LEVEL 6 – UNIT 5 – EQUITY AND TRUSTS

SUGGESTED ANSWERS – JANUARY 2017

Note to Candidates and Tutors:

The purpose of the suggested answers is to provide students and tutors with
guidance as to the key points students should have included in their answers to
the January 2017 examinations. The suggested answers set out a response that
a good (merit/distinction) candidate would have provided. The suggested
answers do not for all questions set out all the points which students may have
included in their responses to the questions. Students will have received credit,
where applicable, for other points not addressed by the suggested answers.

Students and tutors should review the suggested answers in conjunction with the
question papers and the Chief Examiners’ reports which provide feedback on
student performance in the examination.

SECTION A
Question 1

Section 53(1)(c) of the Law of Property Act (‘LPA’) 1925 provides that a
disposition of a subsisting equitable interest must be in writing and signed by the
person disposing of the same or by that person’s agent lawfully authorised in
writing. The key question is whether there is a disposition of a subsisting
equitable interest. There have been many cases where the parties have tried to
transfer equitable interests orally to avoid stamp duty. Oral transfers are
effective only if there is no ‘disposition of a subsisting equitable interest’. The
test seems to be whether an equitable interest which existed before the transfer
still exists but in the hands of another.

The most straightforward case is where a beneficiary under a trust (X) transfers
his or her equitable interest directly to another (Y). This amounts to a disposition
of X’s equitable interest because the equitable interest continues to exist but
ownership has changed from X to Y. Section 53(1)(c) applies and the transaction
is void unless the transfer is in writing signed by X or X’s agent.

Section 53(1)(c) does not apply where a legal owner declares a new trust over
property because this involves the creation of a new equitable interest as
opposed to the disposition of a subsisting equitable interest.

The question whether there had been a disposition of an equitable interest arose
in Grey v IRC (1960). Trustees held property on a bare trust for X. X asked the
trustees to hold the property on trust for Y. It was held that this was an
attempted disposition for the purposes of s53(1)(c); the equitable interest
existed before the transaction and it was intended that the ownership would
change from X to Y.

In Vandervell v IRC (1967) the House of Lords decided that s53(1)(c) did not
apply where the legal and equitable titles were transferred together. Trustees
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held shares on a bare trust for Mr Vandervell. At his direction, the trustees
transferred the legal title to the shares to a charity. It was held that s53(1)(c)
did not apply; Mr Vandervell’s equitable interest passed with the legal title
automatically without the need for a written document. Although the equitable
interest existed before the transaction, it did not exist separately after the
transaction because the legal and equitable interests were reunited in the
charity.

In a further development of the Vandervell litigation, it was held that the

extinction of a resulting trust was not a disposition of an equitable interest and
was therefore, outside s53(1)(c).

Difficult questions of interpretation can arise if beneficiaries declare themselves

trustees of their equitable interests. Suppose that A, a beneficiary under a trust,
declares that he is holding his equitable interest on trust for B. This may amount
to a disposition of A’s equitable interest. It depends on whether A retains active
duties as a trustee of the sub-trust.

If A stays in the picture with active duties to perform as a trustee of the sub-
trust, there has been no disposition of A’s equitable interest and s53(1)(c) is not
applicable. The declaration of trust can be oral.

On the other hand, if A has no active duties to perform as trustee of the sub-
trust, A drops out of the picture and the original trustees hold on trust directly
for B. In this case, A has made a disposition of A’s equitable interest and
s53(1)(c) applies (Grainge v Wilberforce (1889)).

In Re Holt’s Settlement (1969) it was held that a variation of beneficial interests

by the court under the Variation of Trusts Act 1958 did not fall within s53(1)(c).
In Re Danish Bacon Co (1971) it was doubted whether an employee nominating
a person to receive a benefit under a pension scheme was making a disposition
of an equitable interest. In Gold v Hill (1999) nominating a person as a
beneficiary of a life assurance policy did not transfer an interest until death and
therefore there was no disposition of a subsisting equitable interest under
s53(1)(c).

Contracts to transfer equitable interests have given rise to much debate. Some
contracts are enforceable by specific performance. If the contract is specifically
enforceable, ‘Equity regards that as done which ought to be done’ and the
equitable interest in the property passes to the purchaser under a constructive
trust when the contract is made. Section 53(2) LPA 1925 provides that nothing in
s53(1) affects the creation or operation of inter alia constructive trusts.

In Oughtred v IRC (1960), Mrs Oughtred orally agreed to transfer some shares
to her son, P, in exchange for P transferring his equitable interest in another
shareholding to her. In the House of Lords, Lord Radcliffe suggested that the
equitable interest in the shares had passed to Mrs Oughtred by virtue of a
constructive trust as the contract was specifically enforceable. This view was
followed in Neville v Wilson (1996).

In conclusion, a disposition of an equitable interest occurs where an equitable

interest existed separately before the transaction and still exists separately after
the transaction but it has different owners before and after the transaction.
Section 53(1)(c) does not apply where there is no separate equitable interest
before the transaction (as in a declaration of trust). Further, it does not apply if,
after the transaction, the equitable interest does not continue to exist
independently (as in Vandervell v IRC where the equitable interest was merged
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in the legal title). Constructive trusts appear to provide the means to avoid the
formalities of s53(1)(c).

Question 2

Trustees owe fiduciary duties not to put themselves in a position where their
personal interest might conflict with their duty to the trust. They must not make
a personal profit unless authorised to do so. The court will order trustees to
surrender any profit without enquiring into the circumstances of the case. The
strict liability of fiduciaries has been the subject of criticism on the grounds that
it is unfair to penalise honest trustees in the same way as guilty trustees and
that the strict rule may discourage people from accepting the post.

Boardman v Phipps (1967) was an example of the application of strict liability.

The trust property included a substantial shareholding in a private company. Mr
Boardman (the trust’s solicitor) decided to investigate the affairs of the company
initially on behalf of the trust. He gained useful information about the company
by purporting to represent the trust. Subsequently, with the knowledge of the
active trustees, Mr Boardman purchased shares in the company with his own
funds on his own account. Through skilful management he was able to
reorganise the company and make large distributions to all shareholders,
including the trust.

By a bare majority, the House of Lords held that the Mr Boardman had to
account to the trust for his profits. The majority held that he was liable because
he had profited from information which came to him in his fiduciary position. A
further ground for the decision was that, had he been asked to advise whether
the trustees should obtain a court order allowing them to buy the shares for the
trust, he would have had a conflict of interest. The slightest possibility of a
conflict was sufficient to make the trustees accountable; it did not matter that
the possibility was extremely remote. Mr Boardman had to surrender his shares
and profit after being reimbursed with the purchase price.

The decision in Boardman might be considered rather harsh. The defendant had
been honest. An active trustee gave evidence that he would not have invested
trust money in additional shares and therefore, the possibility of a conflict of
interest was extremely unlikely. The trust suffered no loss and actually benefited
from the distributions which the company made as a result of the defendant’s
reorganisation. Nevertheless, the defendant had to surrender his profit to the
trust.

Wright v Morgan (1926) is a further example of the harsh operation of the rule;
the conflict of interest arose because a trustee purchased trust property; the
beneficiaries were allowed to avoid the transaction at a later date despite the
fact that the trustee had paid the full market price. As was the case in Boardman
v Phipps, it was irrelevant that the beneficiaries had suffered no loss.

In Keech v Sandford (1726), the court justified the strict approach by saying that
it is difficult for the courts to ascertain whether trustees have been honest and
whether the trust could have secured the profit had it been given the
opportunity. It has also been argued that strict liability does not prevent honest
fiduciaries from making a personal profit; trustees, for example, can obtain the
consent of the beneficiaries (assuming all the beneficiaries are adults) or the
court or settlors may grant powers for trustees to make profits in the trust
instrument.

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The advantage of strict liability is that it acts as a deterrent for other trustees. If
trustees know that they cannot retain profits under any circumstances, they will
not be tempted to exploit trust opportunities for themselves. Removing all
temptation ensures that in all cases, trustees are incentivised to act in the best
interests of the beneficiaries and that they are not swayed by their personal
interests.

However, the strict approach of the courts may not be as entrenched as would at
first appear. In Boardman v Phipps, the House of Lords ordered the trust to pay
the defendant generous remuneration for his hard work in changing the
company’s fortunes. In a powerful dissenting judgment, Lord Upjohn suggested
that fiduciaries should not be liable unless there was an actual conflict between
their interest and duty e.g. if they deprived the trust of an opportunity which it
would otherwise have taken up. In Murad v Al Saraj (2005), Lady Justice Arden
doubted whether there were evidential difficulties in determining a trustee’s
honesty. She remarked (obiter) that evidential problems could be avoided by
throwing the burden on to the fiduciary to show he was honest, that the trust
could not have gained the profit and that the trust suffered no loss.

The strict approach may deter people from becoming trustees or taking up
fiduciary roles (especially commercial positions such as company directors). It is
likely to stifle entrepreneurism which can be to the detriment of the beneficiaries
or those who are owed fiduciary duties. Had Mr Boardman decided not to risk
breaching his fiduciary duty by seeking to make a personal profit, the trust would
have been denied the profit which it actually derived from the defendants’
activities. This was the reason why the Companies Act 2006 adopted a less
stringent regime for company directors. The Act provides that directors are not
liable if there is no reasonable possibility of a conflict of interest which is closer
to Lord Upjohn’s more relaxed approach.

Some Commonwealth jurisdictions have adopted a more lenient regime – a

director is not liable for profiting from an opportunity if the Board of Directors
has already rejected the opportunity on behalf of the company. There are signs
that the inflexible rule of equity might be relaxed in the future.

Question 3 (a)

Equitable remedies are available only if the common law remedy (usually an
award of damages) is inadequate. Equitable remedies are discretionary whereas
common law damages are available as of right. Wide discretions can lead to
uncertainty and unpredictability but the courts exercise their discretion to grant
equitable remedies according to established principles so that it should be
possible to predict the outcome of cases.

Equity acts in personam or against the person. A person who breaches an

equitable court order such as an injunction or a decree of specific performance is
in contempt of court.

When the courts exercise their discretion, they are guided by equitable maxims
e.g. Equity will not act in vain, he who seeks equity must do equity. Equitable
maxims are general guidelines rather than binding rules.

Question 3(b)

A decree of specific performance is an order to perform a contract.

It is an order in personam made against a party to the contract. Provided the
defendant is within the jurisdiction, the order can be made even though the
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property which is the subject of the contract is elsewhere (Penn v Lord Baltimore
(1750)).

As specific performance is an equitable remedy, it is dependent on the common

law remedy being inadequate. Contracts for the payment of money are rarely
enforced by specific performance because the claimant would be fully
compensated by an award of damages. An exception arose in Beswick v Beswick
(1968) where specific performance was ordered of a contract to provide an
annuity because, in that case, the claimant would have recovered only nominal
damages. If the property can be bought on the open market, damages would be
an adequate remedy for breach of contract. Specific performance will be granted
if the property is unique e.g. land (Penn v Lord Baltimore), rare antiques (Phillips
v Lamdin (1949)), or where the product is in short supply and it would be
difficult for the purchaser to buy it elsewhere as in Sky Petroleum v VIP
Petroleum Ltd (1974).Damages would be a sufficient remedy if the contract was
for the purchase of public company shares because they are available on the
open market. However, a contract for the purchase of private company shares is
enforceable by specific performance because it is less easy to buy unquoted
shares from another source.

When the courts exercise their discretion, they apply equitable principles and
maxims. For example, a party who has not given consideration for an agreement
cannot obtain an order for specific performance due to the equitable maxim
‘Equity will not assist a volunteer’.

The maxim that ‘Equity will not act in vain’ is also influential. Specific
performance will be refused if the court cannot ensure that the order will be
observed. The defendant must be in a position to observe the order. Specific
performance will not be granted where the contract would require constant
supervision by the court because the claimant would have to make repeated
future applications to the court. For this reason, an order was refused in respect
of a contract to appoint a resident porter in Ryan v Mutual Tontine Westminster
Chambers Association (1893). In Tito v Waddell (No 2) (1987) it was said that
the real issue was whether there was sufficient definition of what had to be done
and this approach was followed in Posner v Scott-Lewis (1987) where the court
ordered specific performance of an agreement to appoint a resident porter whose
duties were well-defined. The House of Lords refused to order specific
performance of a supermarket’s keep-open covenant in Co-operative Insurance
Society v Argyll Stores (Holdings) Ltd (1997). In Giles v Morris (1972) Megarry J
suggested that equity would be acting in vain if the court were to grant specific
performance of a contract to provide personal services as there was no way of
knowing whether the contract was being performed adequately.

In some cases the courts have suggested that applications for specific
performance of contracts to grant transient interests are not appropriate because
the interest may expire before, or soon after the case is heard. For example, the
court did not grant the order in respect of an agreement to enter into a
partnership for no fixed term in Hercy v Birch (1804). However, in Verrall v Great
Yarmouth Borough Council (1981) the court did grant an order for an agreement
to grant a licence of a public hall for a two-day conference. Damages would not
have been an adequate remedy because it would have been impossible to book
another venue at such short notice.

The courts have exercised their discretion to refuse an order for specific
performance where the claimant does not come to equity ‘with clean hands’ (e.g.
where the claimant has breached a covenant as in Coatsworth v Johnson (1886)
or where the claimant has breached, or is unwilling to perform, a term of the
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agreement (Franklin v Lord Brownlow (1808)). Furthermore, specific
performance will be refused if it would cause significant hardship to the
defendant or a third party (Patel v Ali (1984)).

A long delay in bringing the action will also act as a bar if it would be unjust to
grant the claimant relief (Re Sharpe (1892)). The Maxim ‘Delay defeats Equity’
applies. In Hughes v La Baia Ltd (2011) the Privy Council noted that delay
coupled with prejudice to the defendant would provide a defence in equity. The
same approach was taken in Lazard Bros v Fairfield Properties (1977).

In conclusion, specific performance exhibits all the characteristics of an equitable

remedy and is strongly influenced by matters of conscience. It plugs a gap where
common law remedies are inadequate. Although the remedy is discretionary,
firm guidelines exist in the interests of certainty.

Question 4(a)

Equitable tracing is available only to claimants who have an equitable proprietary

interest (e.g. beneficiaries under a trust) or those who are owed fiduciary duties
(e.g. companies, which are owed fiduciary duties by their directors).

Legal owners who are not owed fiduciary duties have to rely on common law
tracing if their property is misappropriated. The courts have shown a willingness
to extend the categories of fiduciary relationships to allow the claimant to use
equitable tracing e.g. in the much criticised decision in Chase Manhattan Bank v
Israel-British Bank (1981), it was held that money paid by mistake is held by the
recipient on a constructive trust.

At common law, the property which is being traced must be identifiable at every
stage of the process. Common law does not allow claimants to trace their
property when it is, or has been, converted into money which is then mixed with
other money in a bank account or in the purchase of an asset.

Equitable tracing on the other hand can identify the claimant’s money in a mixed
bank account or where it has been used with other money to buy an asset.
Equity imposes a lien or equitable charge over the mixed asset.

In Agip (Africa) Ltd v Jackson, Millett J held that the common law cannot trace
money which has been transferred electronically because this transfer is not
represented by a physical asset (just a ‘stream of electrons’). Equitable tracing
can identify money which has passed through a banking system.

Common law tracing leads to a personal claim against the defendant whereas
equitable tracing establishes a proprietary interest in the property held by the
defendant. A proprietary claim is advantageous if the defendant is bankrupt
because it has priority over the defendant’s creditors.

The distinctions between common law and equitable tracing show that the two
systems of law are not totally fused. Some judges and academics believe that
there is no justification for the differences. A person whose property has been
misappropriated should have recourse to the same remedies whether he owns a
legal or equitable interest in the property.

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Question 4(b)

Equity permits tracing into the hands of a guilty fiduciary and an innocent
volunteer but the rules are different.

Where a fiduciary buys an asset using a mixture of his own and the trust’s funds,
it was held in Foskett v McKeown (2000) that the beneficiaries can claim either a
proportionate share of the mixed asset or a lien to recover the amount lost.
Where an asset has been purchased by an innocent volunteer using a mixture of
the innocent volunteer’s money and trust money, the beneficiaries of the trust
can claim only a proportionate share of the mixed asset which means that they
share profits or losses rateably.

Where a guilty fiduciary has mixed trust money with his own funds in a bank
account and made withdrawals, it is necessary to decide whose money funded
the withdrawals. In Re Hallett’s Estate (1880), it was established that a trustee is
deemed to spend his own money first. This will not produce the best outcome for
the beneficiaries if the first withdrawal was used to buy a valuable asset and
subsequent withdrawals have been dissipated and are not, therefore, traceable.
In this circumstance Re Oatway (1903) can be used to displace Hallett – the
trustee will be deemed to have acted in the best interests of the trust. If it would
be best for the trust to presume that the valuable asset was purchased with the
trust fund, the asset will be treated as a trust investment and the beneficiaries
will have a lien over it.

There is some uncertainty whether the beneficiaries are entitled to any increase
in value of the asset or whether they are restricted to the amount of trust money
which they have lost. A strict reading of Hallett suggests that they simply have a
lien for the amount of trust money lost. However, in Re Tilley’s Will Trusts (1967)
it was suggested, obiter, that the beneficiaries are entitled to a proportionate
share of any increase in value.

At first sight, it appears fair to presume everything against a guilty trustee in order
to produce the best result for innocent beneficiaries. However, in many cases the
guilty trustee is insolvent and the claim is really against the trustee’s creditors who
are also innocent. The bias in favour of the beneficiaries may not be wholly
appropriate in these circumstances.

Tracing depends on the existence of the trust property albeit in an altered form.
Once the property has been dissipated, it is no longer traceable. Further, if the
balance on the mixed bank account has sunk to nil, the beneficiaries cannot claim
any money the trustee pays in subsequently (James Roscoe (Bolton) Ltd v Winder
(1915)); subsequent additions remain the trustee’s own money unless the trustee
has specifically earmarked the money to restore the trust fund.

The rules which apply when an innocent volunteer has mixed trust money with the
volunteer’s own money in a bank account are less generous to the beneficiaries
seeking to trace. The arbitrary rule in Clayton’s case (1816) applies – the first
money in is the first money out. The rule can be ignored if it would produce an
unfair result (e.g.Russell-Cooke Trust Company v Prentis (2003); Commerzbank
Aktiengesellschaft v IMB Morgan plc (2004)).

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 SECTION B

Question 1(a)

The appointment of Brown’s was a collective delegation by both trustees.

Trustees are not vicariously liable for the defaults of such an agent: s23 Trustee
Act 2000 (‘TA 2000’). They can only be sued for losses caused by their own
breaches of duty.

Trustees are permitted to delegate certain functions to an agent (s11 TA 2000)

and these functions include their investment duties and discretions.

Trustees have duties to appoint the agent in writing and to give the agent a
policy statement. The policy statement should have included the clause in the
will (which the agent appears to have overlooked). The agent should have been
instructed to avoid risky investments. The trustees should have reviewed the
agent’s performance and the policy statement (s22 TA 2000).

The trustees owed a duty of care (s1 TA 2000) in the appointment of the agent,
the preparation of the policy statement and the reviews. Gemma would be
expected to exercise such care as was reasonable in the circumstances. The
standard would be at the basic level if Gemma is not professionally qualified and
did not hold herself out as having specialist knowledge. Otherwise she would be
held to the standard of a reasonable professional in her field.

Further information is required to ascertain whether Gemma exercised due care

when the financial advisers were chosen. She should have checked the suitability
of Brown’s and should not have simply appointed the firm without proper
enquiry. Furthermore, Gemma owed a duty to be active in the management of
the trust (Bahin v Hughes (1886)) and it is no excuse to say that she allowed
Megan to make the choice. It is possible that there were further breaches in the
provision of a policy statement and the facts suggest they did not carry out
reviews as they ‘just let Brown’s get on with it’.

Gemma will not be liable unless her breaches caused loss. Trustees will not be
liable for the effects of extraneous factors such as a downturn in the stock
market. However, had the trustees followed the Testator’s wishes and avoided
company shares for half of the trust fund, there would have been no reduction in
value of that half. Some loss at least was caused by Gemma’s breaches.

No defences appear to apply to Gemma. Section 61 Trustee Act 1925 (‘TA 1925’)
allows the court to excuse trustees wholly or partly if they acted honestly and
reasonably and ought fairly to be excused. The courts are reluctant to excuse
passive trustees.

Gemma could be sued for the whole loss because trustees are jointly and
severally liable. Megan also committed breaches of duty but it is unlikely to be
worthwhile suing her in a personal action due to her bankruptcy.

Under the Civil Liability (Contribution) Act 1978, Gemma could claim a
contribution from Megan and the court will order such amount as is just and
equitable having regard to their respective responsibilities for the loss. However,
Megan’s bankruptcy would suggest that Gemma would not recover very much.

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1(b)

S19 Trusts of Land and the Appointment of Trustees Act 1996 allows
beneficiaries to compel existing trustees to retire and appoint trustees nominated
by the beneficiaries. However, all the beneficiaries must agree and they must be
aged 18 or over. Freddie is only 16 years of age.

Beneficiaries can apply to the court for trustees to be replaced under s41 TA
1925. The court will intervene if it would be expedient and it would be difficult,
inexpedient or impracticable to appoint new trustees without the court’s
assistance. The court would probably replace Megan (because she is bankrupt
and has breached the trust) unless Gemma is prepared to exercise her powers to
replace Megan.

Under s36 TA 1925, trustees can replace a trustee who is ‘unfit to act’ which
includes unfitness due to bankruptcy. The replacement is effected by the
‘continuing trustees’ (in this case, Gemma); it would not require Megan’s co-
operation (Re Stoneham’s ST (1953)). Gemma could not simply remove Megan;
she would have to replace her but it would be sensible to appoint a professional
to assist Gemma. Section 36 confers a discretion on trustees; beneficiaries
cannot compel the use of this provision (Re Brockbank (1948)).

1(c)

Under s31 of the TA 1925, trustees have a discretion to apply trust income for
the maintenance education or benefit of beneficiaries who are under the age of
18. However, Freddie cannot complain that he has received no income because
the section gives the trustees a complete discretion. The section provides that
trustees must pay beneficiaries their share of the trust income after they have
attained the age of 18. Therefore, the trustees were correct if they gave David
and Eric their shares of trust income.

Under s32 TA 1925, trustees have a discretion to make payments of capital to

beneficiaries for their advancement or benefit. The beneficiaries must have an
interest in capital which they do in this case. The trustees may advance up to
half the beneficiaries’ respective shares of capital (in trusts created before the
commencement of the Inheritance and Trustees’ Powers Act 2014) which must
be brought into account when they become absolutely entitled. Payments to
David and Eric for their university education would be regarded as being for their
advancement or benefit and would therefore be permitted provided they did not
exceed one-half of their entitlements. The trustees cannot be compelled to make
advancements to Freddie as s32 gives them a complete discretion.

Question 2(a)

Fatima intended to make an outright gift of the shares to Aalia. A gift is invalid if
the property is not transferred properly. In order to transfer shares, the
transferor must hand over a signed stock transfer form and the share certificate
to the transferee. The transferee will acquire legal title when he or she registers
as the new owner at the company. In this case, legal ownership has not passed
because Aalia was not registered at the company. ‘Equity will not perfect an
imperfect gift’ nor will it construe a failed gift as a declaration of the donor as
trustee (Milroy v Lord (1862)).

Gifts are regarded as complete in equity if the donor has done everything
necessary to be done by him or her to transfer title (Milroy v Lord; Re Rose

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(1952)). However, in this case Fatima did not do everything necessary because
she did not part with the stock transfer form and share certificate beyond recall.

The controversial case of Pennington v Waine (2002) may assist Aalia; equity will
treat the gift as perfect if it would have been unconscionable for the donor to
have changed her mind. The facts in this case are not dissimilar; the donor has
told the donee of the gift and she has acted upon it by resigning from her job
and spending her savings on a holiday; there is no suggestion that Fatima
changed her mind. The only distinguishing feature is that in Pennington the
donor and donee had instructed a third party to see to the transfer formalities
and believed that they had done all that was needed.

Pennington is a controversial case. In Curtis v Pulbrook (2011), the judge

suggested that it was based on proprietary estoppel – where the donee has acted
to his or her detriment in reliance on an assurance, so that it would be
unconscionable for the donor to deny the assurance.

If it is held that Pennington or proprietary estoppel does not save the gift, it will
pass to the residuary beneficiary under Fatima’s will.

2(b)

Fatima tried to create a trust over the house with Imran acting as trustee. It was
necessary to declare the trust effectively and constitute it by transferring the
property in the appropriate manner to the trustee.

The letter would appear to be an effective declaration in that the trust has been
evidenced in writing and (presumably) signed by Fatima in compliance with
s53(1)(b) LPA 1925.

As for constitution, the transfer of legal title occurs when the settlor has
executed a transfer deed in favour of the trustee (s52 LPA 1925) and the trustee
has been registered at the Land Registry. Fatima executed the deed (which
presumably complied with s1 Law of Property (Miscellaneous Provisions) Act
1989) but Imran has not been registered. In Mascall v Mascall (1985), it was
held that the every effort test will apply if the only outstanding step is
registration. Here, Fatima put the transfer deed beyond her recall and has
therefore done all that was required of her; Imran can attend to registration. The
trust is completely constituted in equity.

2(c)

Gifts of property which are to have effect on a person’s death must be in a valid
will executed in accordance with s9 of the Wills Act 1837. The trust for Zain did
not appear on the face of Fatima’s will and therefore, did not comply with s9.

It would appear that Fatima tried to create a fully secret trust - the gift to the
trustee appears in the will but there is no mention of a trust.

To be valid, the testatrix must communicate the fact of the trust and its terms to
the trustee before she dies (Wallgrave v Tebbs (1855)). Fatima communicated
the fact of the trust to Pasha before her death but she did not communicate the
terms of the trust at this time. The identity of the beneficiaries was
communicated by a sealed envelope handed over before she died but with
instructions that it was not to be opened until after her death. In Re Keen (1937)
a half secret trust was held to be valid where the testator handed over a sealed
envelope containing the terms of the trust with a direction that the envelope was
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not to be opened until after the testator’s death. This principle probably applies
to fully secret trusts also.

The secret trustee must agree. Silence on the part of Pasha would be regarded
as acceptance (Moss v Cooper (1861)).

Although fully secret trusts do not comply with s9 of the Wills Act 1837 the trust
will be enforced because equity will not allow statute to be used as an instrument
of fraud (McCormick v Grogan(1869)). Alternatively, the secret trust is enforced
because it arises outside the will (‘dehors the will’); the trust is declared during
the testatrix’s lifetime and constituted by the will passing legal title to the
property to the trustee (Re Young (1950); Re Snowden (1979)).

To be valid a trust must have certainty of intention, subject matter and objects
(Knight v Knight (1840)).

Fatima exhibited certainty of intention to create a trust for Zain because ‘You are
to give’ are obligatory words. The trust will be void if the subject-matter is
uncertain. Unfortunately, Fatima did not specify an amount to be given to Zain.
It could be argued that there is an effective objective determinant of the
quantum, as in Re Golay’s Will Trusts (1965). On the other hand, it might be
held that ‘whatever he needs to live comfortably’ is not capable of ascertainment
in which case the trust will fail.

The fact that Zain witnessed the will does not cause him to lose his legacy under
s15 of the Wills Act 1837 because the trust operates dehors the will (Re Young).

If the trust for Zain fails due to uncertainty of subject-matter, the Court may
decide that the amount passing to Fatima’s children is also uncertain (Boyce v
Boyce (1849)). If this is the case, it is likely that the £100,000 will be held on
resulting trust for Charles.

Question 3

Legacy (a)

A trust is charitable if it is for one of the purposes listed in s.3 Charities Act
2011, it is exclusively charitable and it has a sufficient element of public benefit.
This trust has a charitable purpose (s. 3(1)(b) – the advancement of education).
There are no non-charitable purposes to prevent it from being exclusively
charitable.

The trust must have an identifiable benefit (which this does) and the benefit
must be to the public at large or a section of the public.

The scholarships are not available to the public at large and the pupils of Anbury
School may not be a sufficient section of the public. The number of people who
will benefit is not negligible and they are not linked by a personal nexus which
would prevent charitable status (Re Compton (1945); Oppenheim v Tobacco
Securities (1951). However, the court or Charity Commission may decide that
children of parents who can afford to pay the fees may not be a sufficient section
of the public. In Independent Schools Council v Charity Commission for England
and Wales (2011), the Upper Tribunal held that a trust which excludes the poor
(people of moderate means) cannot be charitable. Further information is needed
on whether the school offers a significant number of non-fee-paying places to
children who would otherwise be excluded on account of their parents’ means. If

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so, they would have access to the scholarship fund set up by Mary’s will and the
trust may be charitable.

If there is insufficient public benefit, the trust will be a non-charitable purpose

trust. These are normally void as they offend the beneficiary principle (Morice v
Bishop of Durham (1804)). However, a private purpose trust is valid if it gives
ascertainable individuals a sufficiently tangible benefit that they are able to
enforce the trust (Re Denley’s Trust Deeds 1969)). In this case, the pupils of
Anbury School would derive a sufficient benefit to be able to enforce the trust.

To avoid offending the rule against inalienability, it must be possible to spend the
capital within 21 years and courts prefer to see express provision for the
application of capital to take effect within the perpetuity period. The terms of the
gift limit the duration to 20 years which is within the perpetuity period.

Legacy (b)

This legacy creates a discretionary trust.

Trusts must satisfy the three certainties (of intention, subject matter and
objects) (Knight v Knight (1840)). The objects may not be sufficiently certain.
The test for discretionary trusts is the given postulant test (McPhail v Doulton
(1971)) – it must be possible to say with certainty whether any given postulant
is or is not a member of the class of objects.

The description of the objects must be conceptually certain. In Re Baden’s Deed

Trust (No 2) (1973) the Court of Appeal had to apply the test. The judges had
differing approaches:

Stamp LJ said that, in applying the test, it is necessary to be able to say whether
any given person was or was not a member of the class. If one had to say of any
given person that one did not know whether they were in the class or not, then
the objects were uncertain and the trust would fail.

Sachs LJ held that the given postulant test demands conceptual certainty but not
evidential certainty. Sachs LJ said that the burden was on the candidate to show
that he was in the class; if he could not (either because he was definitely outside
or because it was uncertain whether he was in or out) then he fell within the ‘is
not’ part of the given postulant test. Thus, a group of ‘don’t know candidates’
would not cause the trust to fail provided the definition of the class was
conceptually certain.

Megaw LJ concluded that the given postulant test is satisfied if, ‘as regards a
substantial number of objects, it can be said with certainty that they fall within
the trust, even though, as regards a substantial number of other persons…. the
answer would have to be …it is not proven whether they are within or without’.

Arguably, this trust is invalid because the words ‘talented’, ‘young’ and ‘great
promise’ are conceptually uncertain.

Administrative workability is a further reason why this trust may fail – where the
class is so hopelessly wide as not to form anything like a class e.g. the residents
of Greater London (Lord Wilberforce in McPhail). In R v District Auditor ex. p.
West Yorks CC (1986), it was held that a discretionary trust for 2.5 million
inhabitants of West Yorkshire was void due to administrative workability.

The £100,000 will pass as part of residue to Robert.

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Legacy (c)

An unincorporated association is not a legal person capable of holding property.

However, the courts have found various ways of construing gifts to
unincorporated associations in order to find that they are valid.

This legacy is likely to be construed as a gift to the existing members as an

accretion to club funds to be dealt with in accordance with the rules of the club
(Re Recher’s WT (1972)). The gift will not offend the beneficiary principle
because the members are the beneficiaries. Further, the legacy will not offend
the rule against inalienability provided the club has a rule allowing members to
dissolve the club and share out the assets between them (or they have the
power to introduce a rule to this effect) (Re Grant’s WT (1980)).

Question 4

The house

Crystal

Crystal will have to establish that Ben holds the legal title to the house on trust
for himself and her. The presumption is that, as the sole legal owner, Ben is also
solely entitled to the equitable interest. It appears that there is no written
evidence of a declaration of trust signed by Ben and therefore Crystal cannot
claim an express trust which complies with s.53(1)(b) LPA 1925. She made a
direct contribution of £20,000 to the purchase price at the time of purchase
which would give her an interest under a resulting trust of a one-twenty-fifth
share (Curley v Parkes (2004)). It has been held however, that constructive
trusts are more appropriate for determining the interests of cohabitees (Stack v
Dowden (2007)).

Crystal will argue that there was an implied constructive trust in her favour. She
will have to show that there was a common intention that she should have an
interest in the house and she acted to her detriment in reliance on that common
intention (Lloyds Bank v Rosset (1990)). The common intention may be express
or implied. There was no discussion to give rise to the ‘agreement, arrangement
or understanding’ required for express common intention.

In Lloyds Bank v Rosset, Lord Bridge said that a common intention could be
inferred from direct contributions to the price such as paying the deposit or some
of the mortgage instalments if sufficiently regular but he doubted whether
anything less would do. Crystal paid £20,000 at the time of the purchase and she
paid the mortgage instalments for a year. Therefore, it is likely that the court will
infer a common intention that she should have an equitable interest. Her
payments will also suffice for detrimental reliance on the common intention.

The next step is to quantify her interest. In Stack v Dowden the House of Lords
said that the court will look at the whole course of dealings between the parties
to determine the extent of a claimant’s beneficial interest under a constructive
trust. The size of each party’s share will be what was said or agreed at the time
the property was acquired. If there is no evidence of any such agreement or
discussion, each will be entitled to that share which the court considers the
parties intended each to own, having regard to the whole course of dealing
between them in relation to the property. Baroness Hale envisaged that many
factors could be taken into account to determine the nature of this intention
including: discussions at the time of purchase, the nature of the parties’

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relationship, how the parties’ arranged their finances, and how the parties
discharged outgoings on the property.
According to Stack v Dowden, the opening of a joint account, Crystal’s
contributions to household expenses and her direct contributions at the time of
the purchase and to subsequent mortgage payments will be significant in
determining her share.

In Jones v Kernott (2011) the Supreme Court adopted the same approach but it
was held that if the court cannot ascertain the parties’ intentions as regards their
shares, the court will ascertain what would be fair having regard to the whole
course of dealings. In Jones v Kernott, it was acknowledged that the parties’
common intention regarding their shares could change.

Will

Will is unlikely to succeed in a claim for an equitable interest under a

constructive trust. The parties did not express a common intention that he
should have an interest, merely that he could live there. According to Lord Bridge
in Rosset, the court will not infer a common intention from anything other than
direct contributions to the purchase price or the mortgage. In Stack v Dowden,
their lordships suggested that Lord Bridge’s view may be too narrow. However,
these observations were obiter because Stack concerned a property which was in
the joint names of the parties.

The trend towards inferring a common intention from wider circumstances than
those envisaged by Lord Bridge may lead the court to infer a common intention
from the substantial amount of construction work which Will carried out. In this
case however, the work may have been in lieu of rent.

Will may succeed in a claim for proprietary estoppel. A claimant can use
proprietary estoppel as a cause of action if the defendant made an assurance on
which the claimant relied to his detriment. The three elements are intertwined
and the courts are favouring a broader approach namely: would it be
unconscionable to deny the claimant what was promised or understood (Gillett v
Holt (2000))?

Ben gave an active assurance that, in exchange for the building work, Will could
live in the house rent-free for as long as he liked. Will has relied on these words
to his detriment. The detriment need not be financial but must be substantial
(Gillett v Holt). There have been several successful claims for proprietary
estoppel based on the claimant working for nothing in reliance on the assurance
(e.g. Gillett v Holt).

The courts have a discretion over the remedy. They may not fulfil the claimant’s
expectation. In Jennings v Rice (2003), the Court of Appeal said that it had to
ensure that justice was done between the parties and should order a
proportionate remedy. The court is unlikely to fulfil Will’s expectation that he can
live there for as long as he likes because this would be unpractical in the
circumstances. It may order compensation.

The Greencom shares

Ben has correctly transferred these shares so Crystal is the legal owner. A
voluntary transfer of personalty between unmarried partners gives rise to the
presumption of resulting trust (this is not one of the relationships to which the
presumption of advancement applies).

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According to Tinsley v Milligan (1993), Ben’s illegal motive (deceiving his
creditors) will not prevent him from relying on the presumption of resulting trust
However, in the more recent case of Patel v Mirza (2016) the Supreme Court
held that this approach should no longer be used. The courts should exercise a
discretion and should refuse a remedy if it would be harmful to the integrity of
the legal system. The court would take into account the seriousness of the
illegality, whether it was intentional and the culpability of the parties. This
approach may prevent Ben from recovering the shares.

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