Equity and Trusts SBAQs Flashcards

Question

An artist writes a letter to her brother saying, ‘The two of us shall be trustees over the sum of money in my savings account for your daughter until such time as your daughter marries or turns 30 years of age (whichever is the earliest), when it will become hers’. The daughter is aged 21 years. The artist dies two weeks later. The artist had taken no steps before her death to put the money into a joint bank account in the names of herself and her brother. In her will, the artist named the daughter as the executrix of her estate. Which of the following statements best describes why the money in the savings account belongs beneficially to the daughter? A. The money belongs beneficially to the daughter because the letter is a valid declaration of trust and it would be unconscionable for the trust not to take effect. B. The money belongs beneficially to the daughter because the letter comprises a deed of transfer of that money to the brother, which constitutes the trust. C. The money belongs beneficially to the daughter because the letter demonstrates that the woman made every effort to constitute the trust D. The money belongs beneficially to the daughter because of the rule in Strong v Bird. E. The money belongs beneficially to the daughter because the trust had already self-constituted prior to the artist’s death

Answer 1

Option A is correct. The artist intended to create a trust with herself and her brother as trustees. Ordinarily, the artist in this situation would have had to take whatever steps were required to put the legal title to the money into the joint names of herself and her brother. However, having made a valid declaration of trust, it would have been unconscionable for the artist to back out of constituting the trust. As a result, the trust is valid in equity and the money belongs beneficially to the daughter. Option B is wrong. The letter is not a deed (as it will not have been witnessed by a third party) and is not sufficient to constitute the trust. Option C is wrong. The letter is not sufficient to satisfy the every effort test. The artist needed to take steps to open a joint account in the name of herself and her brother and transfer the money from her savings account into that joint account. The every effort test generally only applies in cases where land or company shares are being transferred. Option D is wrong. The fact that the daughter is appointed to be the executrix is irrelevant to the operation of the rule in Strong v Bird. In order to constitute a trust using this rule, it is the trustee who must be appointed the executor/executrix, not the beneficiary. Option E is wrong. The only trusts which self-constitute are those where the settlor appoints only themselves to be the trustee. This is not that kind of trust

Answer 2

Option A is correct. Objectively speaking, the man intended to gift the shares to the ex-colleague. The rest of the wording – ‘in case you want to give some shares’ – is precatory wording only and evidences no intention that the ex-colleague should hold the shares on trust for other people. As there was no lifetime trust, the ex-colleague takes the shares absolutely. (It should be noted that there are also problems with other certainties of subject-matter and objects.) Option B is wrong. As the trust is one of personalty (anything other than land), the declaration of trust does not need to be manifested and proved in signed writing. This requirement only applies to declarations of trust over land. Option C is wrong. There was no trust to constitute. Option D is wrong. Whilst this option correctly applies the every effort test, it fails to consider the fact that the trust cannot be valid due to the imperfect declaration of trust. (Had the declaration of trust been valid, the man would have satisfied the every effort test. The man executed all the documents that were required and put all documents beyond recall by sending them to the ex-colleague. He had done everything he could to transfer legal title to the shares while he was alive.) Option E is wrong. The man may have hoped that the ex-colleague might distribute shares to other people, but ultimately there was insufficient intention to create a trust over those shares.

Answer 3

Option B is correct. The estate agent tried to create an express fixed trust to benefit the two children. The reason that trust is ineffective is due to the beneficial interests being uncertain (which is an aspect of the second certainty – certainty of subject-matter). The paramedic does not know how to separate the trust property between the daughter and son. All she knows is that she must give the daughter more than the son, but beyond that the distribution between the two is unclear. The estate agent has not given her any discretion to decide for herself. The paramedic therefore holds the legal title in the money on resulting trust for the estate agent. As that resulting trust is a bare trust and the estate agent is absolutely entitled, he can call for that money back. Option A is wrong. There is certainty of intention – it is clear that the paramedic had to hold the money on trust for other people. Option C is wrong. Had the trust been valid, the contingent interests were clearly capable of vesting within the perpetuity period of 125 years (being the perpetuity period relevant to trusts for individuals). Option D is wrong. As the express fixed trust fails, the daughter has no beneficial interest in the money, whether she reaches the age of 21 years or not. Option E is wrong. This is not a case where the law can presume that each person should get an equal share as this runs counter to the estate agent’s intention in setting up the trust (the only thing we know for certain is that he wanted the daughter to get more than the son).

Answer 4

The answer is B. This is a purpose trust with no ascertainable beneficiaries (and a purpose that is not charitable). A- is charitable (s3(1)(h) Charities Act 2011) and therefore, is not subject to the beneficiary principle. In C, the employees are ascertainable beneficiaries who could enforce the trust (Re Denley). D is an exception to the beneficiary principle (Re Dean).

Answer 5

The answer is C. A charitable purpose trust must have an identifiable charitable purpose which it does (advancement of education), and it must be for the public at large or a sufficient section of the public. There is no personal nexus, and the class description is potentially wide enough; inhabitants of a large city such as Manchester would be sufficient. A is not correct because the rule against inalienability does not apply to charitable purpose trusts. B is not correct because this purpose would probably fall within the advancement of education (or the advancement of the arts, culture, heritage, or science, a charitable purpose within s3 Charities Act 2011). D is not correct because the clause provides that only income is to be used and gives no end to the trust within the (21 year) perpetuity period. This will not succeed as a non-charitable purpose trust because of the rule against inalienability of capital.

Answer 6

The correct answer is C To be valid under Re Denley, a non-charitable purpose trust must satisfy all the required four elements. There must be a group of ascertainable people who will receive a tangible benefit from the purpose. That group of people must be described with sufficient certainty. (It is thought the relevant test is the given individual test requiring conceptual certainty.) The purpose must also be described with certainty, so the trustees know what they are expected to do. A is not correct because there are other conditions which must be satisfied under the principle from Re Denley – compliance with the rule on alienability and certainty of purpose and objects. B is not correct as personal nexus is not a relevant consideration for non-charitable purpose trusts. It is only relevant when considering public benefit matters in charitable purpose trusts. D is not correct as a non-charitable purpose trust must also satisfy the perpetuity rule on inalienability – the purpose must be capable of being fulfilled on a one and for all basis or the trust will come to an end in 21 years.

Answer 7

The statement is false. The “relief of poverty” is a charitable purpose (s3(1)(a) Charities Act 2011) and such a purpose is accepted as being for the public benefit. Such a trust would, therefore, be charitable; charitable trusts are not subject to certainty of object rules or the beneficiary principle.

Answer 8

The correct answer is Option D. The children derive sufficient tangible benefit from the purpose. Both they and the purpose are sufficiently certain (Re Denley). The children will, therefore, have standing to enforce the purpose so satisfying the beneficiary principle. The provision will therefore be valid as a non-charitable purpose trust. Option A is wrong because there is both certainty of object in the description of the group of people to benefit from the purpose (children) and the purpose itself is sufficiently certain. Option B is wrong because the wording of the trust indicates that the trustees can spend the capital on the purpose and the trust is only to last as long as the law allows. Therefore, it will not offend the rule against inalienability. Option C is wrong because although the trust will not succeed as a charitable purpose trust because it lacks public benefit (there is a personal nexus of employment between the people benefiting from the purpose, Oppenheim v Tobacco Securities Trust), the trust could be valid as a non-charitable purpose trust (Re Denley). Option E is wrong because although the advancement of education is a charitable purpose within the Charities Act 2011, this provision will not be valid as a charitable purpose trust. However, it will be valid as a non-charitable purpose trust, given the tangible nature of the educational benefit to the children.

Answer 9

Option E is correct. The testator has tried to create a non-charitable purpose trust. Clause 8 can overcome the beneficiary principle – the trust provides a clear and tangible benefit for an ascertainable group of individuals (the members of the swimming club). However, as the Trustees must maintain the changing rooms and swimming blocks, which is an ongoing obligation, the trust capital might be locked away in perpetuity. The trust is therefore void for offending the rule against inalienability of trust capital. The trust fund (£25,000) will therefore fall into residue for the benefit of the wife. Option A is wrong. Whilst this option correctly identifies that clause 8 satisfies the three certainties, that is not by itself sufficient to create a valid trust. As clause 8 is seeking to create a purpose trust, the declaration of trust must overcome the beneficiary principle and the rule against inalienability of trust capital. It does not overcome the latter. Option B is wrong. Whilst this option correctly identifies that the trust can overcome the beneficiary principle (as the members of the swimming club can enforce its terms), that is not by itself sufficient to create a valid trust. As this trust is non-charitable, clause 8 must not offend the rule against inalienability of trust capital. Unfortunately, it does. Option C is wrong. Not all-purpose trusts are void – some are, but many are effective. Option D is wrong. Just because the club is not a charity does not mean that the trust must be void – some non-charitable purpose trusts can be effective

Answer 10

Option D is correct. Clause 3 creates a valid charitable trust. The purpose (education and/or the saving of lives) falls within the list of charitable purposes under s 3(1) of the Charities Act 2011; the benefit accrues to a sufficiently large section of the public; and the purposes are exclusively charitable. If the Trustees do not know how to apply the money, they could seek further guidance from the Charity Commission. Option A is wrong. Whilst this option correctly states that the ‘young people of Cornwall’ is conceptually uncertain, as they are not the object of the trust (the object is the charitable purpose of educating them about water safety), this is irrelevant. Option B is wrong. The trust is exclusively charitable. There is no suggestion that the woman wanted the Trustees to engage in political activities. Option C is wrong. The young people in Cornwall are not linked by relationships to a particular individual or company. Therefore, they are not linked by a personal nexus. Option E is wrong. The ‘young people of Cornwall’ is not conceptually certain – there will be legitimately different views about when people stop being ‘young’. It cannot be said therefore that there is a clearly ascertainable class of people who can enforce the trust. However, option E is also irrelevant given that the trust is charitable.

Answer 11

The correct answer is Option A. This would likely be valid as a charitable purpose trust There is a charitable purpose (advancement of education). It is exclusively charitable. Both limbs of public benefit are satisfied - the provision of museum outings would be a benefit and the benefit is to a sufficient section of the public. Here the purpose is for the benefit of the students at a specific high school. Benefits can be restricted to a particular geographical area provided it is not too small (IRC v Baddeley); benefits could also be restricted to the young if the aim of the trust is to educate young people which it appears is what is intended. As a charitable purpose trust, the fact that only income can be used to fund the outings is irrelevant. Option B is wrong because although the students and staff at the University will derive tangible benefit from the purpose so as to enable them to enforce the trust, the rule against inalienability of capital is not satisfied as the trust is to last longer than law allows. Option C is wrong because although establishing the shelter could be classed as a charitable purpose (animal welfare), exerting pressure to change the law is political. The purpose is, therefore, not exclusively charitable (Attorney General V McGovern) and therefore not valid as a charitable purpose trust. The purpose also does not succeed as a non-charitable purpose as it is not to maintain a specific dog but relates to general canine welfare. Option D is wrong because although the purpose might be charitable (advancement of health, or amateur sport), there is insufficient public benefit due to the personal nexus arising from the common family connection (Re Compton). It would not succeed as a non-charitable purpose trust due to the rule against inalienability of capital. Option E is wrong because this is a purpose trust. The purpose is political (campaigning for a change in the law) so the purpose cannot be charitable. The purpose does not provide tangible benefit to an identifiable group of people to enable them to enforce the trust (Re Denley); it is, therefore, not valid as a non-charitable purpose trust as it offends the beneficiary principle.

Answer 12

Option D is the correct answer. The father could argue that he created a Quistclose trust as the money was lent for an exclusive purpose which can no longer be achieved because of the company’s liquidation. In Barclays Bank v Quistclose, money was lent for the sole purpose of paying dividends to shareholders. It was held that the money had been lent on trust for this purpose and, when the purpose could not be carried out, due to the borrower’s insolvency, the money should be held on a resulting trust and returned to the lender. Options A and B are wrong because while the father will rank as an ordinary unsecured creditor on the company’s liquidation, if he can establish that the company held the loan money on trust for him, he could recover the £50,000 in full, ahead of the other creditors. As the company would then be holding the money as a trustee, it would not be available to the liquidator. Option C is wrong because while paying the loan into a separate bank account (as in Quistclose) could suggest that a trust was intended, not doing so is not necessarily fatal to the father being able to establish the trust (Twinsectra). Option E is wrong because the father’s relationship to a director of the insolvent company is not going to impact on his ability to recover the loan.

Answer 13

The answer is D. A resulting trust arises when a claimant contributes to the initial purchase price of a house conveyed into the name of another. A is not correct because conveyancing fees are not considered as part of the payment of the purchase price of the property which could give rise to a trust interest. B and C are not correct because subsequent payments of mortgage instalments and paying for subsequent works are not relevant when seeking to imply a resulting trust.

Answer 14

The answer is D. The court will not look at the whole course of dealings in order to infer a common intention (so C is not correct). However, the whole course of dealings is relevant to the second stage of quantifying the claimant’s interest. A is not correct because detriment is required as well as a common intention. B is not correct because the court can infer a common intention from the fact that the claimant contributed to the purchase price or made a significant contribution to the mortgage payments (Lloyds Bank v Rosset).

Answer 15

The answer is C. The trust fails because the subject matter is uncertain and, therefore, there must be a resulting trust. In A, Liam did not create a trust for Peter. It was an outright gift. The marriage was the motive for the gift, no more. The £5,000 belongs to Peter. In B, the express trust fails because the beneficiary does not satisfy the contingency, but the settlor has said what is to happen in this event. A resulting trust will only arise where a settlor creates an express trust which fails, and there is no direction as to the trust property on such failure. In D, Kestrell Bank has not created an express trust, and this negates the possibility of a resulting trust. The money was advanced under a contract and the Bank may have contractual rights to recover the loan but cannot claim a resulting trust.

Answer 16

The answer is B. The courts try to discover what shares the parties intended. If the intended shares cannot be ascertained, the court will award shares that would be fair. A is not correct because the share in the property under a constructive trust need not be in direct proportion to the financial contribution made to the purchase. C is not correct because, while in jointly owned property the starting presumption is equal shares, this presumption can be displaced (see Stack v Dowden) and in claims involving a solely owned property, if the trust is established, the share will be determined in accordance with the parties’ intentions or by the court which may or may not be a half share. D is not correct because under a resulting trust the share will always be in direct proportion to the financial contribution to the purchase price. This is a significant difference between resulting trusts and constructive trusts.

Answer 17

The statement is TRUE. Samantha holds the £30,000 as trustee; it is not her money. As the original trust has failed, it is presumed that the settlor, here Bert, would want the money back. Samantha, therefore, holds the £30,000 on a resulting trust for Bert.

Answer 18

The statement is FALSE. The trust will fail because neither grandchild satisfied the contingency (they both died before attaining the age of 21). Kristen holds the £30,000 as trustee and it is presumed that the money will result back to the estate. However, the £30,000 will be held on resulting trust for Victoria, the residuary beneficiary. The next of kin would only benefit if the will contained no valid gift of residue.

Answer 19

The statement is FALSE. A claim for proprietary estoppel can be brought in relation to a disputed interest in personalty as well as land.

Answer 20

The statement is FALSE. Lord Bridge’s comments in Lloyds Bank v Rosset, suggested that the courts would only infer a common intention from direct contributions to the purchase price (e.g., payment of part of the deposit or a contribution towards mortgage repayments). He doubted whether anything less (such as payment of household expenses) would do. However, it may be possible, in very specific circumstances, for indirect financial contributions such as the payment of household expenses to be sufficient to infer a common intention. The household expenses must be substantial and enable mortgage payments to be met by the legal owner (see Le Foe v Le Foe).

Answer 21

The statement is TRUE. Under the trust, the claimant’s interest arises at the time of the parties’ common intention to share ownership upon which the claimant then relies to his detriment. Under proprietary estoppel, the claim can relate to an interest in the property which is only to arise at some point in the future, e.g., when the legal owner dies.

Answer 22

Option D is the best answer. If the woman allowed the boyfriend to spend the £40,000 and work on the extension knowing that he believed he would have an interest in the house as a result, this passive assurance by failing to correct his mistake could be sufficient to establish a proprietary estoppel given that the boyfriend has acted to his detriment. Note that it is not guaranteed that the boyfriend will secure an equitable interest in the house even if his claim for proprietary estoppel is successful (the court having a broad discretion as to the remedy which should be ordered). Nevertheless, this option still represents the boyfriend’s best possible claim on the facts. Option A is wrong because the boyfriend will not get an interest under a resulting trust because he did not contribute money at the time of the purchase. Option B is wrong because for an inferred common intention, Lloyds Bank v Rosset said there had to be a contribution to the purchase price at the time of the purchase or payment of a substantial number of mortgage installments. Neither occurred here. Option C is wrong because there has been no voluntary conveyance or the provision of purchase money to give rise to a presumption of advancement, which in any case, does not operate between unmarried couples. Option E is wrong because unmarried cohabitants have no property rights over the assets of the other merely by virtue of their co-habitation regardless of the length of time involved.

Answer 23

The correct answer is Option E. This was voluntary transfer of the shares from a father to his children; the presumption of advancement, that it was a gift, applies and the children have owned the shares outright since they were transferred. Option A is wrong because the presumption of resulting trust did not apply to the transfer of the two shares to the children. They were validly given away three years ago. Therefore, the father only owned the three remaining shares at the time of his death. Option B is wrong because the new wife will be using the evidence to rebut the presumption of advancement which arose three years ago. The will and the statements last year are evidence of the father’s own actions and not contemporaneous to the initial transfer. They will not be admissible to support her case (Shephard v Cartwright). Option C is wrong because the presumption of advancement arose when the transfer was made three years ago, and this works in the children’s favour. They have nothing to rebut. Option D is wrong because the contents of a will are conclusive only in respect of property owned by the deceased at the date of death. Because of the application of the presumption of advancement and the correct transfer of the two shares three years ago, the father only owned three shares in the company when he died, and these are what the new wife will inherit.

Answer 24

Option D is correct. When the son transferred the house into the father’s sole name, he was making a voluntary transfer of realty. In most cases, when a son voluntarily transfers property to a father, a presumption of resulting trust will apply. However, the position seems to be different for realty (land); in these cases, it seems that no presumption of resulting trust will apply simply because one party has voluntarily transferred land to another. Having said that, a resulting trust is likely to be inferred in this case, given that the son continued to profit from the income being generated from the house. This additional evidence indicates an intention that the son retained a beneficial ownership in the house even when he transferred the legal interest to his father. Option A is wrong. The mere fact that you live in a house does not by itself give you a beneficial interest in that house. Option B is wrong. Whilst there is some doubt, the effect of s 60(3) of the LPA 1925 appears to prevent a presumption of resulting trust arising merely by the fact that one person has voluntarily transferred land to another. This option therefore is not the best description of why the son has a beneficial interest in the house. Option C is wrong. Whilst a presumption of advancement would have arisen had the father voluntarily transferred land to his son, no similar presumption arises when a son voluntarily transfers land to his father. The transfer is the wrong way round. Option E is wrong. A father can never benefit from the presumption of advancement. Victorian morality dictates that a father is financially responsible for his children. In the right situations, the presumption of advancement may benefit his children, but never him

Answer 25

Option B is correct. The man has purchased shares in the name of his son. Whilst the presumption of advancement applies whenever a father transfers property to, or purchases property for, his child, here there is likely to be sufficient evidence to rebut that presumption. That evidence is the email contemporaneous with the purchase recording an agreement that the man would hold the share certificate (which indicates an intention that the man should continue to have some kind of interest in the shares) and that future dividends would be paid to the man (which indicates some kind of entitlement to the shares). It is likely therefore that the man has retained a beneficial interest in the shares. Option A is wrong. Just because the man paid for the shares does not necessarily mean that he will retain an interest in them. Option C is wrong. Whilst the presumption of advancement initially arose on the purchase of the shares, this cannot be rebutted by the instructions the man gave to the solicitor. The man would want to use those instructions as evidence that he retained an interest in the shares. However, evidence of words and conduct after the purchase had taken place would only be admissible against the man’s case and could not be used in support of his case. As a result, the instructions to the solicitor are not sufficient by themselves to rebut the presumption of advancement. Option D is wrong. Whilst it is correct to say that the presumption of advancement initially arose on the purchase of the shares, it is not correct to say that this presumption can never be rebutted. The presumptions of resulting trust and advancement are just presumptions and are often readily rebutted in the light of contrary evidence. Option E is wrong. Whilst the man does not own legal title to the shares given that his name is not listed in the register of members, he can still own the beneficial interest in the shares.

Answer 26

Option D is correct. The aunt actively assured the niece that the house would belong to her, and the niece appears to have relied on that assurance to her detriment. Whilst the court has a discretion about what remedy to award, it is likely that the court will award the niece an interest in the house. (Indeed, on the facts, it is likely that that interest would be an absolute ownership right to the entire house. The court would therefore transfer the house to her.) Options A and B are wrong. Common intention constructive trusts are used to establish present interests in property (ie when two partners share a house together). They are not used to establish future interests in property, as in this scenario. The niece will need to assert proprietary estoppel. Proprietary estoppel prevents the aunt from backtracking on her assurance that in the future the house will belong to the niece. Option C is wrong. Whilst proprietary estoppel can be established in this case, that does not automatically guarantee the niece a proprietary interest in the house. The remedy is ultimately within the discretion of the court. Option E is wrong. The assurance in this case was active not passive. This is not a case where the aunt stood back and allowed the niece to think that she was getting some kind of proprietary interest – the aunt had actively suggested this.

Answer 27

Option D is correct. To work out why, we shall first consider why the other options are wrong. Option A is wrong. The woman’s statement to the man that he should consider the house as much his as hers might demonstrate an intention to create an express trust, but as that express trust was to be over land, to be effective it must have been evidenced in signed writing. This has not happened. Option B is wrong. Whilst there was an express common understanding that the man was to take a beneficial interest in the house, that would only give rise to a common intention constructive trust (or a claim for proprietary estoppel) if he had acted on that understanding to his detriment. There does not appear to be anything on the facts that would constitute detrimental reliance. Option C is wrong. Whilst a contribution to the deposit can create beneficial interests under an implied trust, lending the money for a deposit does not constitute a ‘contribution’ for these purposes. Option E is wrong. Just because the legal title to a home is in the sole name of one partner does not automatically prevent the other partner from getting a beneficial interest in the home. Option D is therefore the best answer. For the reasons set out above, the man cannot assert an interest under an implied trust (resulting or constructive) or proprietary estoppel, nor can he assert a beneficial interest by way of an express trust. In order to be enforceable an express trust must comply with s 53(1)(b) of the LPA 1925, i.e. it must be evidenced in signed writing. This has not happened.

Answer 28

The answer is D. The car is property which represents the stolen trust asset. The beneficiaries can exert their proprietary rights over this replacement property. A is not correct because an action to recover the car is a proprietary claim. B is not correct because personal claims against a bankrupt trustee do not have priority over ordinary unsecured creditors; it is proprietary claims which give priority. C is not correct because a claim for compensation is a personal claim

Answer 29

The statement is TRUE. The beneficiary can sue the trustee if they can show a breach of trust by that trustee and that the breach caused loss to the trust. Both elements must be present. See Nestle v National Westminster Bank, where the bank trustee had breached its duty of care when investing the trust fund (e.g. it had failed to review the trust investments regularly) but the beneficiary’s breach of trust action was unsuccessful because she could not show that the breach had caused loss to the trust fund. She failed to establish that the trust fund would have been worth any more had it been managed by a reasonable trustee carrying out all his duties.

Answer 30

The CORRECT answer is C. This is not a breach of trust because Zainab has a discretion under s32 Trustee Act 1925 whether or not to advance the £10,000. A refusal, provided not for an improper reason, is not a breach of trust. A is a breach of trust because once Alice attained 18 (assuming there is nothing to the contrary in the aunt’s will) she is entitled to the current income from the trust under s31 Trustee Act 1925. B is a breach of trust because Zainab invested the trust money without the required advice and diversification (ss 4 & 5 Trustee Act 2000). D is also a breach; Alice may be over 18, but she is only contingently entitled at 21. Saunders v Vautier does not apply. If Alice were to die before 21, someone else (presumably stated in the will) would be entitled in default. By transferring the trust fund to Alice that other person has been denied the possible entitlement

Answer 31

The statement is FALSE. A proprietary action seeks to recover the original £500 belonging to the charity. However, this has been dissipated. Mark's normal monthly salary credit is not taken as replacing the £500 (Roscoe v Winder). The charity will, however, have a personal action against Mark for £500.

Answer 32

The answer is B. Where more than one trustee is found to be in breach of trust causing loss to the trust, there is joint and several liability for that loss. This means that the beneficiaries can select whether to bring a claim against one of the trustees in breach, or all of them. A is not correct because trustees are not vicariously liable for the acts of their co-trustees. They are liable only if they have personally breached a duty causing the loss. C is not correct because passive trustees who do not play an active role in the administration of the trust can still be sued for breach of trust if this failure to act causes loss. D is not correct because there is a duty to be active in the trust and to watch over and correct the conduct of co-trustees.

Answer 33

The statement is FALSE. The principals in other fiduciary relationships are able to bring proprietary claims to recover misappropriated property and to use equitable tracing rules to identify their property. For instance, a company can use equitable tracing against a director who has misappropriated company property as the misappropriation is a breach of the director’s fiduciary duties to the company and this is sufficient to establish the necessary equitable interest.

Answer 34

The answer is A. See s21(3) Limitation Act 1980. B is right insofar as the Limitation Act 1980 lays down no time limit to recover trust property from a trustee, but such actions are still subject to the equitable doctrine of laches. C is not correct because s 21(3) of the Limitation Act 1980 says that any limitation period laid down by the Act shall not apply to a fraudulent breach of trust. D is not correct because a trustee will be liable for a breach committed while they were a trustee, even if they retire before the beneficiary takes action against them.

Answer 35

The answer is B. In Re Oatway, it was held that the beneficiaries’ charge subsists on each and every part of the bank account and any asset purchased with it. This would enable the beneficiaries to assert that it funded £100,000 of the £125,000 used to buy the yacht. Therefore, the beneficiaries could claim a charge over the yacht to secure the £100,000. A is not correct because according to Re Hallet’s Estate, a guilty trustee is deemed to spend their own money first. This would result in £25,000 of the trust’s money being dissipated on paying the debts. C is not correct because it is unclear whether the beneficiaries can claim a proportionate share of the increased value of the yacht (i.e., four-fifths of £175,000). While Re Oatway will allow the beneficiaries a lien over the purchased property for the amount of money the trust has lost (£100,000), Foskett v McKeown would suggest that, if the beneficiary can demonstrate that trust money contributed to the purchase of the asset, then the beneficiary might be entitled to the same proportion of the increase in value. D is not correct because the beneficiaries will be able to use tracing rules to show that trust money was used to purchase the yacht. Their beneficial interest will take priority over the claims of the creditors.

Answer 36

The answer is C. Options A, B and D are all defences to a breach of trust action.

Answer 37

The correct answer is A. This is one of the options available to the company because the director, a fiduciary in breach of their fiduciary obligations to the company, has mixed trust funds with their own money to purchase a single asset. B is not correct because the company can either claim a charge or ownership of a proportionate share (Foskett v McKeown). C is not correct because the car was not purchased exclusively with the company’s money. D is not correct because equitable tracing allows a company to identify company property even though it has been mixed. Equitable tracing is available to the company even though they were the legal owner of the stolen money. The director owed fiduciary duties to the company. These have been breached which allows equitable remedies to be at the company’s disposal

Answer 38

The answer is B. An indemnity is available to Y and Z against X as X has fraudulently obtained a benefit from the necessary funds). A is not correct because Y and Z can be sued because they are in breach of their duty to ensure the trust property is vested in the names of all the trustees. C is not correct because the equitable indemnity rules still apply in appropriate cases (e.g., where, as here, one of the trustees has been fraudulent). D is not correct because the indemnity rules do not affect beneficiaries. Beneficiaries can recover from any of the trustees who are liable, and it is up to the trustee who is sued to recover from their co-trustees.

Answer 39

The answer is B. In this case, the beneficiaries would seek to recover trust property not correctly paid out as remuneration. They could do this either via the personal claim to recover the amount paid out or the proprietary claim to recover the property that represents that cash sum. A is not correct because while the Limitation Act s21(3) lays down a limitation period of six years for breach of trust actions, this limit does not apply to actions in respect of a fraudulent breach of trust nor actions to recover trust property. C is not correct because a personal claim does not depend on the trustee still having the trust property; it must be satisfied out of the trustee’s own funds. D is not correct because equitable tracing can identify trust property even though it has changed in form or been mixed with other funds.

Answer 40

Option D is correct. This is because the trustees are jointly and severally liable to the beneficiaries. Where more than one trustee is in breach, the beneficiaries could elect to bring a claim against all the trustees together. Alternatively, ‘several’ liability means that they could sue one trustee for the whole loss (so, Option C is wrong). Option A is wrong because trustees are not vicariously liable for the defaults of their co-trustees. The doctor will not be automatically liable for the loss caused by the co-trustee’s dishonesty. The beneficiaries would have to show that the doctor has committed their own breach of trust, and this also caused the loss. Option B is wrong because, although there is no vicariously liability, in being absent for the two-month period, the doctor left the running of the trust in the hands of a co-trustee, failing to watch over and, if necessary, correct their conduct. Being a passive trustee like this would constitute a breach and contributed to the co-trustee being able to steal the £30,000. The doctor could, therefore, be sued by the beneficiaries. Option E is wrong because the fact that the beneficiaries could sue only the doctor does not preclude the doctor from seeking to reclaim sums from the co-trustee also in breach by way of full indemnity (as they have fraudulently taken trust money for their own benefit). However, this claim for an indemnity will only be of value to the doctor if they can locate their co-trustee.

Answer 41

Option A is correct. Under Re Hallet, the guilty trustee is presumed to spend their own money from a mixed bank account first. This would mean that the £5,000 which was already in the account before the deposit of the trust’s money would have been used to settle the credit card bill. Option B is wrong because only £1,000 of the trust’s money has been dissipated – the balance of the credit card bills. The remaining £19,000 was used to purchase the motorboat against which the trust will be able to bring a proprietary claim. Option C is wrong because before the £2,000 was paid into the account, a nil balance had been achieved. A trustee’s money paid in after the account has sunk to nil belongs to the trustee, unless the trustee indicates that they are repairing the breach (Roscoe v Winder). Option D is wrong because equitable tracing does not preclude tracing into a mixed fund to exert a proprietary claim. The beneficiaries have an equitable interest in the trust fund which enables equitable tracing to be used. Option E is wrong because only the trust’s money was used to purchase the motorboat. While the trust could bring a personal claim for £19,000 secured by a lien over the boat (insisting that the boat is sold and the proceeds paid to the trust), the trust is also able to claim the motorboat itself as a trust asset. This may be beneficial if the motorboat has increased in value.

Answer 42

Option C is the correct answer. The total compensation payable to the trust will be equal to the fall in value of the villa and the wasted costs of purchase with interest. Under s62 Trustee Act 1925, where a trustee commits a breach of trust at the instigation or request or with the consent in writing of a beneficiary, the court has a discretion to impound some or all of the beneficiary’s equitable interest to meet the claim. When exercising its discretion, the court will consider whether the beneficiary benefited or was intended to benefit from the breach. Here the husband instigated the breach and has benefited from it. If his share in the trust is insufficient to cover the amount of the claim, the trustees will have to pay the shortfall Option A is wrong because the trustees breached the trust when they purchased the villa as it was an unauthorised investment. S8 Trustee Act 2000 only permits the purchase of land in the UK. The breach caused loss to the trust. But for the breach of buying the villa, the loss would not have occurred. Option B is wrong because the husband cannot sue for the breach because he consented (at a time when he was an adult and capable of giving a valid consent). However, the other adult beneficiaries will be able to sue (assuming that they did not also consent to the purchase). Option D is wrong because even though both trustees were involved in the investment breach, joint and several liability means either could be sued for the entire loss. The beneficiaries do not have to sue both of the trustees to recover that loss. Option E is wrong because the fact that the solicitor is a professional trustee does not give rise to their being solely liable to the beneficiaries. Lay trustees such as the estate agent can be just as liable to the beneficiaries if they commit a breach of trust which causes loss to the trust (unless they can rely on a defence).

Answer 43

Option D is correct. With a mixed asset purchase (company money joined with the director’s own money to buy one asset), equitable tracing is available to the company because of the director’s breach of fiduciary duty. The case of Foskett v McKeown says that the company could claim a proportionate interest in the shares. The company contributed two thirds of the purchase price. The company can claim two thirds of the shares including any increase in value. This means that the company would be able to claim two thirds of £18,000, recovering £12,000 from any sale. Option A is wrong because the company’s money has been used to buy shares. This is not dissipation as it is possible to bring a proprietary claim to recover the shares. Option B is wrong because the shares were not purchased exclusively with company money so the company cannot claim all of them. Option C is wrong because although the company could claim a lien over the shares and force their sale, the company would receive £10,000 from the sale proceeds – the amount the company contributed to the original purchase (the amount the company lost). The better option for the company would be to claim a proportionate interest in the shares (see Option D) Option E is wrong because while a successful personal claim against the director would result in the company ranking as an ordinary unsecured creditor (recovering very little), the company is able to bring proprietary claims to recover company property (or property which represents it). Such claims have priority over the ordinary creditors on the director’s bankruptcy.

Answer 44

Option D is correct. Trustees owe a duty of care to the beneficiary (to attain the standards of an ordinary prudent person of business in the management of their own affairs, Speight v Gaunt). Also, trustees have a duty to keep property under their joint control and to monitor the actions of their co-trustees. Agreeing to put the trust’s bank account in the pharmacist’s sole name (and failing to monitor what they were doing with it) would breach these duties. Given that these breaches have caused the loss to the trust, the beneficiary could bring a claim against the teacher to recover the loss. Option A is wrong because a claim against the teacher would be a breach of trust claim. The beneficiary will be time-barred from commencing proceedings, but this is governed by s.21 Limitation Act 1980; an action for breach of trust must be brought within 6 years from the date the breach of trust occurred. The equitable principle of laches which allows beneficiaries a reasonable time to bring an action does not apply here (in any event, the breach only occurred six months ago). Option B is wrong because while the teacher will not be vicariously liable for the defaults of their co-trustee, the beneficiary will be able to show that the teacher committed their own breaches of trust, which caused the loss. (See Option D above) Option C is wrong because the fact that the teacher has not benefited personally from the pharmacist’s actions would not preclude the beneficiary from making a claim, given the teacher’s breach of trust. Option E is wrong because a trustee will not be liable to the beneficiaries if the loss to the trust fund is not caused by the trustee’s breach. Also, a trustee may be able to rely on a defence which would relieve them of liability to the beneficiaries.

Answer 45

Option C is correct. Here both claimants to the balance are innocent victims of the solicitor’s actions. In this circumstance, the starting presumption is derived from Clayton’s case – the first money into the account is the first money out. This means that £20,000 of the money from the fixed interest trust would have been lost at the casino and is dissipated and irrecoverable. As a starting point, the fixed interest trust would, therefore, be able to claim only £20,000 of the remaining balance in the account (Option A is, therefore, wrong). The fixed interest trust might seek to claim that the rule from Clayton’s case has resulted in an unjust outcome (the fixed interest trust only able to recover 50% of its loss, while the discretionary trust recovers their entire loss). Under Barlow Clowes v Vaughan, the court might decide that the outcome arising under Clayton’s case should be disapplied in favour of the court’s own scheme (so, Option E is wrong – the two trusts may not have to share the balance equally). Option B is wrong because the discretionary trust would, as best, only be able to claim £20,000 from the balance, i.e. it would only be able to claim the amount it lost. Option D is wrong because under Re Hallet, a guilty trustee is presumed to have spent their own money first, even if the money arrives in the account later. The solicitor’s £5,000 will have been used to pay for part of their casino gambling.

Answer 46

Option E is correct. In the circumstances, a full indemnity is not going to be available to the engineer. However, the engineer could ask the court to order a contribution from the accountant under the Civil Liability (Contribution) Act 1978. The court will order such a contribution as is “just and equitable” having regard to the responsibility of the respective trustees for the loss. Option A is wrong because while an equitable indemnity is a complete 100% pay back to the trustee who the beneficiaries have sued, it can only be ordered from a trustee who was fraudulent or received trust property for their own benefit or was a professional exerting actual control over the decision-making process. None have occurred here. Option B is wrong because the fact that the accountant is a professional does not automatically give rise to an indemnity being available to the sued lay trustee. The professional must also exert a controlling influence over the trustees’ decision-making process. Option C is wrong because the fact that the beneficiaries have elected to sue only one of the trustees in breach does not preclude that trustee from then seeking to reclaim sums from the co-trustees also in breach either by way of full indemnity or contribution. Option D is wrong because the fact that the trustees are jointly and severally liable to the beneficiaries governs the beneficiaries’ rights when deciding who to sue. It does not impact on whether an indemnity or a contribution can be claimed between trustees

Answer 47

Option D is correct. The car represents a mixed asset (trust + trustee funds). As the car has gone down in value, the best result here is for the beneficiaries of the family trust to assert an equitable lien for £10,000 over the car so that the family trust can recover in full the £10,000 that was originally taken by the trustee. The company shares represent a withdrawal from a mixed bank account (trust + trust funds). Applying Clayton’s Case and FIFO, the £5,000 taken from the family trust will be allocated against the company shares giving the family trust a 50% interest in those shares. Option A is wrong. The car is a mixed asset and there is no way that the family trust can claim absolute ownership over it. Option B is wrong. The car has depreciated in value. Asserting a proportionate one-third share in the car therefore does not represent the best available result for the family trust. Options C and E are wrong. Both options omitted the possibility of claiming an interest in the company shares and therefore do not represent the best available result for the family trust.

Answer 48

Option C is correct. The trustee has mixed trust funds with their own in a bank account and then made various withdrawals from that account. We must therefore use the tracing rules in Re Hallett and Re Oatway to work out the best result for the beneficiaries. Re Oatway enables the beneficiary to assert a charge over the mixed fund and any withdrawals made from that fund. The beneficiary can choose to trace their interests into those withdrawals or funds that provide best value. Best value here is represented by option C. If the beneficiary can assert a proprietary claim against the company shares, it is likely that they can also assert a claim against the increase in value of those company shares. The appreciating company shares, and the painting therefore represent the best possible outcome for the beneficiary. Option A is wrong. This option identifies the result if the beneficiary were to use Re Hallett to assert their proprietary claim. If the trustee is deemed to spend their own money first, the trustee will have paid for the company shares and one-third of the painting, meaning that some trust money has been used to pay off their debts (which means that money has been dissipated). This does not represent the best outcome for the beneficiary. Option B is wrong. Whilst this is a possible outcome of applying Re Oatway, the beneficiary is best advised to trace into the company shares in the hope that they can take advantage of the shares’ increase in value. Options D and E are wrong. The beneficiary cannot trace beyond the lowest intermediate balance and cannot therefore trace into the subsequent payment of £20,000 for the unrelated consultancy work.

Answer 49

Option D is correct. This question is designed to remind you that beneficiaries can choose to bring personal and/or proprietary claims against their wrongdoing trustees. Option D correctly identifies that the beneficiaries can bring a personal claim against the insurance broker for the full amount that her co-trustee stole from the trust. The insurance broker is in breach of trust. They agreed to pay the trust funds into an account that could be emptied by just one of the trustees. As such they failed to act as an ordinary, prudent businessperson and failed to supervise the activities of their co-trustee. This breach caused the loss that the trust has sustained. Option A is wrong. The insurance broker did commit a breach of trust. Option B is wrong. Whilst this option correctly identifies that the insurance broker is not holding any property of value that could form the basis of a proprietary claim, this does not prevent a personal claim being made against them. Option C is wrong. The beneficiaries do not have to bring a proprietary claim. Indeed, on the facts, there would be no value in them doing so. The money used to pay for the holiday and the management consultant’s debts has been dissipated. Given that the company is in insolvent liquidation, there is no value in the company shares, so there is no point in the trust seeking to recover them. Option E is wrong. The insurance broker is unlikely to get a sizeable contribution from their co-trustee, notwithstanding that they were more responsible for the losses sustained. A claim for contribution under the Civil Liability (Contribution) Act 1978 is a personal claim and there is very little point in making such a claim now.

Answer 50

The statement is TRUE. The beneficiaries may seek a personal remedy against a non-trustee, third party through either recipient liability or accessory liability. A proprietary remedy is a further possibility in the circumstances described in the statement. A company may seek similar remedies against third parties in similar circumstances.

Answer 51

The answer is A. It is necessary to determine whether Henrietta was a wrongdoer or an innocent volunteer before allocating the withdrawal from the mixed bank account. She is clearly a wrongdoer, as she chose not to inquire where the money came from, despite being put on notice that there was some illegality involved. The relevant case to apply would be Re Hallett, as she is taken to spend her own money first, where, as here, it has been dissipated. If the first withdrawal had been spent on an asset, the appropriate case would be Re Oatway. Clayton's case is relevant where the account holder is innocent. Foskett v McKeown relates to the purchase of an asset with a mixed fund, rather than the allocation of withdrawals from a bank account

Answer 52

The answer is D. This statement reflects the requirements which need to be established for a claim in dishonest assistance (accessory liability). The standard of honesty is objective. However, there are subjective elements - the court will ask: ‘How would a hypothetical honest person knowing the facts the defendant knew and with the defendant’s knowledge and experience have acted?’ If he would have refused to proceed or asked questions before getting involved or sought advice, then a defendant who reacts differently is dishonest. It often comes down to whether the claimant acted any differently to someone else in his profession/business would have acted. A is not correct because receipt of trust property is not the only criteria underlying a possible claim against a third-party stranger to the trust. B is not correct because it is accepted that third parties should not become liable to the beneficiaries merely because they deal with trustees in some way. Strict liability does not apply as the third parties will not have received trust property and may even be unaware and have no reason to suppose any breach when they are dealing with trustees. C is not correct because unconscionability is the test for recipient liability; it was rejected as being relevant for accessory liability in Royal Brunei v Tan.

Answer 53

The answer is C. This is a mixed asset situation (one asset purchased with a combination of the trust’s money and the trustee’s personal funds). As the painting has been bought, in part, with the trust’s money, the beneficiaries could exert their equitable lien over the painting to cover their £30,000. (Given the painting’s increase in value, this would not be the best course of action.) A is not correct because the addition of the central heating to Mina’s house may not have increased its value, in which case it is dissipated. In any event, as an innocent volunteer, Mina would have the Diplock inequitable defence to such a proprietary claim. B is not correct because, in a mixed asset situation the beneficiaries could claim either a proportionate share of the asset purchased or an equitable lien over it. It is their choice. Given the increase in value, the proportionate share would be the better option to pursue. D is not correct because even though she is an innocent volunteer, the beneficiaries could still bring a proprietary claim against Mina to recover the car.

Answer 54

The statement is FALSE. Victor is liable to the beneficiaries for assisting a breach of trust if he did not act as an honest stockbroker would have acted in the same circumstances (Royal Brunei v Tan). It is not necessary for a third-party stranger to know he is assisting a breach of trust; it is sufficient to be implicated in something which is illegal (Barlow Clowes v Eurotrust).

Answer 55

Option D is the correct answer. The director has breached his fiduciary duty to the company. As a result, the company will be able to bring a proprietary claim against him and use equitable tracing to establish that company money was used to buy the yacht. Option A is wrong because, while the bank manager has not received company property, he could be liable to the company under a claim in dishonest assistance (accessory liability). In the circumstances, given that the bank manager was aware of the requirements of the account mandate, he has arguably acted dishonestly in effecting the transaction which enabled the director to withdraw the money. Option B is wrong because, while the bank manager may be liable to the company (see Option A) it is accepted that third parties should not become liable merely because they deal with trustees or fiduciaries in some way. Strict liability does not apply as the third parties will not have received misappropriated property and may even be unaware and have no reason to suppose any breach when they are dealing with directors (or trustees). Option C is wrong because the fact that the grandson has spent the money only rules out a possible proprietary claim by the company against him. The company may be able to bring a personal claim against him for recipient liability. The grandson has received company property arising from a breach of duty for his own benefit. The issue will be whether he has knowledge which makes it unconscionable for him to retain the benefit (BCCI v Akindele). More information will be needed. Option E is wrong because while the goddaughter has received company property, she has dissipated the money she received on the luxury spa weekend.

Answer 56

Option D is correct. To make the girlfriend personally liable to pay compensation, the beneficiaries will have to show that she is a wrongdoer on the ground of knowing receipt (recipient liability). They will have to prove that she received the trust property in breach of trust for her own benefit and her knowledge of the facts made it unconscionable for her to have dealt with the property as she did (BCCI v Akindele). According to the Akindele decision, unconscionability is wider than dishonesty (so Option A is wrong). Option B is wrong because the mere fact of receipt of the trust property is not sufficient to establish a liability to pay compensation. The claim is fault-based; there must be knowledge that makes the retention of the trust property unconscionable. Options C and E are wrong because being negligent or reckless are not the appropriate determinants giving rise to the liability of a third party who has received property in breach of trust (see Option D).

Answer 57

Option E is correct. The breach by the trustee gives the beneficiaries the right to seek personal compensation from the trustee for the loss to the trust. Additionally, as the daughter has received trust property arising from that breach, the beneficiaries could bring a proprietary claim against the daughter to recover the trust property, regardless of whether the daughter knew about the provenance of the shares she received or whether she was an innocent volunteer (so Options A and B are wrong because in each case the suggested claim is not the only claim which the beneficiaries can bring). Option C is wrong because equitable tracing allows for the beneficiaries to exert their proprietary rights where trust property has changed form. Here, there is a clear substitution of the misappropriated shares for the sports car purchased with the proceeds from the sale of those misappropriated shares. Option D is wrong because a proprietary action aims to recover the trust property and the trustee does not hold the misappropriated property.

Answer 58

Option B is the correct answer. A personal equitable action for dishonest assistance might be possible against the solicitor. It will be necessary to show that he assisted the director’s breach of fiduciary duty and that he was dishonest. He assisted by disguising what had happened to the money. Dishonesty means not acting as an honest solicitor with his knowledge of the facts and experience would have acted. A hypothetical, honest solicitor might be suspicious that the instructions were part of a money laundering scheme and may have made enquiries, reported the matter to the police for investigation or taken steps other than simply returning the money to the director rather than the company. Further details of the solicitor’s actions are necessary to determine whether he was dishonest. Option A is wrong because to bring a claim of recipient liability, in addition to establishing that the wife received company property, it would be also necessary to prove that she had knowledge making it unconscionable for her to have dealt with the property as she did (BCCI v Akindele). We need more information about the wife’s state of mind when she received the money from her husband (or when she used the money subsequently). Option C is wrong as the equitable personal claim arises merely from the wrongful receipt with the requisite knowledge. It is a claim for compensation from the third-party recipient. The fact that the money has been spent does not negate the personal liability. The compensation is payable in any event. Option D is wrong because the company could consider an equitable proprietary claim against any property purchased with company money. The tracing rules differ depending on whether the wife was a wrongdoer on the grounds of knowing receipt (see A above) or an innocent volunteer. If she was a knowing recipient, the presumption is that she spent her own money first (Re Hallett). Thus, the car would belong to the wife and the company’s money would be dissipated on the cruise. However, the company could use Re Oatway to assert their charge over any part of the mixed fund. Accordingly, the company could claim a lien over the car and enforce that lien by demanding a sale of the car so that it can recover its money from the sale proceeds. On the other hand, if the wife is innocent, the rule in Clayton’s case would presume that the first payment into the account was the first payment out. Thus, she bought the car with her own money. The company’s money would be allocated to the cruise. However, the court may be persuaded to come to another solution if it would be unjust to apply Clayton (Vaughan v Barlow Clowes). Option E is wrong because the director no longer holds company money – he has given some to his wife and has dissipated the rest on gambling debts.

Answer 59

Option C is correct. The trustee mixed the trust’s money with their own in their bank account from which they then made two withdrawals, one for the holiday, one to the partner. Under Re Hallett, it is presumed that the trustee’s own money was dissipated on the holiday. Although £5,000 of the trust’s money would also have been dissipated on the holiday, the beneficiaries will be able to establish that the remaining £45,000 was given to the partner. Option A is wrong because the trustee no longer retains any trust property. They have either dissipated the money they took or given it away. The beneficiaries will only have a personal claim against the trustee. Option B is wrong because the beneficiaries will not be able to recover all the shares. The partner contributed £5,000 of their own money to the purchase (out of a £50,000 total); the beneficiaries will only be able to recover 95% of the shares. Option D is wrong because the partner is unlikely to be an innocent volunteer; their failure to ask questions about where the money came from despite their surprise at the amount, may make it unconscionable for them to retain the receipt (BCCI v Akindele). In any event, the beneficiaries would have a proprietary claim against them even if they were an innocent volunteer. Option E is wrong because dishonesty is the state of mind required to establish a personal claim of accessory liability. The beneficiaries will be able to bring a personal claim against the partner as a recipient (see option D).

Answer 60

Option E is the correct answer. The company should be able to bring the personal claim of recipient liability (knowing receipt) against the mother; she received trust property as a result of a breach of fiduciary duty for her own benefit and it is arguable that she had knowledge of which made it unconscionable for her to spend it as she did (BCCI v Akindele). The mother did not have actual knowledge that the money belonged to the company, but she did shut her eyes to obvious facts and deliberately refrained from making enquiries because she did not want to know the truth. This could give rise to liability as unconscionability is wider than dishonesty. As a result, the mother would not be an innocent volunteer (so Option A is wrong) A proprietary claim can be brought against the mother regardless of whether she is liable as a wrong doer under recipient liability or as an innocent volunteer. Because of the breach of fiduciary duty, the company will be able use equitable tracing which can be used to establish that the company’s money purchased the investment bond. Option B is wrong because the inequitable defence (see Re Diplock) arises only in relation to proprietary claims brought against innocent volunteers. Here, the mother could potentially be a liable as a knowing recipient. In any event, the defence is only relevant when the innocent volunteer uses the wrongful receipt to add value to an asset already owned. Here, the mother purchased a new asset with the money she received. Option C is wrong because a personal claim can be brought against her regardless of what the mother has done with the money as a personal claim is for compensation. The liability would be for the £10,000 she received (although the success of such a claim would depend on whether the mother has the money to settle it). Also, while the money spent paying bills, buying food and petrol has been dissipated, the investment bond presents an asset which can be claimed in a proprietary action. Option D is wrong because as the mother is a wrong doer under recipient liability (see Option E above), the harsher tracing rules would apply. The mother added the £10,000 she received to her own account which already contained £5,000. She spent £10,000 on a bond and dissipated the balance on food, petrol etc. There is a presumption that a wrongdoer is deemed to spend his own money first (Re Hallet) which means that the mother spent her £5,000 and £5,000 of company money on the bond; the company and the mother would own half each. However, in Re Oatway, it was held that the fiduciaries’ charge can be asserted against any part of the mixed fund and must be satisfied before the defendant can set up her own claim. It follows that the company could claim its £10,000 was used to buy the bond and that the trust has a lien over the bond for the entire sum

Answer 61

Option C is correct. The daughter has received trust property but has dissipated it by using it to pay off her credit card debts. There is no point bringing a proprietary claim against the daughter. However, depending on whether her state of knowledge as to the origins of the money she received made it unconscionable for her to spend that money, a claim for personal recipient liability might be successful. The son has received trust property, which might be traceable into the flat. The beneficiaries should therefore assert a proprietary claim against the flat. However, the son is facing bankruptcy proceedings, and therefore there is unlikely to be any practical purpose in bringing any personal claim against him. The son’s bankruptcy means that bringing a personal claim against him would be practically worthless. As a result, options A, D and E are wrong. (Option E is also wrong because there is nothing on the facts to suggest that the son has assisted his mother’s breach of trust.) The fact that the daughter has dissipated the trust property she received renders meaningless a proprietary claim against her. As a result, options B and D are wrong.

Answer 62

Option A is correct. The trustee has mixed some trust money with her own money to purchase the Mercedes. This car is a ‘mixed asset’. Given that it has decreased in value, the beneficiaries are best advised to assert an equitable lien over the car to the full extent of their contribution towards that asset, ie £40,000. The boyfriend still has property – the sculpture – that the beneficiaries can trace into. As he is an innocent volunteer (see below), the beneficiaries would have to use the kinder tracing rules. The beneficiaries would start by applying Clayton’s Case and FIFO, which in this scenario would mean that the boyfriend’s own money was spent paying off his gambling debts, whereas the trust money was used to pay for the sculpture enabling the beneficiaries to assert an equitable lien over that sculpture. Options B and D are wrong for suggesting that the beneficiaries should claim a 50% share in the Mercedes coupe. Given that the car has gone down in value, this does not represent the best outcome for the beneficiaries. Option C is wrong. A personal claim against the trustee is now worthless given that bankruptcy proceedings have been opened against her. Options D and E are wrong for suggesting that the beneficiaries can bring a claim for personal recipient liability against the boyfriend. The facts suggest that the boyfriend was used to receiving lavish gifts from the trustee. He may not, therefore, have had the requisite degree of knowledge about the origins of the money he received to have made it unconscionable to spend it. The chances of a claim for personal recipient liability being successful therefore look low.

Answer 63

The answer is D. The remedy for breach of fiduciary duty is that the trustee must give up their profit. The beneficiaries can recover the profit whether or not the trust has suffered loss (see for example, Boardman v Phipps). All the others are fundamental aspects of a trustee’s fiduciary duties to the beneficiaries.

Answer 64

The answer is C. Without authorisation, the sale of trust property to one of the trustees gives rise to a conflict of interest (the trustee acting as both seller and buyer in the transaction). Under the ‘self-dealing rule’, the beneficiaries can set the transaction aside if they wish to do so, provided they do so within a reasonable time. A is not correct because trustees can buy land from the trust if there is a clause permitting them to do so in the trust instrument, the court consents, or all the beneficiaries are sui juris and agree with knowledge of all the material facts. B is not correct because, on the face of it, any sale to a trustee, regardless of the circumstances of the sale, is a breach of their fiduciary duty because there is a conflict of interest, and the principle of strict liability arises. It will not matter that the trustee pays a fair price for the property, or if the sale takes place at an auction. D is not correct because the agreement of the other trustee(s) does not validate the sale.

Answer 65

The answer is A. Under s29 Trustee Act 2000, trustees who act in a professional capacity are allowed to charge reasonable fees if the other trustees agree in writing. Kyle acts in a professional capacity because he acts in the course of a profession or business which consists of or includes the administration of trusts generally or a particular aspect of trust work (s28 Trustee Act 2000). B is not correct because Jonathan cannot charge fees because he does not fall within the definition in s28 Trustee Act 2000. C is not correct; a sole trustee acting as a professional trustee cannot charge fees because there is no other trustee to agree to those fees as required by statute (s29 Trustee Act 2000). D is not correct because s29 applies to all trusts unless the trust instrument excludes or contains its own provisions for charging remuneration.

Answer 66

The answer is C. Although, the trustee has breached their fiduciary duty, a trustee is not liable if the trust instrument authorises the action (here, the retention of any payment from a third-party source). A is not correct because by using the trust’s shareholding in the company to achieve the personal benefit of becoming a director, the trustee is in a position of a conflict of interest (see Re Macadam). B is not correct because the professional status of the trustee is an irrelevant consideration when considering breaches of fiduciary duty. D is not correct because if over 50% of the other shareholders by value voted in favour of the trustee becoming a director, they would have achieved the position (and the salary) independently of the trust’s holding. In this circumstance, they would be able to keep the salary.

Answer 67

The statement is false. The unauthorised profit will be held on constructive trust for the beneficiaries. As an alternative to a personal action for the trustee to account for the profit, the beneficiaries can bring a proprietary claim and the latter will have priority on the trustee’s bankruptcy.

Answer 68

Option D is correct. If the votes attached to the trust holding have been used against the proposed appointment, the trustee would not have been appointed a director (only 25% would have been in favour). The trustee, therefore, will became a director and will receive the salary as a result of being a trustee, using trust property. This is a breach of the fiduciary duty not to profit from the trust; the trustee will have to account for the salary to the trust. Option A is wrong because while it is possible for beneficiaries to consent to the retention of such incidental profits, all the beneficiaries must agree, and they must be legally competent to give such consent. Here there is a minor beneficiary. (Also, the adult beneficiary merely asked the trustee to become a director; it is questionable whether they were also consenting to the receipt of a salary.) Option B is wrong because while trustees do have a duty to safeguard the trust fund and it is suggested that trustees should become involved in the management of any private company in which the trust has a substantial holding, so as to oversee the trust’s investment (Bartlett v Barclays Bank), there is no automatic entitlement to retain any moneys received for taking up such a safeguarding management position. Option C is wrong because if there is authorisation (in the trust instrument, from the court, or from the beneficiaries), it is possible for trustees to retain such incidental profit. Option E is wrong because it is irrelevant whether or not other trustees consent to the retention of such incidental profit.

Answer 69

Option E is correct. As there is no charging clause, the solicitor must rely on the Trustee Act 2000 for authorisation. As a professional trustee (see s28 Trustee Act 2000), s29 Trustee Act authorises the professional trustee to receive reasonable remuneration provided the other trustees consent. Option A is wrong because while a charging clause in a trust instrument is conclusive as to whether trustees can charge for time and expertise, the absence of such a clause does not preclude such remuneration. It may be authorised by statute (see Option E), by the beneficiaries or by the court. Options B and C are therefore also wrong for similar reasons. Option D is wrong because merely being a professional trustee does not automatically entitle that trustee to remuneration. They must obtain the appropriate authorisation.

Answer 70

Option A is correct. A conflict of interest will have arisen as the trustees cannot make an impartial choice when selecting the insurance company – are they acting in the best interests of the trust by insuring trust property with the company or because of the promised commission? The trustees would have to account to the trust for any commission they receive. This applies to all trustees regardless of whether they act in a professional capacity or not (so Option B is wrong), or whether the amount of the proposed commission is reasonable in the circumstances (so Option D is wrong). Option C is wrong because a professional trustee is not authorised to consent to such payments to a lay trustee (it is a lay trustee who could consent in writing to reasonable remuneration from the trust for a professional trustee under ss28 and 29 Trustee Act 2000. However, the commission is not remuneration). Option E is wrong because trustees are not permitted to retain incidental profits from third parties unless there is authorisation - in the trust instrument, by consent from all the beneficiaries (who must be legally competent) or by a court order.

Answer 71

Option B is correct. Without authorisation, the sale of trust property to one of the trustees gives rise to a conflict of interest (the trustee acting as both seller and buyer in the transaction). Under the ‘self-dealing rule’, the beneficiaries can set the transaction aside if they wish to do so, provided they do so within a reasonable time. Option A is wrong because, despite the “self-dealing”, it is possible for the trust instrument to allow for the purchase of trust property by a trustee or for the court to allow such a transaction. Option C is wrong because there is no statutory limitation period under which an action can be brought. The equitable doctrine of laches will apply in the circumstances. This doctrine seeks to guard against beneficiaries allowing too much time to elapse before starting any action. In these circumstances (the sale took place only six months ago and there is a minor beneficiary), laches is unlikely to be an issue. Option D is wrong because the fact that the trustee was able to purchase the property at an auction is irrelevant. The self-dealing rule is one of strict liability. Option E is wrong for the same reason, strict liability. The fact that the trust itself has not suffered a loss does not preclude the beneficiaries a remedy.

Answer 72

Option B is the correct answer. Under s29 Trustee Act 2000, trustees who act in a professional capacity are allowed to charge reasonable fees if the other trustees agree in writing. The solicitor acts in a professional capacity because they are a solicitor specialising in trust advice so are acting in the course of a profession or business which consists of or includes the administration of trusts generally or a particular aspect of trust work (s28 Trustee Act 2000). Option A is wrong because although s8 Trustee Act 200 authorises trustees to purchase land as investment, that land must be within the United Kingdom. Option C is wrong because while the settlor’s spouse is alive, the son does not have an interest in any income earned from the trust investments. It must all be paid to the spouse as life tenant. Option D is wrong because, as life tenant, the spouse’s interest in limited to the income; they have no interest in the capital. The trustees have no power to advance capital to them under s32 Trustee Act 1925 and the trust instrument also does not authorise this. Option E is wrong because although s3 Trustee Act 2000 gives trustees power to invest as if absolutely entitled, when investing trustees have a duty to consider the standard investment criteria – that the proposed investment is suitable (both generally and specifically for the needs of the trust) and that the investment is diversified. Investing 80% of the trust fund in a new, private company in a high-risk sector is neither suitable (as it is likely to produce little income at this early stage and any capital value would be difficult to gauge) nor diverse given the risk involved in the high percentage of the investment in one asset.

Answer 73

Option B is correct. In the absence of any express provision in the trust deed, professional trustees are entitled to remuneration for their services, so long as there is more than one trustee in office and the agreement to charge fees is in writing. The accountant and the solicitor are both likely to satisfy the statutory definition of a ‘professional trustee’ (both acting in the course of a profession or business that consists of or includes the provision of services in connection with the management or administration of trusts). There may, however, be a question mark over whether the agreed fee of £150 an hour is reasonable given that the other trustee had agreed to charge a lower hourly rate. Options A and D are wrong. The piano teacher is not a professional trustee and therefore cannot rely on the Trustee Act 2000 to authorise the payment of their fees. In the absence of beneficial consent or court authorisation, the piano teacher will not be allowed to charge fees to the trust. Option C is wrong. Both the accountant and the solicitor are likely to satisfy the definition of a professional trustee, and therefore both should be able to rely on the statutory authorisation to charge fees as set out within the TA 2000. Option E is wrong. Trustees can only be paid remuneration from the trust fund if this has been authorised. Such authorisation can be provided by the Trustee Act 2000 (the trust deed does not contain any express provision excluding the operation of the Act).

Answer 74

Option A is correct. As a trustee, the chartered accountant must ensure that his own interests do not conflict with the interests of the trust. He became aware of the opportunity to purchase the office block at the end of a trust meeting – that information properly belonged to the trust. He has therefore used trust property to gain a personal advantage. He should have shared that opportunity with his fellow trustees to see whether they wanted to take advantage of the opportunity on behalf of the trust. Option B is wrong. This is not a case of self-dealing. Self-dealing occurs when a trustee sells property to or purchases property from the trust. Neither has happened here. Options C and E are wrong. These options suggest that there has been no breach of fiduciary duty given that the facts imply that the trust was unlikely at the time to have taken advantage of this opportunity had the other trustees known about it, and therefore any potential conflict is more hypothetical than real. However, a trustee can still breach a fiduciary duty by taking advantage of an opportunity that properly belonged to the trust, even when the facts suggest that the trust would not have taken advantage of that opportunity or was not interested in it. In this situation, the chartered accountant should have tried to persuade the other trustees that the opportunity was a valuable one for the trust, failing which, if he wanted to purchase the property himself, he should have secured authorisation from the beneficiaries or the court. Option D is wrong. The approval from the solicitor to purchase the office block is not a valid form of authorisation allowing the chartered accountant to do so. In the absence of anything set out in the trust deed, the only people who could provide the required authorisation would be the beneficiaries or the court.

Answer 75

Option B is correct. The trustee will be accountable for the profit because of the conflict of interest which arose when the trustees were discussing the investment opportunity. Would the trustee have been able to discuss matters impartially with his co-trustees as to whether the trust should have invested in the new opportunity? (He could also be liable on the basis of his use of information which he received in his capacity as trustee - see Boardman v Phipps.) Option A is wrong because the trustee could have retained the profit with the beneficiaries consent or by court order; the fact that there is no authorisation in the trust instrument does not preclude this. Option C is wrong because it is irrelevant that the other trustees were aware of the opportunity, and he used his own money. Strictly liability applies. Option D is wrong because the fact that the trust could not have purchased the shares is not a defence to a breach of fiduciary duty. Option E is wrong because the conflict of interest arose (and information obtained) while the trustee was a trustee. Liability cannot be avoided by retiring.

Answer 76

Option C is correct. Trustees can be liable for loss caused by the agent’s defaults if they have breached their own duties in relation to the appointment (s23 Trustee Act 2000). Under s.22 Trustee Act 2000, trustees have a duty to keep the arrangements with the agent under review. By failing to meet or speak with the stockbroker since the appointment, the trustees have breached this duty. Option A is wrong because professional trustees are able to delegate even though they could have done the work themselves. Option B is wrong because the trustees have a power to delegate under the Trustee Act 2000 which they can exercise without needing the consent of the beneficiaries. Option D is wrong because trustees can be liable for loss caused by the agent’s defaults if they have breached their own duties in relation to the appointment (s23 Trustee Act 2000). Option E is wrong because merely appointing the agent in writing as required by s15 Trustee Act 2000 is not enough. Under s23 Trustee Act 2000, the trustees need to comply with all their duties in relation to the appointment so as to avoid liability for the agent’s defaults.

Answer 77

Option E is correct. The trustees can make a capital advancement under s32 Trustee Act 1925 because the son has an interest in capital and the proposed use is for his benefit. As the trust was created before 1 October 2014, they can advance up half of the amount of the son’s potential share of the trust. Option A is wrong because, in certain circumstances, s31 and s32 allows the trustees to give the son money from the trust before they attain the requisite contingency age. Option B is wrong because, although the stated purpose is for the son’s advancement or benefit, his interest in the trust fund remains contingent as is he under 21. The trustees have a power in s32 Trustee 1925 to advance capital prior to this age, but this is at their discretion. Additionally, as the trust was created before 1 October 2014, they could only advance up half of the amount of the son’s potential share of the trust. Option C is wrong because s32 gives trustees a complete discretion; the son cannot ‘demand’ an advancement regardless of his age. Option D is wrong; trustees require consent only from a beneficiary with a prior interest (i.e., a prior life tenant) and the daughter does not have a prior interest.

Answer 78

Option D is correct. As the trust instrument contains no provisions regarding the removal and appointment of trustees, the beneficiaries would have to rely on s19 Trust of Land and Appointment of Trustees Act 1996 which provide the beneficiaries with a power to require a trustee to retire. However, s19 cannot be used here as all the beneficiaries are not adults. Option A is wrong because a bankrupt trustee can continue to act until he is removed. Creditors would not be able to claim the trust property. Option B is wrong because replacements under s36 Trustee Act 1925 on the ground of being unfit to act can only be made by the continuing trustees, not the beneficiaries. Option C is wrong because, while s39 Trustee Act 1925 does allow a trustee to retire without replacement, at least two trustees must remain after the retirement. Option E is wrong because, while s36(1) Trustee Act 1925 does allow the other trustee to remove the bankrupt on the grounds of being unfit, a replacement trustee must be appointed.

Answer 79

Option B is correct. The beneficiaries are entitled to see the trust deed, accounts, and information about investments as of right. The trustees cannot refuse to hand over such documents. Option E is wrong. The trustees are under no duty to give reasons for their decisions (and this is unlikely to be a case where the beneficiaries have a legitimate expectation that such reasons be given). Options A and C are wrong for similar reasons. The beneficiaries are not entitled to documents that record why trustees exercised their powers in a particular way, such as the minutes of the Advancement Meeting (although the beneficiaries could go to court and attempt to secure the disclosure of those minutes under the court’s inherent supervisory jurisdiction). Option D is wrong. The beneficiaries are entitled as of right to those documents listed in option B.

Answer 80

Option C is correct. Under s31 Trustee Act 1925, trustees can apply trust income for the maintenance, education, or benefit of infant beneficiaries (a power). However, the children are both over the age of 18. Once the beneficiaries attain the age of 18, the trustees are under a duty to pay them their respective shares of trust income; the discretion ceases (so options A and B are wrong). Option D is wrong because the children have interests in trust income as there is no life tenant with a prior interest in the income. Option E is wrong because all the income must be paid out and none will be accumulated.

Answer 81

Option B is correct. As the beneficiaries are all alive, ascertained, over 18 and in agreement, under s19 Trusts of Land and Appointment of Trustees Act 1996, the beneficiaries have a power to remove (and replace) a trustee. Option A is wrong because s36 Trustee Act 1925 cannot be used by beneficiaries; the replacement has to be achieved by the trustees. Option C is wrong because beneficiaries can apply to court to replace a trustee if it is difficult, inexpedient, or impractical to do so without the court’s assistance. Option D is wrong because, although absence for this length of time is a ground for removal under s36, the other trustees must follow the s36 procedure for removal; it is not automatic. Option E is wrong because the beneficiaries are able to exercise their power under s19 TOLATA 1996 without the consent of the other trustees.

Answer 82

Option E is correct. S32 Trustee Act will apply in the absence of any variation in the will. It provides the trustees with a power to advance capital to a beneficiary with an interest in the trust capital, which the daughter has. However, s32 requires that no payment be made without the written consent of any person with a prior interest. As life tenant, the widow has a prior interest; her consent was needed to allow the transfer to be made. Option A is wrong as the trust is not discretionary. The trustees were required to apply all the income generated by the trust to the widow, preserving the capital for the daughter. Option B is wrong for two reasons – the daughter has a vested interest in the capital of the trust; there is no condition which she has to satisfy to become entitled. Her vested interest is merely postponed until the widow dies. In any event, even if her interest was contingent, s32 Trustee Act 1925 gives trustees power to advance capital to any beneficiary with an interest in capital, regardless of whether the interest is vested or contingent. Option C is wrong because a one-off payment would be regarded as a capital advancement. Although the daughter has an interest in the capital, she does not have a right to this capital until the widow dies. Under s32 Trustee Act, the trustees have a power to advance capital, but they do not have to. Option D is wrong because the trustees have exercised their discretion improperly. The trustees have breached their duty to the widow under s32 in failing to obtain her consent to the transfer to the daughter. The widow will have been prejudiced by the loss of capital from the trust fund (a reduction in her income) and could take action.

Answer 83

Option B is correct. The trustee can (and should) appoint an attorney to carry on her role while she is indisposed. That appointment must be made by deed. As the trustee will be automatically (vicariously) liable for any defaults of the attorney, she should take great care in selecting someone she thinks will do a good job. Option A is wrong. The appointment of an attorney must be made by deed (TA 1925, s 25) and cannot take place over the telephone. Option C is wrong. The trustee will be automatically (vicariously) liable for any defaults of the attorney she appoints, so she must take care when making her selection. Option D is wrong. The fact that she is an original trustee, chosen personally by the settlor, does not prevent her from appointing an attorney. Option E is wrong. A trustee can use the power granted under s 25 of the TA 1925 to appoint an attorney regardless of whether or not the trust deed contains any express provision on the matter.

Answer 84

Option D is correct. When purchasing investments, trustees must have regard to the standard investment criteria – suitability and the need for diversification. In this case, using the entire trust fund to purchase shares in one company does not respect the need for diversification. If the company gets into financial difficulties, the value of the trust fund may be materially and adversely affected. Option A is wrong. The general power of investment contained in s 3 of the TA 2000 is not limited to the UK. Trustees can purchase investments based in any part of the world (so long as the trustee complies with the other investment duties in this chapter). This is different to purchasing land, where the power contained in s 8 of the TA 2000 is limited to land in the UK. Option B is wrong. Shares are capable of producing both capital and income returns and are therefore a classic form of authorised investment. Option C is wrong. Shares, in general, are a good investment for this trust. The trustee must consider the income needs of the management consultant and the capital needs of the student. Shares are capable of meeting these two needs. Focusing on the company itself, there is nothing on the facts to suggest that the company is a bad investment – it has a history of capital growth and dividend payments. The real issue here is one of diversification. Option E is wrong. Whilst generally it is the case that trustees must take proper advice before purchasing investments, they do not need to do so when they reasonable conclude that it is unnecessary to do so. The trustee is an independent financial adviser, and it is reasonable to conclude that the trustee can take investment decisions without needing assistance from someone else.

Answer 85

The answer is C. While beneficiaries can compel trustees to carry out duties (usually by obtaining a court order), they have little or no control over the exercise of trustee powers or discretions. A is not correct because, while trustees may choose to discuss matters with the beneficiaries as a matter of good trust administration, they do not have to. They do, however, have to act in the beneficiaries’ best interests when exercising their discretions. B is not correct because trustees do not have to give reasons for their decisions. [The exception to this might be where a beneficiary has a legitimate expectation that a discretion will be exercised in their favour and the trustees decide differently. D is not correct because trustees must consider from time to time whether to exercise their discretions. Having done so, they are free not to exercise them if they wish (although trustees of a discretionary trust do have a duty to distribute the trust property to the beneficiaries; at some point, they will need to make a choice as to who is to benefit from the trust).

Answer 86

Option D is correct. While the son, the life tenant, is alive, all the income must be paid to him. S31 Trustee Act 1925 does not apply to the granddaughter at the moment because she is not entitled to the trust income (so Option A, Option B, and Option C are all wrong). Option E is wrong because her age is not the reason that the trustee cannot pay the income to the granddaughter at the moment.

Answer 87

The answer is B. Trustees have to take professional advice when investing and reviewing investments unless they reasonably conclude that it is unnecessary or inappropriate (e.g. because the trust fund is small and is being invested in very safe investments or the trustees are investment experts). This may apply here as Lionel is an accountant, but this will very much depend on Lionel’s qualifications and area of expertise. A is not correct because the standard of care in s1 Trustee Act 2000 varies according to the skill, experience and professional qualifications of the trustee. As an accountant, Lionel is likely to be judged to a higher standard. C is not correct because although, under s3 Trustee Act 2000, trustees can invest as though they were absolutely entitled to the trust fund, their duty is to get the best financial return for beneficiaries. This means setting aside their own social, economic, and political views (unless an ethical concern is likely to yield as good a return as a more dubious investment vehicle). D is not correct because the trustees must act impartially between all the beneficiaries when investing the trust fund. When investing, they will need to strike a balance between the need for income for the life tenant and capital growth for the remaindermen.

Answer 88

The answer is A. Under s31 Trustee Act 1925, once Angela reached 18, she should be paid the current income from her share of the trust income i.e., one third of £4,500 (not all the income earned by the trust, so C is not correct). The trustees have no discretion over this. B is not correct because while the trustees could make an advancement of capital to Angela under s32 Trustee Act 1925, this is entirely a matter for their discretion. D is not correct because while she will only obtain a vested interest in the capital at 21, statute provides for advancements before she is actually entitled.

Answer 89

The answer is C. S36 lists various grounds on which trustees can be replaced and retirement is one such ground. If the trust instrument does not nominate the person who should make the appointment, it will be the ‘continuing trustees’ who, in this case would be Zara (and Vikram if he is willing to join in). A is not correct because s39 does not apply because, after retiring, Vikram would not leave two trustees. B is not correct because s36 requires the outgoing trustee to be replaced by the appointment of a new trustee. D is not correct because Vikram cannot appoint the new trustee on his own.

Answer 90

The answer is D (you were asked to identify the incorrect statement). The statement is not correct because, while beneficiaries are not entitled, as of right, to see documents which show the details of the trustees’ decision-making process, they can apply to the court for an order for disclosure (see Schmidt v Rosewood). The court may order the disclosure of the relevant documents if they believe it is in the interest of the proper administration of the trust (for instance, where there is evidence that the trustees are acting in breach of trust). The document that created the trust as well as details of how the trust fund is invested are classed as ‘trust documents” the beneficiaries are entitled to see (A and B are correct statements). A non-binding letter of wishes from the settlor or testator to the trustees is guidance as to how the settlor/testator would like the trustees to exercise their discretions. As such, it is a document which assists in the trustees’ decision-making process; the trustees are not required to disclose it to beneficiaries (C is a correct statement).

Answer 91

The answer is C. S.32 Trustee Act 1925 applies as there is no variation of the statute in the trust. The trust was created after 2014 so the whole of Ursula’s share of the trust could be advanced to her (for a purpose that was for her advancement or benefit). A is not correct because Timothy satisfied the contingency when he attained the age of 25. He is now absolutely entitled to one third of the capital of the trust and any income arising from it. The trustees must pay both to him if he asks for it; they no longer have a discretion. B is not correct because under s31 Trustee Act 1925, both Timothy and Ursula have a right to the income on their respective shares of the trust fund. This income cannot be accumulated. Only the income from Victoria’s share of the trust, which is not applied for her maintenance, education of benefit must be accumulated. D is not correct because although the trustees have a discretion under s31 Trustee Act 1925 to apply income for Victoria’s maintenance, education, or benefit while she is a minor, the trustees must pay income to Ursula as she is over the age of 18.

Answer 92

The answer is D. Trustees will not be liable for the defaults of an agent unless the trustees have breached their own duties in relation to the appointment of that agent and these breaches have caused loss to the trust. These duties include, inter alia, the appointment being made in writing, the agent being given details of the trust and written guidance from the trustees on how to undertake their investment role, and the trustees regularly reviewing the arrangement and the work of the agent in compliance with the arrangement. A is not correct because trustees may be liable for the default of the agent if they have breached their own duties in relation to the appointment of that agent. B is not correct because s23 Trustee Act 2000 provides that trustees are not vicariously liable for an agent’s defaults. C is not correct because the trustees have a power to delegate their investment duties under the Trustee Act 2000.

Answer 93

The answer is C. S8 Trustee Act 2000 allows trustees to buy land as a home for beneficiaries (A), as an investment (B) and for any other purpose (D). However, the land must be situated in the UK. Therefore, (unless permitted by the trust instrument) investing in land in Spain is not an authorised investment, would be unauthorised and therefore a breach by the trustees.

Answer 94

Option C is the best answer. The contribution of the deposit monies for the house raises a presumption of advancement. The father is presumed, subject to any evidence to the contrary, to have gifted those monies to the daughter, who therefore takes the house absolutely. In order to rebut the presumption there must be some kind of evidence that the father would retain a beneficial interest in the property. The email from the father is unlikely to rebut that presumption, because it sounds as if the father and daughter have entered into a contractual arrangement. In consideration for him paying the deposit, the daughter agrees to pay the father any future rental income produced by the house. This contractual arrangement does not suggest that the father would retain any beneficial (or proprietary) interest in the house. If the daughter did not pay over any rental income, then the father could sue her for breach of contract. The arrangement was personal rather than proprietary in nature. For this reason, option D is wrong. Option A is wrong. The mere fact that legal title to the house is registered in the daughter’s name does not prevent anyone else having a beneficial interest in the property. Option B is wrong. A monetary contribution from a father to child does not give rise to a presumption of resulting trust. Option E is wrong. Beneficial interests are forms of property and ordinarily can be inherited by others on the death of the beneficiary.

Answer 95

Option A is correct. Clause 3 is uncertain as it has insufficient certainty of subject-matter (beneficial shares). In an express trust, the beneficial interests must be certain. Under clause 3, all we know is that the daughter is to get more money than the son, but beyond that, the Trustees are given no means by which to identify who is to get what share, nor are they given any discretion to decide who gets what. As such, the trust in clause 3 will likely fail. Ordinarily, that means the trust fund would fall into residue. However, in this case, clause 10 (which addresses the residuary estate) is also uncertain. In an express trust, there must be certainty of objects. Clause 10 purports to create a discretionary trust, for which we need conceptual certainty. However, the class of objects is not conceptually certain. It is not clear who is a ‘talented member’ of the Youth Club or how the Trustees are to identify those members who are ‘talented’ compared to those who are not. As such, the trust in clause 10 will likely fail. The failure of the residuary estate creates a partial intestacy. The Trustees will hold the sum of £250,000 on a resulting trust for the testatrix’s statutory next-of-kin as identified under the intestacy rules. Option B is wrong. Whilst the option correctly identifies that clause 3 will fail, the same is equally true for clause 10 for the reasons given above. Option D is wrong. If clause 3 had not said anything about the shares that the daughter and son would take, the trust could be saved by inferring that the testatrix wanted each child to take equally. However, this inference cannot be used to save the trust given the express indication that the daughter is to take more than the son. Options C and E are wrong. Whilst these options correctly identify that the express trusts in the will have failed and that the Trustees will be holding on resulting trust, they will do so for the statutory next-of-kin. The Trustees cannot hold on resulting trust for either the testatrix (because she must have died in order for the will to come into effect) or themselves (because that would defeat the testatrix’s intention that the Trustees would hold the property for others).

Answer 96

Option E is correct. The starting-point is a presumed resulting trust in favour of the grandfather, as he was the sole contributor of the purchase money for the shares. However, the message in the granddaughter’s birthday card demonstrates that he intended this purchase to be a gift, so whilst he holds the legal title in the shares jointly with his granddaughter, they are holding those shares on trust for her. Whilst the birthday card is not contemporaneous with the purchases of the shares, it can be admitted into evidence because it is being used against the grandfather and not in his favour. Accordingly, options B and D are wrong. Option A is wrong. Legal title to the shares would only be transferred once the granddaughter is re-registered as their sole owner. There is nothing on the facts to suggest this has happened. Option C is wrong. The presumptions of resulting trust and advancement are often described as weak presumptions that can be readily rebutted in light of admissible contrary evidence. Something as informal as a birthday card may well be sufficient.

Answer 97

Option D is correct. A valid lifetime trust with 3rd party trustees as here (the daughter) requires both a valid declaration and the transfer of the legal title to the trust property to the trustee (so Option C is wrong). Here there is a valid declaration, but the man has not correctly transferred the legal title in the shares to his daughter – the executed stock transfer form, with the share certificate, should have been sent to the company for registration. Legal title does not pass until this registration has occurred, so the trust is not legally valid (so Option A is wrong). In certain circumstances, equity will operate to save a failed transfer of the legal title. However, these exceptions do not apply here – the man has not satisfied the every effort test as he has not put the required documentation beyond his control (so Option B is wrong); the rule in Strong v Bird is not relevant here as the man has not died and in any event would not operate to save a failed lifetime trust if the settlor evidenced a change of mind (so Option E is wrong).

Answer 98

Option D is correct because the woman was assured by the couple that the new property would be for them all, she has relied on this to her detriment in giving £200,000 to her daughter and in moving away from her home, job and friends. The husband may argue that the woman acted out of natural love and affection for her daughter but the assurances the woman relied on do not have to be the only reason for her conduct. The woman can argue it would be unconscionable for the husband to allow her to assume an interest in the new property to her detriment and to go back on those assurances, leaving her without any beneficial interest in the property. There is also no presumption of advancement between mother and daughter, enabling the mother to rebut any suggestion by the husband that the £200,000 was a gift. Option A is wrong because a resulting trust only arises where a direct contribution to the purchase price is made by the claimant at the time of the purchase. The woman did not contribute directly to the purchase of the new house. Option B is wrong because there was no express agreement between the parties in relation to the woman’s interest in the house purchased by the couple. Their discussions were at an earlier stage and proposed a different arrangement. Option C is wrong because the house passing by survivorship to the husband is irrelevant. The woman can establish a claim in proprietary estoppel, notwithstanding she did not contribute directly to the purchase price. Option E is wrong because an inferred common intention trust requires either a direct contribution to the purchase price or significant contribution to mortgage payments. The woman has made neither.

Answer 99

D is correct as the man’s household payments could be construed as an indirect contribution to the purchase price of the property under Le Foe v Le Foe as they appear to have agreed that this would free the owner up to pay the mortgage, and these payments also constitute detriment in reliance. A is wrong as a resulting trust will only arise when there is a contribution to the purchase price of the property at the outset (Curley v Parkes) and the man did not contribute directly to the purchase price at all. B is wrong as the Owner’s statement that she would never evict her partner falls short of an express statement to share the ownership of the property, and appears to indicate affording him a right to live at the property only. C is wrong as the man’s household payments do not amount to a direct contribution to the purchase price of the property. E is wrong as the Owner’s statement that she would never evict her partner would be an active assurance, rather than passive and - probably falls short of promising an interest in the property.

Answer 100

Option B is correct. In the absence of an express trust, the beneficial interests in a family home are commonly determined using a common intention constructive trust. As both women are registered co-proprietors, it is presumed that each woman’s beneficial interest in the family home is equal (equity follows the law). The courts have been keen to stress that it will be a very unusual case where registered co-proprietors will be taken to have intended that their beneficial interests will be anything other than equal. Options A and E are not the best answer. In the absence of express trusts, the beneficial interests in family homes are generally determined using common intention constructive trusts. (Note that Option E is also wrong because contributions towards the mortgage are not taken into account when quantifying beneficial shares under a resulting trust.) Option C is not the best answer. When quantifying the beneficial interests in the family home, the court can survey the whole course of dealing between the women to ascertain what is fair having regard to that course of dealing. As part of that enquiry, the court can take into account how the house was purchased. However, it is unlikely that the initial unequal contributions towards the deposit will be sufficient by themselves to persuade the court to depart from the usual outcome that each woman’s beneficial interest is equal (particularly given the fact that most of the house has been paid for subsequently by equal contributions to the mortgage and the pooling of the women’s finances). Option D is wrong. The doctor does not need to rely on her contributions to the mortgage in order to establish a common intention constructive trust. Such a trust will arise automatically by operation of law, given that both women appear on the legal title. The doctor’s contributions to the mortgage might be relevant when quantifying her interest in the family home, not to whether she has an interest in the first place.

Answer 101

Option B is correct. The evidence suggest that but for the bank’s advice to keep the house in the man’s sole name, it would have been registered in the joint name of him and his girlfriend. That can constitute an express common intention that his girlfriend was to have an interest in the home. She has also suffered detrimental reliance in the substantial payments she has made to household improvements. Option A is wrong. To give rise to a resulting trust, any contribution must be to the purchase price itself, not to ancillary items such as legal fees. Option C is wrong. There was an express common understanding that ownership of the house would be shared. In any event, in the absence of such an express understanding, it is unlikely that the payments the girlfriend did make would be sufficient to enable a common intention of ownership to be inferred. There is no suggestion that she made any significant payment towards the purchase price or mortgage. Option D is wrong. Whilst it is correct to say that there can be no express trust, because such a trust over land would have to be evidenced in signed writing, it is not correct to say that there cannot therefore be any trust, and a common intention constructive trust will have arisen on the facts. Such implied trusts do not need to be evidenced in signed writing. Option E is wrong. Given that there was an express common understanding that the house be shared, the court can take a wider view as to what constitutes detrimental reliance beyond those items listed in this option.

Answer 102

Option C is correct, as she will not be able to establish an inferred agreement to share the property. In order to establish this inferred agreement, generally, she would need to show that she has made direct payments to the purchase price of the property (either by way of the initial payment of the deposit, or by paying subsequent mortgage instalments). She has not done either here. Option A is wrong because there is no need for the terms of the trust to be set out in writing in order to establish a common intention constructive trust, as constructive trusts are implied by the courts. Option B is wrong, as she has not suffered any financial detriment on the facts and, to establish an ‘inferred’ common intention constructive trust, there must be financial detriment. In addition, to establish an interest under a common interest constructive trust, the claimant must establish both an express or inferred agreement to share the property and detrimental reliance. Detrimental reliance by itself is insufficient. Option D is wrong, as there is nothing on the facts to suggest that the man and his girlfriend spoke about sharing the property, so they do not appear to have made an express agreement regarding this. Option E is wrong, as a person making a claim under a common intention constructive trust does not need to be a legal owner of the property in order to make the claim.

Equity and Trusts SBAQs Flashcards

(126 cards)