Jan 18 Equity & Trusts

Total Page:16

File Type:pdf, Size:1020Kb

Jan 18 Equity & Trusts LEVEL 6 – UNIT 5 – EQUITY AND TRUSTS SUGGESTED ANSWERS – JANUARY 2018 Note to Candidates and Tutors: The purpose of the suggested answers is to provide candidates and tutors with guidance as to the key points candidates should have included in their answers to the January 2018 examinations. The suggested answers set out a response that a good (merit/distinction) candidate would have provided. The suggested answers do not for all questions set out all the points which candidates may have included in their responses to the questions. Candidates will have received credit, where applicable, for other points not addressed by the suggested answers. Candidates and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners’ reports which provide feedback on candidate performance in the examination. SECTION A Question 1 Fiduciaries include trustees, partners in business, company directors and solicitors. They must not put themselves in a position where their personal interest might conflict with their duty. The court will order fiduciaries to surrender any profit without enquiring into the circumstances of the case. The strict liability of fiduciaries has been the subject of criticism on the grounds that it is unfair to penalise honest fiduciaries in the same way as guilty fiduciaries and that the strict rule may discourage people from accepting the post. Trustees are subject to the strictest fiduciary duties. A more relaxed version of the rules applies to company directors by virtue of the Companies Act 2006. Boardman v Phipps (1967) was a classic illustration of the principles set out in Lord Russell’s statement. The trust property included a substantial shareholding in a private company. Mr Boardman (the trust’s solicitor) investigated the affairs of the company, initially on behalf of the trust, and gained useful information. Subsequently, with the knowledge of the active trustees, Mr Boardman purchased shares in the company with his own funds on his own account. Through skilful management he was able to reorganise the company and make large distributions to all shareholders, including the trust. The majority of the House of Lords held that the Mr Boardman had to account to the trust for his profits because he had profited from information which came to him in his fiduciary position. A further ground for the decision was that, had he been asked to advise whether the trustees should obtain a court order allowing them to buy the shares for the trust, he would have had a conflict of interest. The slightest possibility of a conflict was sufficient to make the trustees accountable; it did not matter that the possibility was extremely remote. Mr Page 1 of 14 Boardman had to surrender his shares and profit after being reimbursed with the purchase price. Mr Boardman had been honest. The active trustee gave evidence that he would not have invested trust money in additional shares and therefore, the possibility of a conflict of interest was extremely unlikely. The trust suffered no loss and actually benefited from the distributions which the company made as a result of the defendant’s reorganisation. Nevertheless, the defendant had to surrender his profit to the trust. In Regal (Hastings) Ltd v Gulliver (1967), directors of a company were liable for having exploited an opportunity which came to them in their position as directors. Their honesty and the fact that the company could not have taken the opportunity due to lack of funds were irrelevant. Wright v Morgan (1926) is a further example of the harsh operation of the rule; the conflict of interest arose because a trustee purchased trust property; the beneficiaries were allowed to avoid the transaction at a later date despite the fact that the trustee had paid the full market price. As was the case in Boardman v Phipps, it was irrelevant that the beneficiaries had suffered no loss. In Keech v Sandford (1726), the court justified the strict approach by saying that it is difficult for the courts to ascertain whether trustees have been honest and whether the trust could have secured the profit had it been given the opportunity. It has also been argued that strict liability does not prevent honest fiduciaries from making a personal profit; trustees, for example, can obtain the consent of the beneficiaries (assuming all the beneficiaries are adults) or the court or settlors may grant powers for trustees to make profits in the trust instrument. The advantage of strict liability is that it acts as a deterrent for other trustees. If trustees know that they cannot retain profits under any circumstances, they will not be tempted to exploit trust opportunities for themselves. Removing all temptation ensures that in all cases, trustees are incentivised to act in the best interests of the beneficiaries and that they are not swayed by their personal interests. However, the strict approach of the courts may not be as entrenched as would at first appear. In Boardman v Phipps, the House of Lords ordered the trust to pay the defendant generous remuneration for his hard work in changing the company’s fortunes. In a powerful dissenting judgment, Lord Upjohn suggested that fiduciaries should not be liable unless there was an actual conflict between their interest and duty e.g. if they deprived the trust of an opportunity which it would otherwise have taken up. In Murad v Al Saraj (2005), Lady Justice Arden doubted whether there were evidential difficulties in determining a trustee’s honesty. She remarked (obiter) that evidential problems could be avoided by throwing the burden on to the fiduciary to show he was honest, that the trust could not have gained the profit and that the trust suffered no loss. The strict approach may deter people from becoming trustees or taking up fiduciary roles (especially commercial positions such as company directors). It is likely to stifle entrepreneurism which can be to the detriment of the beneficiaries or those who are owed fiduciary duties. Had Mr Boardman decided not to risk breaching his fiduciary duty by seeking to make a personal profit, the trust would have been denied the profit which it actually derived from the defendants’ activities. This was the reason why the Companies Act 2006 adopted a less stringent regime for company directors. The Act provides that directors are not Page 2 of 14 liable if there is no reasonable possibility of a conflict of interest which is closer to Lord Upjohn’s more relaxed approach. Some Commonwealth jurisdictions have adopted a more lenient regime; for example, a director is not liable for profiting from an opportunity if the Board of Directors has already rejected the opportunity on behalf of the company. There are signs that the inflexible rule of equity might be relaxed in the future. Question 2 Section 9 of the Wills Act 1837 provides that dispositions intended to have effect on a person’s death should be contained in a written will signed by the testator in the presence of two witnesses who then sign the will in the presence of the testator. Secret trusts do not comply with s9 because all the terms of the trust are not set out in the will. Fully secret trusts arise where a will contains an absolute gift to a legatee; outside the will the legatee agrees to hold the legacy on trust. In half secret trusts, the will indicates that there is a trust but does not set out its terms. In both fully and half secret trusts, the testator must communicate the terms of the trust to the legatee and the legatee must agree. In fully secret trusts, the terms must be communicated before the testator’s death (Wallgrave v Tebbs (1855); Re Boyes (1884). In half secret trusts, the terms of the trust must be communicated before or at the time the will is executed (Re Keen (1937); Re Bateman (1970)). In McCormick v Grogan (1869), it was held that fully secret trusts should be enforced because equity will not allow statute (s.9) to be used as an instrument of fraud. If a fully secret trust were not enforced, the legatee would take beneficially in accordance with the absolute gift in the will. This would be a fraud when the legatee has agreed to act as a trustee and, in reliance on the legatee’s agreement, the testator has made a will leaving the legacy to him or her or has left the legacy unrevoked. However, this does not explain why the secret beneficiary is allowed to benefit. Where the secret trustee refuses to abide by his or her agreement, the secret beneficiary is not defrauded; the secret trustee did not give the secret beneficiary a promise to hold on trust and the secret beneficiary did not rely on the promise to his or her detriment. There is an alternative suggestion that the fraud consists of the trustee’s refusal to keep the promise made to the testator on which the testator has relied. Fraud would thus be prevented by refusing to allow the trustee to take beneficially by imposing a resulting trust for the testator’s estate. The prevention of fraud theory does not justify the enforcement of half-secret trusts. The fact that the legatee is to be a trustee is apparent on the face of the will. There is no possibility of X taking beneficially and therefore, no possibility of fraud by X. The modern explanation why secret trusts are enforced is the ‘dehors the will’ theory (Blackwell v Blackwell (1929)). This explanation runs as follows: The testator communicates to the secret trustee the terms of the intended trust, and the secret trustee accepts the obligation.
Recommended publications
  • Advanced Equity and Trusts
    ADVANCED EQUITY AND TRUSTS University of London LLM The course is led by: Professor Alastair Hudson Professor of Equity & Law Department of Law, Queen Mary, University of London 2006/2007 1 www.alastairhudson.com | © professor alastair hudson Advanced Equity and Trusts Law Introduction This course intends to focus on aspects of equity and trusts in two specific contexts: commerce and the home. It will advance novel conceptual approaches to two significant arenas in which equitable doctrines like the trust are deployed. In the context of commercial activity the course will consider the manner in which discretionary equitable doctrines are avoided but also the significant role which the law of trusts plays nevertheless in commercial and financial activity. In the context of the home to consider the various legal norms which coalesce in the treatment of the home: whether in equitable estoppel, trusts implied by law, family law, human rights law and housing law. Teaching Organised over three terms, 2 hours per week, comprising a lecture in the first week followed, generally, by a seminar in the following week as a cycle. See, however, the three introductory topics which are dealt with differently. Examination / assessment Examination will be by one open-book examination which will ask students to attempt three questions in three hours. Textbooks It is suggested that you acquire a textbook and you may find it useful to acquire a cases and materials book, particularly if you have not studied English law before. Recommended general text:- *Alastair Hudson: Equity and Trusts (4th ed.: Cavendish Publishing 2005). Other textbooks:- Hanbury and Martin: Modern Equity (17th ed., by Dr J.
    [Show full text]
  • Institute of Legal Executives Level 6
    Subject 38 INSTITUTE OF LEGAL EXECUTIVES LEVEL 6 - EQUITY & TRUSTS EXAMINER’S REPORT – AUTUMN 2009 Introduction The primary aim of this report is to do the following: • comments on overall performance by candidates in the Autumn 2009 Equity and Trusts examination; • advises on how performance might be improved; • indicates what should be contained in successful answers to the questions in the examination paper; • provides comment on performance in individual questions. • this is the final Equity and Trusts examination paper under the Level 6 Professional Higher Diploma in Law. If candidates have failed then they should consider sitting Equity and Trusts on the new Level 6 Professional Higher Diploma in Law and Practice. Information is available on the ILEX website at [email protected] Comment on Overall Performance This is a Level 6 paper and was, consequently, appropriately demanding. Successful candidates are therefore to be congratulated. The most common weaknesses were: 1. Poor legal problem solving skills; 2. Lack of adequate skills for tackling essay questions; 3. Poor structure and inadequate understanding of how to use the law to answer questions; 4. Lack of knowledge of the law of Equity and Trusts. Poor Legal Problem Solving Skills Common weaknesses included: failure to identify all the key issues raised by the problem questions; failure to identify the particular principles of law relevant to the problems; failure to state the law accurately and cite cases appropriately; failure to apply the law to the facts of problem questions in an appropriate manner or (in the case of a few candidates) to apply it to the facts at all.
    [Show full text]
  • The Overlapping of Legal Concepts a Legal Realist Approach to the Classification of Private Law
    THE OVERLAPPING OF LEGAL CONCEPTS A LEGAL REALIST APPROACH TO THE CLASSIFICATION OF PRIVATE LAW by DAVID SALMONS A thesis submitted to the University of Birmingham for the degree of DOCTOR OF PHILOSOPHY Birmingham Law School College of Arts and Law University of Birmingham Summer 2011 University of Birmingham Research Archive e-theses repository This unpublished thesis/dissertation is copyright of the author and/or third parties. The intellectual property rights of the author or third parties in respect of this work are as defined by The Copyright Designs and Patents Act 1988 or as modified by any successor legislation. Any use made of information contained in this thesis/dissertation must be in accordance with that legislation and must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the permission of the copyright holder. ABSTRACT The main aim of this research is two-fold; firstly, these chapters will seek to demonstrate the unreliability of theoretical or abstract approaches to legal reasoning in describing the law. Secondly, rather than merely providing a deconstruction of previous attempts to classify private law, the chapters attempt to construct an overlapping approach to classification. This represents a new way of classifying private law, which builds on the foundations of the lessons of legal realism and explains how classification can accommodate overlaps to assist in identifying the core elements of private law reasoning. Following the realist tradition, the thesis argues for narrower formulations of the concepts of property, contract and tort. It is then argued that within these narrower concepts, the law is made more predictable and clearer.
    [Show full text]
  • The Trust up and Running
    10 The trust up and running SUMMARY The duty of investment The Trustee Act 2000 The standard of prudence in making trust investments ‘Social’ or ‘ethical’ investing The delegation of trustee functions The power of maintenance The power of advancement Appointment, retirement, and removal of trustees Custodian, nominee, managing, and judicial trustees Bene" ciaries’ rights to information Variation of trusts 10.1 Trustees, as legal owners of the trust property, have all the rights and powers to deal with the trust property as would any other legal owner, although they must, of course, exercise these rights and powers solely in the interest of the benefi ciaries. Because they are trustees, however, they have further particular powers and duties arising from their offi ce, traditionally the most important of which are the duty of investment and the powers of maintenance and advancement. 110-Penner-Chap10.indd0-Penner-Chap10.indd 227272 55/29/2008/29/2008 111:03:521:03:52 PPMM The duty of investment | 273 e duty of investment 10.2 e duty of investment has two main aspects: (1) a duty to invest the trust property so as to be ‘even-handed’ between the diff erent classes of benefi ciary; and (2) a duty to invest so that the fund is preserved from risk yet a reasonable return on capital is made. Even-handedness between the benefi ciaries 10.3 In many trusts the benefi t of the property is divided between income and capi- tal benefi ciaries (3.19). In legal terms, income is whatever property actually arises as a separate payment as a result of holding the capital property.
    [Show full text]
  • Trustee Act 1925 Chapter 19
    Trustee Act 1925 Chapter 19 Part II General Powers of Trustees and Personal Representatives 12 Power of trustees for sale to sell by auction, etc (1) Where a trustee has a duty or power to sell property, he may sell or concur with any other person in selling all or any part of the property, either subject to prior charges or not, and either together or in lots, by public auction or by private contract, subject to any such conditions respecting title or evidence of title or other matter as the trustee thinks fit, with power to vary any contract for sale, and to buy in at any auction, or to rescind any contract for sale and to re-sell, without being answerable for any loss. (2) A duty or power to sell or dispose of land includes a trust duty or power to sell or dispose of part thereof, whether the division is horizontal, vertical, or made in any other way. 13 Power to sell subject to depreciatory conditions (1) No sale made by a trustee shall be impeached by any beneficiary upon the ground that any of the conditions subject to which the sale was made may have been unnecessarily depreciatory, unless it also appears that the consideration for the sale was thereby rendered inadequate. (2) No sale made by a trustee shall, after the execution of the conveyance, be impeached as against the purchaser upon the ground that any of the conditions subject to which the sale was made may have been unnecessarily depreciatory, unless it appears that the purchaser was acting in collusion with the trustee at the time when the contract for sale was made.
    [Show full text]
  • Key Facts and Key Cases
    KEY FACTS KEY CASES Equity & Trusts 25726.indb i 18/11/2013 10:40 KEY FACTS KEY CASES The Key Facts Key Cases revision series is designed to give you a clear understanding and concise overview of the fundamental principles of your law course. The books’ chapters refl ect the most commonly taught topics, breaking the law down into bite- size sections with descriptive headings. Diagrams, tables and bullet points are used throughout to make the law easy to understand and memorise, and comprehensive case checklists are provided that show the principles and application of case law for your subject. Titles in the series: Contract Law Criminal Law English Legal System Equity & Trusts EU Law Family Law Human Rights Land Law Tort Law For a full listing of the Routledge Revision range of titles, visit www.routledge.com/law 25726.indb ii 18/11/2013 10:40 KEY FACTS KEY CASES Equity & Trusts Chris Turner and Judith Bray Routledge Taylor & Francis Group LONDON AND NEW YORK 25726.indb iii 18/11/2013 10:40 First edition published 2014 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2014 Chris Turner and Judith Bray The right of Chris Turner and Judith Bray to be identifi ed as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.
    [Show full text]
  • Level 6 - Unit 5 – Equity & Trusts Suggested Answers – January 2011
    LEVEL 6 - UNIT 5 – EQUITY & TRUSTS SUGGESTED ANSWERS – JANUARY 2011 Note to Candidates and Tutors: The purpose of the suggested answers is to provide students and tutors with guidance as to the key points students should have included in their answers to the January 2011 examinations. The suggested answers set out a response that a good (merit/distinction) candidate would have provided. The suggested answers do not for all questions set out all the points which students may have included in their responses to the questions. Students will have received credit, where applicable, for other points not addressed by the suggested answers. Students and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners’ reports which provide feedback on student performance in the examination. SECTION A 1(a) A decree of specific performance is a court order instructing a party to a contract to perform their obligations under that contract. Failure to comply is contempt of court. It is a precondition of a decree of specific performance that the remedy at law is inadequate. That remedy is generally damages. This is consistent with the role of equity within our legal system, as it developed to provide remedies for those who could not receive the assistance they required through the common law courts. Whether damages are an adequate remedy will depend on the subject matter of the contract. If a contract is for the sale and purchase of an item that is unique, no amount of damages will be able to make up for the fact that the purchaser will no longer receive the item they contracted for.
    [Show full text]
  • Trustee Act 2000 Is up to Date with All Changes Known to Be in Force on Or Before 11 August 2021
    Changes to legislation: Trustee Act 2000 is up to date with all changes known to be in force on or before 11 August 2021. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations. (See end of Document for details) View outstanding changes Trustee Act 2000 CHAPTER 29 TRUSTEE ACT 2000 PART I THE DUTY OF CARE 1 The duty of care. 2 Application of duty of care. PART II INVESTMENT 3 General power of investment. 4 Standard investment criteria. 5 Advice. 6 Restriction or exclusion of this Part etc. 7 Existing trusts. PART III ACQUISITION OF LAND 8 Power to acquire freehold and leasehold land. 9 Restriction or exclusion of this Part etc. 10 Existing trusts. PART IV AGENTS, NOMINEES AND CUSTODIANS Agents 11 Power to employ agents. ii Trustee Act 2000 (c. 29) Document Generated: 2021-08-11 Changes to legislation: Trustee Act 2000 is up to date with all changes known to be in force on or before 11 August 2021. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations. (See end of Document for details) View outstanding changes 12 Persons who may act as agents. 13 Linked functions etc. 14 Terms of agency. 15 Asset management: special restrictions. Nominees and custodians 16 Power to appoint nominees. 17 Power to appoint custodians. 18 Investment in bearer securities. 19 Persons who may be appointed as nominees or custodians.
    [Show full text]
  • Sharing Homes: a Discussion Paper
    The Law Commission (LAW COM No 278) SHARING HOMES A Discussion Paper Presented to the Parliament of the United Kingdom by the Lord High Chancellor by Command of Her Majesty November 2002 Cm xxxx The Law Commission was set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are: The Honourable Mr Justice Toulson, Chairman 1 Professor Hugh Beale QC Mr Stuart Bridge Professor Martin Partington CBE Judge Alan Wilkie, QC The Secretary of the Law Commission is Mr Michael Sayers and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London WC1N 2BQ. This Discussion Paper was first published online on 18 July 2002. The text of this Discussion Paper is available on the Internet at: http://www.lawcom.gov.uk 1 At the date this report was signed, the Chairman of the Law Commission was the Right Honourable Lord Justice Carnwath CVO. ii THE LAW COMMISSION SHARING HOMES A Discussion Paper CONTENTS Paragraph Page Executive Summary vi PART I: INTRODUCTION 1 The shared home 1.6 2 A property-based approach 1.23 6 PART II: THE CURRENT LAW 9 Introduction 2.1 9 Trusts of land 2.4 10 Legal and beneficial ownership of the shared home 2.10 11 Legal title – joint tenancy 2.12 11 Beneficial ownership- joint tenancy or tenancy in common 2.16 12 Resolution of disputes between trustees and beneficiaries 2.23 14 Dealings with third parties 2.27 15 Occupation of the shared home 2.32 17 Where a person has an interest under a trust of land 2.34 17 Matrimonial home rights 2.37 18 Orders regulating
    [Show full text]
  • Text, Cases and Materials on Equity and Trusts
    TEXT, CASES AND MATERIALS ON EQUITY AND TRUSTS Fourth Edition Text, Cases and Materials on Equity and Trusts has been considerably revised to broaden the focus of the text in line with most LLB core courses to encompass equity, remedies and injunctions and to take account of recent major statutory and case law developments. The new edition features increased pedagogical support to outline key points and principles and improve navigation; ‘notes’ to encourage students to reflect on areas of complexity or controversy; and self-test questions to consolidate learning at the end of each chapter. New to this edition: • Detailed examination of The Civil Partnership Act 2004 and the Charities Act 2006. • Important case law developments such as Stack v Dowden (constructive trusts and family assets), Oxley v Hiscock (quantification of family assets), Barlow Clowes v Eurotrust (review of the test for dishonesty), Abou-Ramah v Abacha (dishonest assistance and change of position defence), AG for Zambia v Meer Care & Desai (review of the test for dishonesty), Re Horley Town Football Club (gifts to unincorporated association), Re Loftus (defences of limitation, estoppel and laches), Templeton Insurance v Penningtons Solicitors (Quistclose trust and damages), Sempra Metals Ltd v HM Comm of Inland Revenue (compound interest on restitution claims) and many more. • New chapters on the equitable remedies of specific performance, injunctions, rectification, rescission and account. • Now incorporates extracts from the Law Commission’s Reports and consultation papers on ‘Sharing Homes’ and ‘Trustee Exemption Clauses’ as well as key academic literature and debates. The structure and style of previous editions have been retained, with an emphasis on introduc- tory text and case extracts of sufficient length to allow students to develop analytical and critical skills in reading legal judgments.
    [Show full text]
  • Creation of Express Trusts Capacity
    Creation of Express Trusts Capacity - ‘Legal competency or qualification’ - Two common exclusions = poor mental health, infancy - S1(6) LPA 1925: a minor cannot hold a legal estate in land (so cannot create a trust of land). THE THREE CERTAINTIES - Knight v Knight: Lord Langdale: for an express trust to be created the settlor must express 3 things with certainty. o Certainty of intention o Certainty of subject matter o Certainty of objects Certainty of Intention - Did settlor intend to subject the property to a trust obligation? - Two ways in which a trust can be created: o The settlor declares himself trustee of property that he already owns; o Settlor transfers property to another person directing that they hold it on trust for the beneficiary. - Has the settlor done enough to make clear his intention? - Re Kayford Ltd – Megarry LJ: ‘a trust can be created without using the words “trust” or “confidence” or the like; the question is whether in substance a sufficient intention to create a trust has been manifested’. - Company opened separate account, ‘Customer’s Trust deposit Account’ to pay in money received for goods not yet delivered, withdrawing the money only if goods were later delivered – so they could refund customers if goods not supplied (if company went into liquidation). - Held: trust had been created. - Paul v Constance: C separate from his wife + lived with P. A number of times C told P that the money was as much hers as his. o C died intestate + as he had not divorced his wife, wife was entitled to all of his estate.
    [Show full text]
  • Equity & Trusts
    CHIEF EXAMINER COMMENTS WITH SUGGESTED ANSWERS JANUARY 2021 LEVEL 6 - UNIT 5 – EQUITY & TRUSTS Note to Candidates and Learning Centre Tutors: The purpose of the suggested answers is to provide candidates and learning centre tutors with guidance as to the key points candidates should have included in their answers to the January 2021 examinations. The suggested answers set out a response that a good (merit/distinction) candidate would have provided. The suggested answers do not for all questions set out all the points which candidates may have included in their responses to the questions. Candidates will have received credit, where applicable, for other points not addressed by the suggested answers. Candidates and learning centre tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners’ comments contained within this report, which provide feedback on candidate performance in the examination. CHIEF EXAMINER COMMENTS The better performing candidates exhibited similar characteristics, in that they possessed both good knowledge and understanding of case law and statute, which they were then able to deploy in providing relevant legal analysis, argument or advice. Weaker candidates were found wanting in one or more of these respects. A number of weaker candidates tended simply to recite everything that they were able to recall about a particular topic (whether or not it was immediately relevant to the question posed). In many (but, unfortunately, not all) cases, they would then conclude with a single sentence along the lines of ‘this shows/proves/demonstrates that….’, or ‘I therefore agree/disagree with the statement in the question’, or ‘It follows that X has a claim for/should (not) do …’.
    [Show full text]