts (eighth edition, 2003), pp.121-2, talk about the
            courts imposing a constructive trust on the authority of Bannister v
            Bannister, but a cursory reading of that decision shows that it was
            concerned only with a question of admissibility of parol evidence to prove a
            declaration of trust, and does not lay down the general principle for which
            Oakley contends, which in any case would seem to be nothing more than
            the imposition of a remedial constructive trust. Also, it should be asked
            whether an analogy might not be drawn here with the decision in re Ralli.
            Although popular, the question was not particularly well-answered. The
            first problem was that many candidates simply wrote pages and pages of all
            they knew about secret trusts before attempting to answer the specific
            questions asked. This is a waste of time for all concerned and candidates
            will receive zero marks for such material. It was also difficult to understand
            the many citations of Kasperbauer v Grifffiths, for this case seems to have
            determined nothing new, and certainly nothing of relevance to the
            question. In this respect, it is no accident that the decision has never been
            referred to in the mainstream reports.
            Common mistakes made by candidates were to think that the first trust was
            a half-secret trust, despite the use of precatory words. Candidates seemed
            to assume that because some words were used in the will, and because
            half-secret trusts arise because of words used in the will, that this trust was
            therefore half-secret; an obviously illogical conclusion. Others talked about
            the half-secret trust ‘failing’ because of the use of precatory words, without
            realising that the language of failure in such a case is nonsensensical.
            Would the same candidates also say that there was a ‘failed trust’ in a case
            such as re Adams & Kensington Vestry?
            Further errors occurred in candidates thinking that the timing of the
            communication dictated the type of secret trust in play, that issues such as
            that in both re Young and re Stead arose on the facts, that the second trust
            was a fully secret trust (despite the will saying ‘on trust’), and that an issue
            of bona vacantia arose with the third secret trust. Moreover, although
            many candidates spotted the re Keen issue in the second secret trust, few
            bothered to discuss the correctness of that decision.

    Question 3
            This question asked whether a dictum of Lord Millett in his opinion for the
            Privy Council in Air Jamaica v Charlton amounted to a convincing
            explanation of resulting trusts. A good answer would have dissected the
            quote (this, after all, gives candidates a structure for their answer),
            explaining what is meant when it is said that a trust arises ‘by operation of
            law’, and whether it is possible to distinguish resulting from constructive
            trusts in the way Lord Millett states, or whether the author is making a
            ‘categorical’ error in thinking that resulting trusts can be distinguished from
            their constructive cousins. Of course, the view espoused by Lord Millett

                                                                   Examination papers and Examiners’ reports 2007

      owes much to Professors Birks and Chambers, and candidates would have
      needed to explain what their view is, how it has fared in the courts, and
      whether it can be defended. Most importantly, they should have asked
      whether there really is such a thing as a ‘beneficial interest’ which can be
      retained: cf Lord Browne-Wilkinson in Westdeutsche. Lord Millett’s
      explanation apart, candidates should have also examined the views
      proffered by Lord Browne-Wilkinson in Westdeutsche and Lords Upjohn
      and Wilberforce in Vandervell.
      Although a popular question, this was again not particularly well-answered,
      despite the fact that many of the necessary arguments are set out in the
      Study Guide. Few candidates bothered to dissect the quote, preferring
      instead to launch into a prepared (by someone else) essay on resulting
      trusts. Many were content to drag out such quaint expressions as ‘Equity
      abhors a vacuum’ without noticing (because clearly never having read)
      Lord Upjohn’s description of the phrase as ‘delightful but unnecessary’ in
      Vandervell itself. And some even took the essay as an excuse to write all
      they knew about constructive trusts, often confining themselves to the
      matrimonial homes cases.

Question 4
      This problem question required candidates to assess how money given for a
      purpose was held by the transferees, Mike and Peter, and the legal effect of
      the failure of that purpose. One question was whether Mike and Peter’s
      ‘association’ would qualify as an unincorporated association. If not, did the
      ‘mandate theory’ apply, and, if so, how did that differ from the law on the
      dissolution of unincorporated associations? There was also the possibility
      of some sort of purpose trust analysis. Though Mike and Peter might not
      have counted as an unincorporated association, whichever of them actually
      held the funds might be regarded on the ‘contract-holding theory’ as
      holding them on trust for themselves, subject to their agreement as to how
      they are to be used. One of them, for example, could probably complain if
      the other took off with the funds on holiday. Of course, this does not mean
      that they cannot change their minds at any time and use the funds for
      whatever purpose. A good candidate might also say that the money
      provided, in particular by Gladys, was given on a basis which has failed,
      and that she therefore had a personal restitutionary claim for a large
      fraction of the £3000, or even some kind of trust.
      This was not a popular question, though those who tried it made a fair
      attempt at grasping the issues. For reasons which are difficult to fathom,
      particularly as the main provisions of the Charities Act 2006 is not yet in
      force, some saw it as concerned with the law of cy près.

Question 5
      The fifth question (unlike the fourth) was about charities. This was an
      essay question, and comprised a quote from the judgment of Russell LJ in
      Incorporated Council of Law Reporting v A-G (1971). It required
      candidates to discuss the ways in which courts determine whether a
      particular purpose is charitable under the fourth Pemsel head. A good
      candidate would have explained the analogy approach mentioned in the
      quote, and why it might well be seen to be arbitrary. The question then
      was whether the alternative approach proposed by Russell LJ is workable.
      A further question in this regard is its status as a matter of law, especially in
      light of Williams v IRC. A good answer might have then gone on to discuss
      the position under the Charities Act 2006, where the analogy approach is
      now enshrined in statute.

Law of trusts

            Few candidates addressed these specific issues. Instead, the vast majority
            took the essay title as an excuse to write all they knew about the 2006 Act,
            the public benefit requirement in charities, the definition of charity, or some
            combination of all three. Such answers were rewarded accordingly.

    Question 6
            This was a problem question on covenants to settle. Part (a) raised the
            question whether any of the children could sue in their own right, either by
            virtue of the Contract (Rights of Third Parties) Act 1999, under the doctrine
            of marriage consideration (it might have been a marriage settlement), or by
            virtue of the right to sue being held for them on trust by Betty. There was
            also the question whether Betty could sue Angus’s estate, and, if so, the
            quantum of damages. Finally, there was the question whether Betty would
            hold any damages received on discretionary trust for the children or on
            resulting trust for Angus’s estate. Part (b) raised the same issues, though
            with the possibility of the trust being completely constituted under the
            dubious doctrine espoused by the Court of Appeal in re Rose. A good
            candidate would have offered some criticism of this decision. Part (c)
            again raised the same issues, though with the added complication that the
            covenant related to future property (the same might have been true of part
            (a)). A good answer would have asked whether Buckley J was right in re
            Cook to distinguish Fletcher v Fletcher as he did. Finally, there was the re
            Ralli question whether the trust was completely constituted by the
            appointment of Betty as executor of Angus’s will.
            This question was generally competently handled, though there were a
            number of common misconceptions. Many candidates, for example, spent
            time discussing whether the so-called ‘three certainties’ were present,
            without noticing what was an issue was a failure to constitute a trust and
            that, had it been constituted, there would have been no problems of
            uncertainty. It seems that candidates seeing the word ‘trust’ have a Pavlov’s
            dog-type reaction and feel compelled to write about the three certainties,
            whether relevant or not. Such temptations should be resisted. After all,
            the examiners are looking for thinkers, not automatons. Further problems
            were as follows: some saw the covenant in part (c) as a present attempt to
            create a trust of future property, which it clearly was not, there being an
            obvious difference between attempting to do something and merely
            promising to do the same; some wrongly thought that the later will made
            by Angus deprived the covenant of any force; and many wrongly thought
            that part (b), because it related to shares, raised a section 53(1)(c) issue:
            for reasons which are difficult to comprehend, many candidates think that
            shares are a form of ‘equitable property’.

    Question 7
            This question comprised a quote from the judgment of Nourse LJ in BCCI v
            Akindele (2000). Though it mentions the test for ‘knowing assistance’, its
            primary focus was on the state of mind necessary to trigger the personal
            liability of those who receive rights dissipated in breach of trust. A good
            answer would therefore have begun by saying that Lord Nicholls had (or so
            he thought) sorted this question out for ‘knowing’ assistance, though
            Twinsectra and Barlow Clowes show that the debate is still ongoing. But
            little more should have been said about assistance. On the receipt front, it
            should have been noted that Nourse LJ attempted to do the same as Lord
            Nicholls, though he was arguably even less successful. The problem
            students would need to identify is the protean nature of the word
            ‘unconscionable’, which is essentially meaningless, as Lord Nichols
            acknowledged in Tan when rejecting its use in the context of assistance
            liability, plumping instead for ‘dishonesty’. The question then is what the
                                                                 Examination papers and Examiners’ reports 2007

      test for recipient liability should be. At this point, candidates were
      expected to discuss the extra-judicial writings of Lord Nicholls and explain
      why he advocates a strict liability regime. They should also refer to re
      Montagu, explaining how Megarry J reaches the conclusion that something
      approaching dishonesty is required.
      Though this debate is rehearsed in some detail in the Study Guide, the
      question was generally very poorly done. Some took it as an excuse to
      write all they knew about assistance liability, even then portraying a
      completely inaccurate picture. And of those who did concentrate on
      recipient liability, many said strange things about Akindele, in particular
      that it adopted a ‘restitutionary’ approach. The number of people making
      this error (the case actually rejects such an approach) leads one to think
      that the mistake ultimately came from the pen of a private college tutor.

Question 8
      This problem question on fiduciary duties had few takers. The first thing
      which needed to be established was that Bupinder was a fiduciary, viz a viz
      Shiva’s Garden Centre Ltd. Candidates should at that point have spelt out
      the obligations of a fiduciary, the remedies for breach, and possible
      defences. As regards the purchase from her principal of the discount
      furniture stock, one way of analysing it would have been to say that it
      raised the question whether this breached the fair dealing rule, which of
      course requires full disclosure to the principal. On the other hand, it might
      have been analysed as a breach of the self-dealing rule. The question is
      whether, when Bupinder bought the chairs, she was at both ends of the
      transaction, i.e. she just paid the discount price into the till, and took the
      furniture, or whether she actually negotiated with the directors to buy
      them. There is also the question whether the principal could claim the
      profits made as a result. As regards the £10,000 loyalty bonus, this would
      seem to be a secret commission, for which she will be accountable to her
      principal. The final point concerning the exotic plants requires a discussion
      of the majority and minority approaches in Boardman v Phipps. Having
      received a refusal from the board, the question is whether she can claim
      authorisation for the profit so long as she makes full disclosure.


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