EQT Authorities Flashcards

Question 1

Q

Defective Transfers > Steps

Answer

A

Step 1: Identify the type of disposition and the necessary declaration

Step 2: Where there is a transfer i.e. gifts and trusts with someone else or others as trustees. Identify the correct formalities (state: ‘there must also be a proper constitution’)

Step 3: Where the transfer (i.e. NOT the declaration) has been defective, consider whether equity will perfect any imperfection

Question 2

Q

Defective Transfers >

Underhill and Hayton, Law of Trusts and Trustees.

Answer

A

What is a trust? An equitable obligation, binding a person (trustee) to deal with property owned by him as a separate fund, distinct from his own private property, for the benefit of persons of whom, he may himself be one, and any of whom may enforce the obligation.

Question 3

Q

Defective Transfers > What is a trust? Authority

Answer

A

Underhill and Hayton, Law of Trusts and Trustees.

Question 4

Q

Defective Transfers > What is a trust? Underhill and Hayton definition

Answer

A

An equitable obligation, binding a person (trustee) to deal with property owned by him as a separate fund, distinct from his own private property, for the benefit of persons of whom, he may himself be one, and any of whom may enforce the obligation.

Question 5

Q

Defective Transfers > What is a trust? Keeting and Sheridan definition

Answer

A

the relationship which arises wherever a person called the trustee is compelled in equity to hold property … for the benefit of some persons, in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiaries of the trust.

Question 6

Q

Defective Transfers > Two authorities for ‘what is a trust?’

Answer

A

Underhill and Hayton, Law of Trusts and Trustees. and Keeting and Sheridan, The Law of Trusts, 12th edn, 1994

Question 7

Q

Defective Transfers > Step 1: type of disposition and necessary declaration >
Types of disposition

Answer

A

Gift
Trust with self as trustee
Trust with someone else/others as trustee(s)

Question 8

Q

Defective Transfers > Step 1: type of disposition and necessary declaration >
Knight v Knight

Answer

A

A valid trust can exist only if the settlor intends to create a trust and defines the relevant property and beneficiaries clearly. This statement translates into the three certainties

Question 9

Q

Defective Transfers > Step 1: type of disposition and necessary declaration >
A valid trust can exist only if the settlor intends to create a trust and defines the relevant property and beneficiaries clearly. This statement translates into the three certainties

Answer

A

Knight v Knight

Question 10

Q

Defective Transfers > Step 1: type of disposition and necessary declaration > Who originally stated the 3 certainties?

Answer

A

Lord Langdale in Knight v Knight.

Question 11

Q

Defective Transfers > Step 1: type of disposition and necessary declaration >
What are the 3 certainties?

Answer

A

INTENTION: Donor must have the necessary mental capacity. Level required rises with value/size of gift (Re Beaney)
SUBJECT: must be a tangible benefit that can be enforced
OBJECT: Those who benefit must be certain.

Question 12

Q

Defective Transfers > Step 1: type of disposition and necessary declaration > 3 certainties > Intention

Answer

A

INTENTION: Donor must have the necessary mental capacity. Level required rises with value/size of gift (Re Beaney)

Question 13

Q

Defective Transfers > 3 certainties > Paul v Constance

Answer

A

Intention: certainty of words

Question 14

Q

Defective Transfers >

3 certainties > Intention: certainty of words

Answer

A

Paul v Constance

Question 15

Q

Defective Transfers >

3 certainties > Re Adams and Kensington Vestry

Answer

A

Developed Paul v Constance (certainty of words) holding that no trust was created where the settlor used precatory words.

Question 16

Q

Defective Transfers >
3 certainties > Developed Paul v Constance (certainty of words) holding that no trust was created where the settlor used precatory words.

Answer

A

Re Adams and Kensington Vestry

Question 17

Q

Defective Transfers >

3 certainties > Palmer v Simmonds

Answer

A

‘Bulk of’ = unclear

Question 18

Q

Defective Transfers >

3 certainties > ‘Bulk of’ = unclear

Answer

A

Palmer v Simmonds

Question 19

Q

Defective Transfers >
3 certainties > Subject matter of trust is certain if settlor provides a workable formula, e.g. ‘reasonable income’ (but ‘reasonable will probably not apply to capital sums)

Question 20

Q

Defective Transfers >

3 certainties > Re Golay

Answer

A

Subject matter of trust is certain if settlor provides a workable formula, e.g. ‘reasonable income’ (but ‘reasonable will probably not apply to capital sums)

Question 21

Q

Defective Transfers >

3 certainties > Must segregate tangible items of trust property from like items

Answer

A

London Wine Company (Shippers) Ltd

Question 22

Q

Defective Transfers >

3 certainties > London Wine Company (Shippers) Ltd

Answer

A

Must segregate tangible items of trust property from like items

Question 23

Q

Defective Transfers >

3 certainties > Need not segregate intangible items if items are indistinguishable (e.g. identical shares)

Answer

A

Hunter v Moss.

Question 24

Q

Defective Transfers >

3 certainties > Hunter v Moss.

Answer

A

Need not segregate intangible items if items are indistinguishable (e.g. identical shares)

Question 25

Q

Defective Transfers >

3 certainties > Re Lewis’s of Leicester Ltd

Answer

A

The subject matter was certain because, by placing the money in a separate account, it had been segregated from Lewis’s other money.

Question 26

Q

Defective Transfers >
3 certainties > The subject matter was certain because, by placing the money in a separate account, it had been segregated from Lewis’s other money.

Answer

A

Re Lewis’s of Leicester Ltd

Question 27

Q

Defective Transfers >

3 certainties > Mac-Jordan Construction Ltd v Brookmount Erostin Ltd

Answer

A

Mac-Jordan was not as fortunate Re Lewis’s of Leicester. While there had been an intention to set up a trust of the retained money, this had not been accomplished because there was uncertainty of subject matter. The retention monies had not been segregated from Brookmount’s other funds. The key fact was that they had not been placed in a separate bank account.

Question 28

Q

Defective Transfers >
3 certainties >
Mac-Jordan was not as fortunate Re Lewis’s of Leicester. While there had been an intention to set up a trust of the retained money, this had not been accomplished because there was uncertainty of subject matter. The retention monies had not been segregated from Brookmount’s other funds. The key fact was that they had not been placed in a separate bank account

Answer

A

Mac-Jordan Construction Ltd v Brookmount Erostin Ltd

Question 29

Q

Defective Transfers >

4 factors that apply to Trust with Self as Trustee

Answer

A

The Three Certainties
The beneficiary principle
Rules against perpetuity
Formalities for the declaration

Question 30

Q

Defective Transfers >

Trust with Self as Trustee > Paul v Constance

Answer

A

(trusts) Intention is ascertained by words or conduct

Question 31

Q

Defective Transfers >

Trust with Self as Trustee > (trusts) Intention is ascertained by words or conduct

Answer

A

Paul v Constance

Question 32

Q

Defective Transfers >

Trust with Self as Trustee > (trusts) Merely preparatory words will not suffice

Answer

A

Re Adams and Kensington Vestry

Question 33

Q

Defective Transfers >

Trust with Self as Trustee > Re Adams and Kensington Vestry

Answer

A

(trusts) Merely preparatory words will not suffice

Question 34

Q

Defective Transfers >

Trust with Self as Trustee > What is the beneficiary principle?

Answer

A

There must be identifiable human beneficiaries who can enforce the trust.

Question 35

Q

Defective Transfers >

Trust with Self as Trustee > What are the rules against perpetuity?

Answer

A

For discretionary trusts: rule against remoteness of vesting – max 125 years.
For non-charitable purpose trusts: rule against alienability – limited to 21 years or allow trustees to spend all trust capital on the purpose.

Question 36

Q

Defective Transfers >

Trust with Self as Trustee > What are the rules against perpetuity for discretionary trusts?

Answer

A

rule against remoteness of vesting – max 125 years.

Question 37

Q

Defective Transfers >

Trust with Self as Trustee > What are the rules against perpetuity for non-charitable purpose trusts?

Answer

A

rule against alienability – limited to 21 years or allow trustees to spend all trust capital on the purpose.

Question 38

Q

Defective Transfers >

Trust with Self as Trustee > What are the formalities in declaration for Land?

Answer

A

evidenced in writing, signed by the transferor (s.53(1)(b) Law of Property Act (LPA) 1925)
- Other: none needed, writing is desirable.

Question 39

Q

Defective Transfers >

Trust with Self as Trustee > s.53(1)(b) Law of Property Act (LPA) 1925

Answer

A

Land on trust must be evidenced in writing, signed by the transferor.

Question 40

Q

Defective Transfers >

Trust with Self as Trustee > Land on trust must be evidenced in writing, signed by the transferor.

Answer

A

s.53(1)(b) Law of Property Act (LPA) 1925

Question 41

Q

Defective Transfers > Trust with someone else/others as trustee(s)

Answer

A

The three certainties
Beneficiary Principle
Rules against perpetuity
Formalities for declaration

Question 42

Q

Defective Transfers > 2: Formalities > Chattels

Answer

A

Simply physical delivery (Re Cole) or deed.

If physical delivery is impossible, the item may still be considered transferred (Jaffa v Taylor Gallery Ltd)

Question 43

Q

Defective Transfers > 2: Formalities > Chattels >

Re Cole

Answer

A

The formalities for transferring a chattel is simply physical delivery. (or deed)

Question 44

Q

Defective Transfers > 2: Formalities > Chattels >

The formalities for transferring a chattel is simply physical delivery. (or deed)

Question 45

Q

Defective Transfers > 2: Formalities > Chattels >

Jaffa v Taylor Gallery Ltd

Answer

A

If physical delivery is impossible, the item may still be considered transferred

Question 46

Q

Defective Transfers > 2: Formalities > Chattels >

If physical delivery is impossible, the item may still be considered transferred

Answer

A

Jaffa v Taylor Gallery Ltd

Question 47

Q

Defective Transfers > 2: Formalities > Shares

Answer

A

Complete and Sign Stock transfer form
Send STF and share certificate to transferee
Transferee must send documents to company to register new owner

Question 48

Q

Defective Transfers > 2: Formalities > Land

Answer

A

Must be done by deed. Send deed to Land Registry and notify as new legal owner (s.52(1) LPA 1925)
Deed must say it is a deed, be in writing, and be signed, witnessed and delivered as a deed. (s.1 LP(MP)A 1989)

Question 49

Q

Defective Transfers > 2: Formalities > Land > s.52(1) LPA 1925

Answer

A

Transfer of land must be done by deed. Send deed to Land Registry and notify as new legal owner.

Question 50

Q

Defective Transfers > 2: Formalities > Land > Transfer of land must be done by deed. Send deed to Land Registry and notify as new legal owner.

Answer

A

s.52(1) LPA 1925

Question 51

Q

Defective Transfers > 2: Formalities > Land > s.1 LP(MP)A 1989

Answer

A

Deed must say it is a deed, be in writing, and be signed, witnessed and delivered as a deed

Question 52

Q

Defective Transfers > 2: Formalities > Land > Deed must say it is a deed, be in writing, and be signed, witnessed and delivered as a deed

Answer

A

s.1 LP(MP)A 1989

Question 53

Q

Defective Transfers > 2: Formalities > Equitable Interests

Answer

A

In writing (Grey v IRC)- Signed by the person disposing of the interest/an authorised agent or in will

Question 54

Q

Defective Transfers > 2: Formalities > Equitable Interests > Grey v IRC

Answer

A

In writing (Grey v IRC)- Signed by the person disposing of the interest/an authorised agent or in will

Question 55

Q

Defective Transfers > 2: Formalities > Equitable Interests must be in writing

Answer

A

Grey v IRC

Question 56

Q

Defective Transfers > 2: Formalities > Equitable Interests > When does Grey v IRC apply?

Answer

A

When transferring equitable interest but NOT legal title (must be in writing)

Question 57

Q

Defective Transfers > 2: Formalities > Equitable Interests > When does Vandervell v IRC apply?

Answer

A

When transferring equitable interest AND legal title, can be oral instruction

Question 58

Q

Defective Transfers > 2: Formalities > Equitable Interests > What are the 3 exceptions to the formalities of transferring an equitable interest?

Answer

A

Resulting Trust
Constructive Trust
Proprietary Estoppels

Question 59

Q

Defective Transfers > 3. Will Equity perfect > Milroy v Lord

Answer

A

General rule: there is no equity in this court to protect an imperfect gift; equity will not benefit a volunteer, equity will not construe a trust from an invalid gift.

Question 60

Q

Defective Transfers > 3. Will Equity perfect > General rule: there is no equity in this court to protect an imperfect gift; equity will not benefit a volunteer, equity will not construe a trust from an invalid gift.

Answer

A

Milroy v Lord

Question 61

Q

Defective Transfers > 3. Will Equity perfect > Exceptions

Answer

A

Strong v Bird
Re Rose
Pennington v Waine
Choithram International SA v Pagrani
Vandervell v IRC + Zeital v Kaye (Equitable interest exception

Question 62

Q

Defective Transfers > 3. Will Equity perfect > Strong v Bird

Answer

A

On death of donor, donee can claim legal title if:

(a) transfer fails due to not satisfying formalities
(b) intention to make immediate gift by donor (Re Freeland)
(c) Intention continues until death (Re Gonin)
(d) Donee becomes executor/PR/administrator of donor (Deal with this point first)

Question 63

Q

Defective Transfers > 3. Will Equity perfect? > Exceptions > Of the conditions in Strong v Bird, which do you deal with first?

Answer

A

(d) Donee becomes executor/PR/administrator of donor

Question 64

Q

Defective Transfers > 3. Will Equity perfect? > Re Freeland

Answer

A

Strong v Bird Conditions:

(b) intention to make immediate gift by donor

Answer 63

A

Re Freeland

Answer 64

A

Strong v Bird Conditions:

(c) Intention continues until death

Answer 65

A

Every effort test: gift is complete in equity if the donor has done everything he can.
FACTS: Once STF and share certificate has been handed over, the gift is complete in equity

Answer 66

A

Where the donor has failed to transfer legal title, the transfer may be regarded as complete in equity if the donor has put the property beyond his recall. The donor unsuccessfully tried to change their mind.

Answer 67

A

Browne-Wilkinson LJ in Mascall v Mascall

Answer 68

A

Possession of a transfer deed was sufficient to enable registration.

Answer 69

A

Mascall v Mascall

Answer 70

A

Applies in very specific situations only. Extends Re Rose to gifts even when incomplete. Must be unconscionable to invalidate the disposition.

Answer 71

A

suggests that Pennington is a case of detrimental reliance. Ada was bound because she had told her nephew she was giving him the shares and he acted to his detriment by becoming a director of the company. On this view, Pennington is simply an example of proprietary estoppel, which is a well-established exception to the rule that equity will not assist a volunteer.

Answer 72

A

Transferor told auditor she wanted to transfer shares to nephew. Transferor signed stock transfer form (STF) and sent to auditor. auditor told nephew that transferor wanted to transfer shares to him and that he didn’t have to do anything. Transferor passed away with the transfer incomplete. it was held that it would be unconscionable not to treat the transfer as complete, even though every effort had not been made.

Answer 73

A

Once STF and share certificate has been handed over, the gift is complete in equity.

Answer 74

A

If the transfer is defective, equity will not strive officiously to defeat a gift. Rather, may interpret gift as trust if the settlor is a trustee.
His conscience was affected as soon as he declared the gift and he could not subsequently resile from it.

Answer 75

A

Trustee appointed himself and 6 others as trustees
He orally stated that he was giving his shares to the trust without completing the STF, therefore failing to follow the correct formalities.
Courts of equity require less from the transferor than demanded in Re Rose as it is enough that the transferor’s conscience is affected. Important that the settlor becomes a trustee
Oral declaration is sufficient in intangible assets if settlor remains trustee

Answer 76

A

If interest is under a bare trust, and the beneficiary directs the trustee to transfer the equitable estate with the intention of transferring the legal estate as well, s.53(1)(c) LPA 1925 will not apply and an oral instruction will be sufficient (Vandervell v IRC) However, this rule only applies if the legal estate is being transferred. (Zeital v Kaye)

Answer 77

A

If interest is under a bare trust, and the beneficiary directs the trustee to transfer the equitable estate with the intention of transferring the legal estate as well, s.53(1)(c) LPA 1925 will not apply and an oral instruction will be sufficient (Vandervell v IRC)

Answer 78

A

Vandervell v IRC Rule

only applies if the legal estate is being transferred. (Zeital v Kaye)

Answer 79

A

a will must normally be made in writing and signed by the testator in the joint presence of two witnesses, who must then witness the testator’s signature by signing the will in his presence.

Answer 80

A

s9 of the Wills Act 1837

Answer 81

A

A will may be altered by a later document called a codicil, provided that this also is signed and witnessed in accordance with s9 of the Wills Act 1837

Answer 82

A

s9 of the Wills Act 1837

Answer 83

A

Ademption and Lapse

Answer 84

A

Specific gifts fail if the testator no longer possesses the specified property when he dies, e.g. because he has sold it or given it away during his lifetime.

Answer 85

A

Any type of gift will fail if the beneficiary dies before the testator (subject to certain exceptions).
A lapsed specific or pecuniary gift falls into the residuary estate. A lapsed residuary gift passes under the intestacy rules.

Answer 86

A

Certainty of objects
a. fixed trusts
b. discretionary trusts
c. powers of appointment

Answer 87

A

Beneficiary principle and the rule against perpetuity
a. unusual exceptions
b. purpose trusts
c. Charitable Exception
d. Non-charitable unincorporated association

Answer 88

A

Step One: Did the settlor try and set up a fixed trust, discretionary trust or power of appointment?
Step Two: Consider the certainty of objects test that applies to that particular trust.

Answer 89

A

Trustees have no discretion as to how the trust property is distributed among beneficiaries

Answer 90

A

Trustee is under a duty to select beneficiaries from a class and decide how much they are to receive (Mettoy Pension Trustees Ltd v Evans)

Answer 91

A

A person has authority to deal with property in a particular way, BUT is under no obligation to actually exercise this authority

Answer 92

A

Trustee is under a duty to select beneficiaries from a class and decide how much they are to receive (Mettoy Pension Trustees Ltd v Evans)

Answer 93

A

Mettoy Pension Trustees Ltd v Evans

Answer 94

A

COMPLETE LIST TEST: A comprehensive list of each and every beneficiary (IRC v Broadway Cottages Trust)
For this you need both conceptual (can the group be defined?) and evidential certainty (can the people be ascertained?).
E.g. in OT Computers Ltd v First National Tricity Finance Ltd a trust for ‘urgent suppliers’ failed.

Answer 95

A

COMPLETE LIST TEST: A comprehensive list of each and every beneficiary (IRC v Broadway Cottages Trust)
For this you need both conceptual (can the group be defined?) and evidential certainty (can the people be ascertained?).

Answer 96

A

Mcphail v Daulton

Answer 97

A

COMPLETE LIST TEST: A comprehensive list of each and every beneficiary

Answer 98

A

IRC v Broadway Cottages Trust

Answer 99

A

E.g. f Complete List Test: in OT Computers Ltd v First National Tricity Finance Ltd a trust for ‘urgent suppliers’ failed.

Answer 100

A

OT Computers Ltd v First National Tricity Finance Ltd

Answer 101

A

can the group be defined?

Answer 102

A

can the people be ascertained?

Answer 103

A

GIVEN POSTULANT TEST: valid if it can be said with certainty whether any given postulant is or is not a member of the class of objects (McPhail v Dalton) does not require evidential certainty.

Answer 104

A

GIVEN POSTULANT TEST: valid if it can be said with certainty whether any given postulant is or is not a member of the class of objects (McPhail v Dalton) does not require evidential certainty.

Answer 105

A

Guidance on Given Postulant Test:

All judges agreed conceptual certainty is essential to the description of objects, but disagreed as to whether the presence of ‘don’t knows’ would mean the failure of the given postulant test for certainty of objects.
‘Relatives’ is conceptually certain
Stamp LJ: if there are ‘don’t knows’ a trust will fail.
Sachs LJ: ‘not necessarily – rather, burden is on the claimant to prove he is within the class.
Megaw LJ: If there is a substantial number of people that say they are within the class, the trust will pass given postulant test. BUT trust can still fail due to:

Answer 106

A

‘Relatives’ is conceptually certain

Answer 107

A

if there are ‘don’t knows’ a trust will fail.

Answer 108

A

‘not necessarily – rather, burden is on the claimant to prove he is within the class.

Answer 109

A

If there is a substantial number of people that say they are within the class, the trust will pass given postulant test. BUT trust can still fail due to:
- administrative workability or capriciousness

Answer 110

A

administrative workability (West Yorkshire Metropolitan CC)
or
capriciousness (Re Mainstay Settlement)

Answer 111

A

Administrative workability/size of class: if numbers are too large to form a class, it may make trust administratively unworkable or

Answer 112

A

West Yorkshire Metropolitan CC

Answer 113

A

Capriciousness: trust is capricious (irrational) if it ‘negatives a sensible consideration by the trustee of the exercise of the power’

Answer 114

A

Re Mainstay Settlement

Answer 115

A

GIVEN POSTULANT TEST: Re Gestetner’s Settlement; Re Gulbenkian’s Settlement.
The Court can intervene if:
- The trustees don’t consider a request from a potential beneficiary, or
- The trustees act capriciously: trust is capricious (irrational) if it ‘negatives a sensible consideration by the trustee of the exercise of the power’ (Re Mainstay Settlement)

Answer 116

A

GIVEN POSTULANT TEST:
The Court can intervene if:
- The trustees don’t consider a request from a potential beneficiary, or
- The trustees act capriciously: trust is capricious (irrational) if it ‘negatives a sensible consideration by the trustee of the exercise of the power’ (Re Mainstay Settlement)

Answer 117

A

Re Gestetner’s Settlement; Re Gulbenkian’s Settlement.

Answer 118

A

Re Mainstay Settlement

Answer 119

A

The trustees act capriciously: trust is capricious (irrational) if it ‘negatives a sensible consideration by the trustee of the exercise of the power’

Answer 120

A

Step 1: State whether it is an outright gift or a trust
Step 2: Explain that the issue concerns the beneficiary principle
Step 3: Remember to consider the rule against perpetuities

Answer 121

A

State whether it is an outright gift or a trust

Answer 122

A

a. Unusual Exceptions
b. Purpose trusts
(c. Charitable exceptions
d. Non-charitable unincorporated association)

Answer 123

A

Care/maintenance of specific animals

Answer 124

A

Re Hooper

Answer 125

A

Care/maintenance of graves/monuments

Answer 126

A

Re Dean Care/maintenance of specific animals

Re Hooper Care/maintenance of graves/monuments

Answer 127

A

Purpose trusts normally violate the beneficiary principle due to the lack of ascertainable beneficiaries

Answer 128

A

Re Denley

Answer 129

A

A trust for ‘improvement of good understandings between nations’ failed.

Answer 130

A

Re Astlor’s Settlement Trust

Answer 131

A

However, an exception will be made where purpose trusts have ascertainable beneficiaries and are directly for the tangible benefit of individuals while not offending the rule against inalienability.

Answer 132

A

Charitable Trusts will not violate the beneficiary principle because they are enforced by the Attorney General. An association must meet the below 3 criteria to form a valid trust:

(a) A charitable purpose
(b) Sufficient public benefit
(c) Exclusively charitable

Answer 133

A

(a) A charitable purpose
(b) Sufficient public benefit
(c) Exclusively charitable

Answer 134

A

Provides that a charitable purpose is a purpose which falls within s.3(1)

Answer 135

A

s.2(1) Charities Act 2011

Answer 136

A

No presumption of benefit – it must be proved where not obvious. Any benefit must outweigh detriment

Answer 137

A

s.4(2) Charities Act

Answer 138

A

Any reference to the public benefit is reference to the public benefit as that term is understood for the purpose of the law relating to charities in England and Wales

Answer 139

A

s.4(3) Charities Act 2011

Answer 140

A

Numbers cant be negligible: can’t be a class within a class

Answer 141

A

IRC v Baddeley

Answer 142

A

Trusts for relief of poverty are charitable even if the benefit is limited to a small class of objects

Answer 143

A

Re Scarisbrick

Answer 144

A

People to benefit cannot be connected by a personal nexus; e.g. employment contract (or family, Re Compton)

Answer 145

A

Oppenheim v Tobacco Securities Trust Co Ltd

Answer 146

A

People to benefit cannot be connected by a personal nexus; e.g. family
(or employment contract Oppenheim v Tobacco Securities Trust Co Ltd)

Answer 147

A

Re Compton

Answer 148

A

Schools whose sole object was the education of children whose families could afford to pay the fees would not be charitable.; they must make more than a token provision for the less well off. A trust that excludes the poor from benefit cannot be a charity. In this context ‘poor’ did not mean destitute but included people of modest means.

Answer 149

A

Independent Schools Council v Charity Commission for England and Wales

Answer 150

A

General Rule: a political purpose (e.g. abolition of torture) is NOT charitable, so Amnesty could not get charitable status.

Answer 151

A

Exception: If the non-charitable purpose is merely incidental to the central charitable purpose of the trust, this is acceptable.

Answer 152

A

McGovern v Attorney General (Amnesty Case)

Answer 153

A

McGovern v Attorney General (Amnesty Case)

Answer 154

A

Definition:

(a) A group bound together for a common purpose
(b) not being a business purpose (Conservative an Unionist Central Office v Burrell)

Answer 155

A

Definition:

(a) A group bound together for a common purpose
(b) not being a business purpose (Conservative an Unionist Central Office v Burrell)

Answer 156

A

Conservative an Unionist Central Office v Burrell

Answer 157

A

Define and then go through the following steps:

General principle

2. Give effect to the trust

Answer 158

A

General principle
‘Unincorporated associations have no legal personality and so cannot hold property in the name of the association.’ -> has no identifiable human beneficiaries who can enforce the trust.

Answer 159

A

Morice v Bishop of Durham
‘Unincorporated associations have no legal personality and so cannot hold property in the name of the association.’ -> has no identifiable human beneficiaries who can enforce the trust.

Answer 160

A

May go down two possible routes to give effect to the disposition by registering the property in the name of trustees, on bare trust for its members.

(a) Trust as an outright gift
(b) Treat as trust for purpose

Answer 161

A

Can be effected under Re Recher’s Will Trust as a gift to the members, as an accretion to the association’s funds (to be dealt with according to the rules of the Association)

Answer 162

A

Can be effected under Re Recher’s Will Trust as a gift to the members, as an accretion to the association’s funds (to be dealt with according to the rules of the Association)

Answer 163

A

if such rules prevent members from dissolving the Association and dividing the funds/spending it all at once, gift will be void - assets must be freely available (Re Grant’s Will Trust)

Answer 164

A

Proviso: if such rules prevent members from dissolving the Association and dividing the funds/spending it all at once, gift will be void - assets must be freely available (Re Grant’s Will Trust)

Answer 165

A

If a purpose is specified that benefits the members, consider whether, via Re Lioinski’s Will Trust, the gift can be effected under Re Recher or Re Delaney (however, the testator’s motive will not be binding)

Answer 166

A

Can be effected under Re Recher’s Will Trust as a gift to the members, as an accretion to the association’s funds (to be dealt with according to the rules of the Association)

Answer 167

A

Purpose trusts normally violate the beneficiary principle due to the lack of ascertainable beneficiaries

Answer 168

A

Remember to consider the rule against perpetuities

Answer 169

A

Non-charitable purpose trusts must either

(1) allow the trustees to spend all the capital on the given purpose, hence ending the trust at any time, or
(2) be limited in duration to 21 years

Answer 170

A

(2) be limited in duration to 21 years

Answer 171

A

Re Hooper

Answer 172

A

The rule against remoteness of vesting: a contingent interest may become a vested interest within 125 years for all trusts made after 6th April 2006

Answer 173

A

The Perpetuities Act 2009

Answer 174

A

Step One: Is there an express trust?
Step Two: Is there a resulting trust?
Step Three: Is there a constructive trust?
Step Four: Can the claimant establish an interest through the doctrine of proprietary estoppel?

Answer 175

A

Consider the presumptions – which presumptions apply on the facts?
Can the presumption be rebutted?
Is the evidence admissible?

Answer 176

A

Presumptions of resulting trusts

Answer 177

A

Westdeutsche Landesbank Girozentralle v Islington London BC

Answer 178

A

Following this case, There is a presumption of a resulting trust from Y to X if:
• X transfers property to Y
• No consideration is supplied; and
• There is no evidence of X’s intention (if money is to be paid back, there is no intention)

Answer 179

A

Thavorn v Bank of Credit and Commerce International

Answer 180

A

However, this does not apply to land. There is no presumption of a resulting trust after a voluntary transfer of land.

Answer 181

A

s.60(3) LPA, Lohia v Lohia, Khan v Ali

Answer 182

A

Although, this was a Supreme Court decision to the contrary

Answer 183

A

Pest v Petradel

Answer 184

A

N.B. There will be a resulting trust where the property is transferred to a solicitor

Answer 185

A

Foakes v Pascoe (obiter)

Answer 186

A

Only payments at the time of acquisition give rise to a resulting trust (not including stamp duty, legal fees, land taxes)

Answer 187

A

Curly v Parkes

Answer 188

A

Implied trust rules do not apply – writing not necessary

Answer 189

A

s.53(1)(b) LPA

Answer 190

A

There is a presumption of resulting trust from Y to X mathematically equivalent to percentage of contribution to purchase price if:
• X transfers purchase money to seller; and
• Property is put in Y’s name; and
• Payment is made at the time of the acquisition of the property (Curly v Parkes)

Answer 191

A

Voluntary Transfer of Purchase Money: Payment must be made at the time of the acquisition of the property

Answer 192

A

Curly v Parkes

Answer 193

A

There is presumption of advancement of a resulting trust is:
• X is Y’s father (Bennett v Bennett) ; or
• X is in loco parentis of Y (Bennett v Bennett); or
• X is Y’s Husband or Fiancé (Pettitt v Pettitt)

Answer 194

A

There is presumption of advancement of a resulting trust is:
• X is Y’s father; or
• X is in loco parentis of Y

Answer 195

A

Bennett v Bennett

Answer 196

A

There is presumption of advancement of a resulting trust is:

• X is Y’s Husband or Fiancé

Answer 197

A

Pettitt v Pettitt

Answer 198

A

Pettitt v Pettitt

Answer 199

A

Will abolish the presumption of advancement after the date of commencement of this act, but not before.

Answer 200

A

s.199 Equity Act 2010

Answer 201

A

These presumptions can be rebutted by the surrounding circumstances at the time of the transaction

Answer 202

A

a) Explanation for the property being put in the sole name

Answer 203

A

McGrath v Wallis

Answer 204

A

b) Retention of title deeds

Answer 205

A

Warren v Gurney

Answer 206

A

c) Proof of intention to make a gift

Answer 207

A

Loosemore v McDonnell

Answer 208

A

Must prove that the transfer was a gift or a loan

* If property is realty, presumption of resulting trust is less likely to apply (s.60(3) LPA 1925)

Answer 209

A

If property is realty, presumption of resulting trust is less likely to apply

Answer 210

A

s.60(3) LPA 1925

Answer 211

A

Must prove that the transfer was not intended as a gift

* Presumption of advancement is easily rebutted (McGrath v Wallis)

Answer 212

A

• Presumption of advancement is easily rebutted

Answer 213

A

McGrath v Wallis

Answer 214

A

GENERAL RULE:
Only acts/statements that occurred at the time of transaction are admissible as evidence (i.e. nothing after the fact)

Subject to certain exceptions, evidence of illegal or fraudulent motives cannot be used to rebut the presumption

Answer 215

A

Shephard v Cartwright

Subject to certain exceptions, evidence of illegal or fraudulent motives cannot be used to rebut the presumption

Answer 216

A

A constructive trust occurs when it would be unconscionable for the owner of the property to assert a beneficial interest in the property.

Answer 217

A

Paragon Finance Plc v DB Thakerar & Co

Answer 218

A

Constructive Trusts are more appropriate to determine equitable interests of cohabitees in a property purchased as their home

Answer 219

A

Stack v Dowden ; Jones v Kernott

Answer 220

A

a) Common intention to share ownership. Common intention that both parties have an interest can be either express (e.g. legal owner saying ‘treat this house as your own’) or inferred by conduct as set out below.
b) Detrimental reliance

Answer 221

A

o Express Intention includes legal owner telling claimant her name would have been on legal title if did not prejudice her divorce proceedings

Answer 222

A

Grant v Edwards

Answer 223

A

o BUT – a specious excuse/explanation will not necessarily constitute an express common intention

Answer 224

A

Curran v Collins

Answer 225

A

o Contributions to purchase or mortgage payments, in this case it was remarked that it was ‘doubtful anything less will do’

Answer 226

A

Lloyds Bank v Rosset

Answer 227

A

o BUT – payment of household expenses was held to suffice where payments are substantial and made pursuant to the agreement

Answer 228

A

Le Foe v Le Foe and Woolwich plc

Answer 229

A

o Court must look at all circumstances to work out intentions. The first stage focuses on contribution, the intentions get analysed in greater detail in stage two.

Answer 230

A

Stack v Dowden (obiter)

Answer 231

A

o Claimant must significantly alter position in reliance of agreement

Answer 232

A

Lloyds Bank v Rosset

Answer 233

A

o Substantial contribution to household expenses and raising children may be sufficient (consider broad and narrow views in this case)

Answer 234

A

Grant v Edwards

Answer 235

A

a) To work out interest, court will determine a fair share with regards to the whole course of dealings (Oxley v Hiscock)
b) BUT – courts shouldn’t consider what is fair. Rather, they should work out what the parties intended (explicitly or inferred). The court will start from the assumption that the property is held in equal shares, but will then consider evidence to rebut this. (Stack v Dowden)

c) Need to look at intention and whole course of dealings in consideration of the final interest. This later ruling fuses the fairness of Oxley with the intention of Stack v Dowden. If an intention cannot be inferred then the courts will assess what is fair having regard to the whole course of dealings. Applied in Galarotti v Sebastianelli
Step Four: Can the claimant establish an interest through the doctrine of proprietary estoppel? (Jones v Kernott)

Answer 236

A

a) To work out interest, court will determine a fair share with regards to the whole course of dealings

Answer 237

A

Oxley v Hiscock

Answer 238

A

b) BUT – courts shouldn’t consider what is fair. Rather, they should work out what the parties intended (explicitly or inferred). The court will start from the assumption that the property is held in equal shares, but will then consider evidence to rebut this.

Answer 239

A

Stack v Dowden

Answer 240

A

c) Need to look at intention and whole course of dealings in consideration of the final interest. This later ruling fuses the fairness of Oxley with the intention of Stack v Dowden. If an intention cannot be inferred then the courts will assess what is fair having regard to the whole course of dealings. Applied in Galarotti v Sebastianelli

Answer 241

A

Jones v Kernott

Answer 242

A

Proprietary estoppel gives rise to equity if

(a) the legal owner behaves in such a way that the claimant believes he has, or will get, some rights in relation to the property, and
(b) the claimant acted to his detriment in consequence to this belief.

Answer 243

A

N.B. only arises from the date of the court order

Answer 244

A

(a) An assurance is given as to the rights of the property. Assurance can be either Active or Passive:
• Active: legal owner assures the claimant that they are entitled to an interest in the property (Pascoe v Turner)
• Passive: Legal owner stands back and lets the claimant act to their detriment in the belief that he is entitled to an interest in the property

Answer 245

A

Active: legal owner assures the claimant that they are entitled to an interest in the property

Answer 246

A

Pascoe v Turner

Answer 247

A

(b) Detrimental Reliance
There must be a causal connection between the reliance and the assurance:
• Financial or Personal Detriment (Gillett v Holt)

Improving the legal owner’s land (Inwards v Baker)
If between relatives; must go beyond what is ‘called for by natural love and affection’ (Re Basham); or
Assisting and supporting legal owner in pursuit of career (Southwell v Blackburn)

Answer 248

A

There must be a causal connection between the reliance and the assurance:
• Financial or Personal Detriment

Answer 249

A

Gillett v Holt

Answer 250

A

There must be a causal connection between the reliance and the assurance:
• Improving the legal owner’s land

Answer 251

A

Inwards v Baker

Answer 252

A

There must be a causal connection between the reliance and the assurance:
• If between relatives; must go beyond what is ‘called for by natural love and affection’;

Answer 253

A

Re Basham

Answer 254

A

There must be a causal connection between the reliance and the assurance:
• Assisting and supporting legal owner in pursuit of career

Answer 255

A

Southwell v Blackburn

Answer 256

A

The remedy is flexible but should be the minimum to satisfy the equity. The guidelines for determining the nature and amount of the remedy are to be determined per the Jennings v Rice guidelines. However, in applying these Joyce v Epson and Ewell BC is authority that the courts focus must be on what is fair and proportionate between the parties

Answer 257

A

Joyce v Epson and Ewell BC

Answer 258

A

The remedy will be somewhere on a sliding scale where in the high point is likely to be the claimant’s expectation and the low point the claimant’s detrimental reliance – with the length of time the expectation held, the clarity of their expectation and the extent of the detrimental reliance adding weight to an award at the higher end of the scale

Answer 259

A

Davies v Davies

Answer 260

A

Remedies might include for example a transfer of an interest of property

Answer 261

A

Gillet v Holt

Answer 262

A

Remedies might include for example compensation

Answer 263

A

Jennings v Rice

Answer 264

A

the remedy depends on:
•	unconscionability 
•	alteration to the defendant’s finances 
•	financial obligations 
•	the effect of taxation 
•	the defendant’s benefit 
•	the claimant’s benefit 
•	practical remedy and 
•	proportionality

Answer 265

A

The person nominated in the trust instrument for appointing trustees, or if not, the remaining trustee(s)/ the PR of the last surviving trustee can, by writing:

Appoint a new trustee in substitution
Appoint additional trustees (only if not more than three trustees)

Answer 266

A

s.36 TA 1925

Answer 267

A

Appoint a new trustee in substitution, if a trustee is:
•	dead;
•	out of the UK for a year;
•	desiring to be discharged;
•	refusing to act;
•	unfit to act;
•	incapable of acting; or
•	an infant

Answer 268

A

s.36(1) TA 1925

Answer 269

A

Appoint additional trustees (only if not more than three trustees)

Answer 270

A

s.36(6) TA 1925

Answer 271

A

Property automatically vests in the trustee

Answer 272

A

s.40 TA 1925

Answer 273

A

The court will only appoint trustees where it is inexpedient, difficult or impracticable for the appointment to be made without the court.

Answer 274

A

s.41 TA 1925

Answer 275

A

A trustee can retire without replacement if:
• There are at least two trustees remaining
• He declares discharge by deed; and
• The other trustees consent by deed

Answer 276

A

s.39 TA 1925

Answer 277

A

Beneficiaries can remove and appoint trustees by writing if:
• No one nominated for the purpose of appointing new trustees; and,
• Beneficiaries are of full age, capacity, (sui juris) and taken together are absolutely entitled to the trust property

Answer 278

A

s.19 TLATA 1996

Answer 279

A

• Something expected to produce income or capital growth

Answer 280

A

Harries v C of E Commissioners

Answer 281

A

• Unsecured loan for B was held not to be an investment

Answer 282

A

Khoo Tek Keong v Ch’ng Joo Tuan Neoh

Answer 283

A

• Act impartially between beneficiaries
• Not to place self in a position of conflict between personal interests and trust obligations (fiduciary duty)
• Act in the best interests of beneficiaries. Interest of beneficiaries = best financial interest (Cowan v Scargill), unless:
o Ethical investment yielded as good a return;
o Beneficiaries are adults and have strong relevant ethical views;
o Not appropriate, e.g. charitable trustees; or
o Settler has so provided in the trust instalment

Answer 284

A

• Act in the best interests of beneficiaries. Interest of beneficiaries = best financial interest, unless:
o Ethical investment yielded as good a return;
o Beneficiaries are adults and have strong relevant ethical views;
o Not appropriate, e.g. charitable trustees; or
o Settler has so provided in the trust instalment

Answer 285

A

Cowan v Scargill

Answer 286

A

Trustees can make any investment that they would make if there were absolutely entitled…

Answer 287

A

s.3(1) TA 2000

Answer 288

A

Subject to the statutory duty of care, ‘such care and skill as is reasonable in all circumstances,’
Having regard to:
• Any special knowledge or experience he holds himself as having;
• The special knowledge or experience reasonably expected in the course of the business or profession; and
• The size of trust fund

Answer 289

A

s.1 TA 2000

Having regard to:
• Any special knowledge or experience he holds himself as having;
• The special knowledge or experience reasonably expected in the course of the business or profession; and
• The size of trust fund

Answer 290

A

Can purchase land (in UK ONLY) for investment or other purposes

Answer 291

A

s.8 TA 2000

Answer 292

A

For day-to-day running of the trust, trustees have a common law standard duty of care – how an ordinary prudent man of business would conduct his own affairs

Answer 293

A

Speight v Gaunt

Answer 294

A

A statutory duty of care (s.1 TA 2000) applies to matters dealt with under TA 2000 (i.e. investments). When making investments, the standard of care they must exercise is the same as the common law duty of care – that of a reasonable business person when investing for someone for whom they feel morally bound.

Answer 295

A

Learoyd v Whiteley

Answer 296

A

Under the statutory duty of care (s.1 TA 2000), the trustees can be sued if:
• Gain made by the trust fund is less than gain made by a reasonable man would be

Answer 297

A

Nestlé v National Westminster Bank

Answer 298

A

Under the statutory duty of care (s.1 TA 2000), the trustees can be sued if:
• Trustee’s investment decision was one which no reasonable trustee (with similar knowledge/skill) would take

Answer 299

A

Wight v Olswang

Answer 300

A

Trustee must consider the standard investment criteria:
• Suitability – nature/type
• Diversification; and
• Obligation to review investments

Answer 301

A

s.4 TA 2000

Answer 302

A

Trustees must obtain and consider advice except when the trustee can reasonably conclude otherwise

Answer 303

A

s.5 TA 2000

Answer 304

A

Trustees cannot delegate unless they have authority to do so.

Answer 305

A

Pilkington v IRC

Answer 306

A

a) Collective Delegation (Trustee Act 2000)

b) Individual delegation (s.25 TA 2000)

Answer 307

A

• Trustees can delegate delegable functions to agents
o But cannot delegate: ‘dispositive’ powers or discretions which involve the distribution of trust capital/income amongst beneficiaries; or
o The power to appoint new trustees

Answer 308

A

s.11 TA 2000

Answer 309

A

• A beneficiary cannot be appointed as an agent, even if also a trustee

Answer 310

A

s.12 TA 2000

Answer 311

A

• Agents appointed under s.11 are subject to the usual conditions attached to such powers

Answer 312

A

s.13 TA 2000

Answer 313

A

• Trustees can delegate asset management functions, but note special restrictions

Answer 314

A

s.15 TA 2000

Answer 315

A

• Trustees may appoint, and vest trust property, in nominees

Answer 316

A

s.16 TA 2000

Answer 317

A

• Trustees must review the performance of agents

Answer 318

A

s.22 TA 2000

Answer 319

A

• Trustees can pay agents reasonable remuneration out of the trust funds

Answer 320

A

s.32 TA 2000

Answer 321

A

The trustees may be liable to sue in negligence or breach of contract and hold the damages on trust for beneficiaries

Answer 322

A

NOT vicariously liable for their agent’s breaches unless they have breached their own duty of care with respect to selection and review of agents

Answer 323

A

A trustee may execute a power of attorney if he wishes to delegate his office.

Answer 324

A

s.25 TA 2000

Answer 325

A

• Can appoint an attorney to act as alter ego for up to 12 months

Answer 326

A

ss.25(1) & (2) TA 2000

Answer 327

A

• Within 7 days of giving a power of attorney, the trustee must give written notice to anyone who can appoint new trustees and all existing trustees.

Answer 328

A

s.25(4) TA 2000

Answer 329

A

• Trustees are vicariously liable for attorney’s acts.

Answer 330

A

s.25(7) TA 2000

Answer 331

A

Performance is at the discretion of trustees, i.e. they can’t be forced to exercise their power.

Answer 332

A

Re Brockbank

Answer 333

A

Trustee’s powers are subject to common law standard of care, i.e. must act as an ordinary prudent man of business in the conduct of his own affairs would do in that situation.

Answer 334

A

Speight v Gaunt

Answer 335

A

s.32 TA 2000

Answer 336

A

Advancement = any use of money which will improve the beneficiary’s material situation

Answer 337

A

Pilkington v IRC

Answer 338

A

Trustees have the power to advance at their absolute discretion, provided it:
• Does not exceed half of the beneficiary’s share (even if the trust fund goes up in value)
• Is brought in account as part of such share; and
• Does not prejudice the beneficiaries prior interest (unless of full age and give consent in writing)

Answer 339

A

• Does not exceed half of the beneficiary’s share (even if the trust fund goes up in value)

Answer 340

A

Re Marquess of Abervenny’s Estate Act Trusts

Answer 341

A

Amended s.32 TA 2000.
Trustees are allowed to advance the FULL amount of the beneficiary’s share for trusts created or arising AFTER the acts commencement date.

Answer 342

A

s.9 of the Inheritance and Trustees’ Powers Act 2014

Answer 343

A

When parents of young beneficiaries request an advancement to the beneficiary, trustees should be cautious, and, if they doubt intentions, they should apply money directly to the cause.

Answer 344

A

Re Pauling’s Settlement Trust

Answer 345

A

Beneficiary’s estate need not repay any advancement if the beneficiary dies before reaching contingency age

Answer 346

A

s.31 TA 2000

Answer 347

A

Applies only if there are no prior interests – e.g. beneficiary is the life tenant

Answer 348

A

s.31(1)(i) TA 2000

Answer 349

A

If the beneficiary is under 18, the trustee can pay whole/part of trust income (whatever is reasonable) to his parents or towards beneficiaries maintenance, education or benefit.

Answer 350

A

Amended s.31 TA 2000 – trustees may now pay or apply the whole or any part of the trust as they see fit (as opposed to a reasonable amount) but only for trusts arising AFTER the Act’s commencement date.

Answer 351

A

s.8 of the Inheritance and Trustees’ Powers Act 2014

Answer 352

A

When the beneficiary reaches 18 and still does not have a vested interest, he may demand the trustees pay him all trust income.

Answer 353

A

s.31(1)(ii) TA 2000

Answer 354

A

Also removed the proviso in 31(1) TA 2000 for trusts created or arising after the Act’s commencement date: trustees need not consider the age and requirements of the infant and other income available to him or her.

Answer 355

A

s.8 of the Inheritance and Trustees’ Powers Act 2014

Answer 356

A

a) Trustees’ duties: beneficiaries can compel trustees to carry out duties. This includes Trustees’ duty to consider whether to exercise a power, but not to exercise the power itself.
b) Trustees’ discretion as to a power
c) Beneficiaries are entitled to see trust documents, subject to confidentiality [Schmidt v Rosewood Trust]. Although, even if confidential, court has power to order them to be disclosed.
d) Trustees’ deliberations/reasons for decisions made

Answer 357

A

Court may intervene if ‘improper’

Answer 358

A

Tempest v Lord Camoys

Answer 359

A

• Court may intervene if trustees merely do as settlor tells them rather than exercising discretion

Answer 360

A

Turner v Turner

Answer 361

A

• Court my intervene if trustees act capriciously

Answer 362

A

Re Mainstay’s Settlement

Answer 363

A

c) Beneficiaries are entitled to see trust documents, subject to confidentiality [case]. Although, even if confidential, court has power to order them to be disclosed.

Answer 364

A

Schmidt v Rosewood Trust

Answer 365

A

• Beneficiaries are not entitled to see these.

Answer 366

A

Re Londonderry’s settlement

Answer 367

A

Beneficiaries are not entitled to see these. Unless:
o The beneficiary had a legitimate expectation that discretion would be exercised in his favour and it wasn’t – e.g. if income suddenly stops [case]
o Pension funds

Answer 368

A

Scott v National Trust

Answer 369

A

• If trustees do give reasons, court may find a decision void if they deem it irrational.

Answer 370

A

Klug v Klug

Answer 371

A

Saunders v Vautier

2. Variation of Trusts Act 1958

Answer 372

A

Beneficiaries can end the trust if:
• 18+ and of sound mind (sui juris)
• All agree; and
• Are all in existence and ascertained, and absolutely entitled

Where beneficiaries are not all over 18, consider the Variation of Trusts Act

Answer 373

A

On application, courts can consent for those who cannot consent themselves, provided variation will benefit them.

Answer 374

A

s.1(1) Variation of Trusts Act 1958

Answer 375

A

Immaterial whether variation is contrary to settlor’s wishes.

Answer 376

A

Goulding v James

Answer 377

A

A benefit could be:
• Tax saving scheme; or
• Raising the contingency age to a more responsible age (Re T)

Answer 378

A

• Variation of the trust (e.g. altering interests) is permitted, but a complete resettlement of the trust will not be approved, e.g. changing the beneficiaries

Answer 379

A

Re Ball’s Settlement

Answer 380

A

• Court cannot consent for an adult ascertained beneficiary who is capable of consenting himself

Answer 381

A

Knocker v Youle

Answer 382

A

Step One: Was there a Fiduciary Duty?
Step Two: Did he breach his Fiduciary Duty?
Step Three: Has the trustee received authorisation
Step Four: Remedies

Answer 383

A

A person in a fiduciary position has a duty not to put himself in a position where his personal interests and his duties conflict.

Therefore, even if trustees were honest, if they put themselves in a position where there was a conflict of interest, they will be accountable for any profit made.

Answer 384

A

Bray v Ford

Therefore, even if trustees were honest, if they put themselves in a position where there was a conflict of interest, they will be accountable for any profit made.

Answer 385

A

Trustee
Personal Representatives (to beneficiaries under a will or intestacy)
Agents (vis-à-vis their principals)
Partners (duty to each other)
Directors (duty to their company)
Senior employees with access to confidential information (duties to their employees)

Answer 386

A

Fact-Based Fiduciary: a duty exists where:
• X has undertaken to act for Y; and
• Y reasonably believes that X will act exclusively in Y’s interests/joint interests

Answer 387

A

LAC Minerals Ltd v International Corona Resources Ltd

Answer 388

A

This can also arise in a commercial context

Answer 389

A

English v Dedham Vale Properties Ltd

Answer 390

A

Identify the type of breach of Fiduciary Duty:

The Trustee as a purchaser
Competition with the trust
Unauthorised remuneration of trustees
Incidental profits
Company Directors

Answer 391

A

(a) Making a purchase from himself/co-trustee of the legal title
(b) Making a purchase From a beneficiary of the equitable title

Answer 392

A

There is a conflict of interest under the SELF-DEALING rule – strict liability, so fairness/context is irrelevant. (Ex p Lacey)
Beneficiaries can void the sale within a reasonable time if self-dealing has occurred
To avoid breach, trustees can seek court order for purchase or seek consent of beneficiaries if they are all sui juris. Must prove that they have all been informed of all the relevant facts, the transaction was fair and there was no undue influence.

Answer 393

A

(a) Making a purchase from himself/co-trustee of the legal title
• There is a conflict of interest under the SELF-DEALING rule – strict liability, so fairness/context is irrelevant.

Answer 394

A

Ex p Lacey

Answer 395

A

where the trust includes a business and trustee sets up his own business in competition, then the trustee is accountable for any profits and possibly an injunction.

Answer 396

A

Re Thomson

Answer 397

A

Trustees cannot demand payment for their services unless authorised by:
• Charging close in the trust instrument;
• Beneficiaries’ consent (presumption of undue influence is rebutted by fair dealing rule and sui juris beneficiaries)
• Court order
• Trustees act 2000

Answer 398

A

Trustees cannot demand payment for their services unless authorised by:
• Court order

Answer 399

A

Re Duke of Norfolk’s Settlement trust

Answer 400

A

o There is a provision for remuneration in the trust instrument

Answer 401

A

s.28(1) TA 2000

Answer 402

A

o trustee acts in a professional manner e.g. management/ administration of trust

Answer 403

A

s.28(5) TA 2000

Answer 404

A

o a trust Corporation can charge reasonable remuneration even though it is a sole trustee

Answer 405

A

s.29(1) TA 2000

Answer 406

A

o a trustee who is not a trust Corporation can charge fees only if all other trustees agree in writing

Answer 407

A

s.29(2) TA 2000

Answer 408

A

o reasonable remuneration = nature of services and attributes of trustee

Answer 409

A

s.29(3) TA 2000

Answer 410

A

o trustee can recover out of pocket expenses from the trust fund, e.g. travelling expenses

Answer 411

A

s.31(1)(a) TA 2000

Answer 412

A

• Remuneration from a third party by virtue of being a trustee

Answer 413

A

Williams v Barton

Answer 414

A

[Remuneration from a third party by virtue of being a trustee(Williams v Barton)]
o or football agent

Answer 415

A

Imageview Management v Jack

Answer 416

A

• Remuneration stemming from a position gained by virtue of trust property – e.g. company shares held on trust used to become a director

Answer 417

A

Re Macadam; Re Gee

Answer 418

A

Assignment of business contracts upon dissolution of a company

Answer 419

A

Don King Productions Inc v Warren & Others

Answer 420

A

Renewal of trust lease, i.e. the trustees arrange to take the new lease or buy the freehold on their own, not as part of the trust property. This is strict liability, therefore honesty of the trustee and circumstances are not taken into account

Answer 421

A

Keech v Sandford

Answer 422

A

Use of information on opportunities - a trustee is accountable for profits made out of info/ opportunities made available through trusteeship; however, can be rewarded remuneration for honest behaviour that benefits the trust

Answer 423

A

Boardman v Phipps

Answer 424

A

Remuneration (under Boardman v Phipps) will be limited to cases that would not encourage other trustees to do the same

Answer 425

A

Guinness v Saunders

Answer 426

A

Strict liability also applies to company directors

Answer 427

A

Regal (Hastings) Ltd v Gulliver; IDC v Cooley

Answer 428

A

The Fiduciary Duties of directors are codified in the Companies Act 2006

Answer 429

A

• A director must avoid a situation in which he has or may have a direct or indirect interest that conflicts or possibly may conflict with other interests of the company

Answer 430

A

s.175 CA 2006

Answer 431

A

o In particular, the exploitation of property, information or opportunity, whether or not the company could take advantage of it.

Answer 432

A

s.175(2) CA 2006

IDC v Cooley

Answer 433

A

• The duty will not be breached if the situation cannot be reasonably regarded as likely to give rise to a conflict. If the company is incorporated before the 1st of October 2008, such a conflict can be authorised by directors

Answer 434

A

s.175(4) CA 2006

Answer 435

A

Directors cannot accept benefits from third parties unless authorised by shareholders

Answer 436

A

s.176 CA 2006

Williams v Barton

Answer 437

A

• If directors negotiate contracts between themselves and the company they should disclose interest to other directors

Answer 438

A

s.177 CA 2006

Answer 439

A

A trustee could obtain consent of all the beneficiaries if:
• Sui juris;
• Consent is fully informed; and
• There has been no undue influence

Answer 440

A

Personal Remedy – stripping fiduciaries of any gain they make from a conflict situation, i.e. disgorgement.
Proprietary Remedy – a claim to the property derived from the profit (Williams v Barton)
• A proprietary claim is preferable if (1) the fiduciary is bankrupt (2) an asset has gone up in value
• Proprietary remedies are always available (Confirmed in FHR European Ventures LLP v Cedar Capital Partners LLC)

Answer 441

A

Proprietary Remedy – a claim to the property derived from the profit

Answer 442

A

Williams v Barton

Answer 443

A

Confirmed in FHR European Ventures LLP v Cedar Capital Partners LLC

Answer 444

A

• Proprietary remedies are always available

Answer 445

A

Step One: Explain why discussion personal/proprietary claims
Step Two: Identify the breach of the trust
Step Three: Establish that breach of trust has caused a loss
Step Four: Consider defences available for trustees
Step Five: Consider contributions and indemnity

Answer 446

A

There is no vicarious liability between trustees; they can only be sued if they have breached their own duties.

Answer 447

A

Duty to actively watch over, and if necessary, correct conduct of fellow trustees.

Answer 448

A

Styles v Guy

Answer 449

A

Duty to keep the trust property in joint control and not allow co-trustees to control it [unless there has been a delegation under ss.11 and 12 Trustee Act 2000]

Answer 450

A

Under ss.11 and 12 Trustee Act 2000

[unless there has been a delegation under ss.11 and 12 Trustee Act 2000]

Answer 451

A

Duty to ensure the trust property is vested in names of all trustees.
Duty to do something to stop a breach if they are aware of it being committed.

Answer 452

A

• Duty of care under the TA 2000 (this applies only to investment and delegation duties) – duty to exercise such care and skill as is reasonable having regard to any special knowledge or experience trustee has/holds himself out as having. Consider:
o Size and nature of the trust fund; and
o Whether the trustee is professionally qualified

Answer 453

A

s.1 Trustee Act 2000

Answer 454

A

• General Duty of Care – trustees must reach the standard of a ‘reasonably prudent man of business’.

Answer 455

A

Speight v Gaunt

Answer 456

A

If breach by co-trustees has been established, joint and several liability applies, i.e. you may sue any/all of the trustees for all/any amount of the money.

Answer 457

A

is the trust fund worth less?

2. If breach has caused both loss and profit

Answer 458

A

Trustees only liable if breach has caused loss (e.g. there must be evidence to show that profit from a particular investment was less than what a reasonable man would have accrued.)

Answer 459

A

Nestlé v National Westminster Bank
(e.g. there must be evidence to show that profit from a particular investment was less than what a reasonable man would have accrued.)

Answer 460

A

Beneficiaries may keep the profit, and sue for the loss

Answer 461

A

EXCEPTION: If the loss and profit arise from the same breach, court will allow the profit to offset the loss.

Answer 462

A

Bartlett v Barclays Bank Trust Co Ltd

Answer 463

A

Trustees had the knowledge and consent of the beneficiaries
There is an express exclusion clause in the trust document (e.g. the will)
s.61 Trustee Act 1925
Limitation and laches

Answer 464

A

This will only work if all beneficiaries are sui juris and have given consent will full knowledge of relevant facts. Beneficiary must fully understand what he was concurring in, but need not know it was a breach.

Answer 465

A

Re Pauling’s Settlement Trust

Answer 466

A

May relieve trustees of liability for negligent or innocent breaches, but will be void if the breach was fraudulent
You should mention this even if it is not expressly mentioned in the exam question as such clauses are very common in practice.

Answer 467

A

Armitage v Nurse

• You should mention this even if it is not expressly mentioned in the exam question as such clauses are very common in practice.

Answer 468

A

Trustee may be relieved of liability (wholly or in part) if they have acted honestly and reasonably.
Courts reluctant to grant relief if:
• Trustee is a professional (Bartlett v Barclays Bank Trust Co Ltd)
o Even if they have taken advice (National Trustee Co of Australia Ltd v General Finance Co); or
• Breach was committed as a passive trustee (courts wish to encourage trustees to be active)

Answer 469

A

Trustee may be relieved of liability (wholly or in part) if they have acted honestly and reasonably.
Courts reluctant to grant relief if:

• Trustee is a professional

Answer 470

A

Bartlett v Barclays Bank Trust Co Ltd

Answer 471

A

o Even if they have taken advice;

Answer 472

A

National Trustee Co of Australia Ltd v General Finance Co

Answer 473

A

• Statutory limitation period of six years for bringing a breach of trust action. (s.21(3) Limitation Act 1980) However, this does not apply:
o To a proprietary claim (s.21(1) Limitation Act 1980)
or;
o For a fraudulent trustee
• LACHES (Equitable Doctrine) Courts will not allow claim to succeed where inequitable (e.g. where the claimant has acquiesced in breach for long period)

Answer 474

A

• Statutory limitation period of six years for bringing a breach of trust action

Answer 475

A

s.21(3) Limitation Act 1980

Answer 476

A

However, this does not apply:
o To a proprietary claim
[o or For a fraudulent trustee]

Answer 477

A

s.21(1) Limitation Act 1980

Answer 478

A

• Courts will not allow claim to succeed where inequitable (e.g. where the claimant has acquiesced in breach for long period)

Answer 479

A

Laches (equitable doctrine)

Answer 480

A

Due to joint and several liability, trustee X may be sued for the whole amount. If no defences available, consider whether a contribution or indemnity is available for trustees being sued.

Answer 481

A

The court may order such contribution as is just and equitable vis-à-vis each trustee’s responsibility for the loss. The court may find trustees owe different amounts.

Answer 482

A

s.2 Civil Liability (Contribution) Act 1978

Answer 483

A

In theory, a trustee is entitled to 100% indemnity from co-trustees also in breach. Can be sought where:
• Co-trustee fraudulently obtained benefit from breach;
• Co-trustee received trust property and used it for his own benefit (Bahin v Hughes);
• Trustee blindly followed the advice of co-trustee who is a solicitor (Re Partington)
o But must show that the solicitor exerted such a controlling influence that he did not exercise own judgement. (Head v Gould)

Answer 484

A

In theory, a trustee is entitled to 100% indemnity from co-trustees also in breach. Can be sought where:
• Co-trustee received trust property and used it for his own benefit;

Answer 485

A

Bahin v Hughes

Answer 486

A

In theory, a trustee is entitled to 100% indemnity from co-trustees also in breach. Can be sought where:
• Trustee blindly followed the advice of co-trustee who is a solicitor

Answer 487

A

Re Partington

Answer 488

A

In theory, a trustee is entitled to 100% indemnity from co-trustees also in breach. Can be sought where:
o But must show that the solicitor exerted such a controlling influence that he did not exercise own judgement.

Answer 489

A

Head v Gould

Answer 490

A

Step One: Identify breach of trust and loss caused
Step Two: Consider whether proprietary claim is relevant
Step Three: What has happened to the trust property? Which of the following scenarios apply.

Answer 491

A

When considering whether a proprietary claim will be relevant, the following issues should be addressed:

Is the trust property (or trust property in a different form) in the hands of the defendant? Where the trust property is dissipated, a proprietary remedy is unavailable (no property to claim against)
Is trustee bankrupt? If so, personal claim is pointless, while a proprietary claim will give the claimant priority over the trustee’s creditors.
Has the asset purchased with trust funds increased in value? If so, proprietary claim better than personal claim.
Did breach occur more than six years ago? If so, personal claim is barred due to statutory limitation period, but proprietary claims are not.
Has trustee died? If so, may bring proprietary claim against his executors.

Answer 492

A

The trustee holds original trust property

The trustee has made a straight exchange of trust property for an asset = clean substitution

The trustee has purchased an asset using partly own money, and partly money withdrawn wrongfully from trust = mixed asset purchase.

The trustee has mixed trust funds with own money, and spent only part of this total fund on something = mixed bank account

The trustee (who is a trustee of more than one trust) mixes two trust funds together.

The trustee (who is a trustee of more than one trust) mixes two trust funds together with this own money

Answer 493

A

Make a proprietary claim against original trust property (‘following’, not tracing)

Answer 494

A

Under Re Hallet’s Estate
There are two options available to the beneficiary:
1. Claim ownership of new asset; or
2. Claim an equitable lien (a charge over the asset to secure the amount)

Answer 495

A

Clean Substitution
Under Re Hallet’s Estate
There are two options available to the beneficiary:
1. Claim ownership of new asset; or
2. Claim an equitable lien (a charge over the asset to secure the amount)

Answer 496

A

Under Foskett v McKeown

There are two options available to beneficiary:

Claim proportionate share of asset (choose if asset has gone up in value);
Enforce a lien upon the asset for the precise amount of money taken (choose if asset has depreciated)

Answer 497

A

Mixed asset purchase.

There are two options available to beneficiary:

Claim proportionate share of asset (choose if asset has gone up in value);
Enforce a lien upon the asset for the precise amount of money taken (choose if asset has depreciated)

Answer 498

A

The trustee has mixed trust funds with own money, and spent only part of this total fund on something = mixed bank account
Must determine whether it was the trustees own money or the trust money that was spent there is a general rule that everything is presumed against the wrongdoing trustee this presumption may manifest itself in two different ways
1. The trust deemed to have spent own money first (most common solution) (Re Hallet’s Estate) OR
2. The trustee deemed to have spent trust money first
(Re Oatway)

Answer 499

A

The trust deemed to have spent own money first (most common solution)

Answer 500

A

Re Hallet’s Estate

Answer 501

A

The trustee deemed to have spent trust money first

Answer 502

A

Re Oatway

Answer 503

A

However, whether trustee has dissipated trust money then paid in own money beneficiaries cannot claim this.

Answer 504

A

Roscoe v Winder

Answer 505

A

Implies that the beneficiary will be entitled to recover any increase in the value of the purchase and not merely a share equivalent to the trust money taken.

Answer 506

A

Foskett v McKeown

Answer 507

A

FIFO – First in first out rule applies

Answer 508

A

Clayton’s case

Answer 509

A

Unless, it: (three i’s)

It would result in injustice
Is impractical/difficult/expensive to ascertain order of payments; or
Is contrary to parties intentions

Answer 510

A

Barrow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd)

Answer 511

A

Barrow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd)
If FIFO will not apply, divide the account balance/assets in proportion to original contributions.

Answer 512

A

Apply Re Hallet’s Estate and Re Oatway to withdrawals from the account
Apply Clayton’s case to the balance

Answer 513

A

Step One: Has there been a breach of trust and by whom?
Step Two: Did the stranger receive property as a result of breach of trust or fiduciary duty? If YES, go to step three; if NO, did the stranger dishonestly assist the breach?
Step Three: Did the stranger receive property as a result of breach of trust or fiduciary duty? If YES – consider whether the stranger is an intermediary, has recipient liability or is an innocent volunteer.
Step Four: Consider which action to bring
Step Five: Conclude – mention that all possible claims should be considered but that you cant recover the same loss twice, so suggest which one claim is best to bring on the facts.

Answer 514

A

(Consider claims against trustees first.)
The claim may not be worthwhile because the trustee is bankrupt or has fled the country etc. Then state, ‘this question is about remedies against strangers.’

Answer 515

A

‘the claimant can consider bringing a PERSONAL equitable action against the defendant on the grounds of accessor liability.’

Answer 516

A

Strangers found to be accessories or recipients are liable to account as though they are trustees but they are not actual or constructive trustees, and they are not subject to s.21(1) of the Limitation Act 1980.

Answer 517

A

Williams v Central Bank of Nigeria

Answer 518

A

Accessory Liability is defined as a breach of trust or fiduciary duty assisted by a stranger where the stranger is dishonest

Answer 519

A

Objective test: ‘not acting as an honest person would in the circumstances’, i.e. more than carelessness.

Answer 520

A

Royal Brunei Airlines v Tan

Answer 521

A

Take into account circumstances and the defendant’s experience and intelligence.

Answer 522

A

Not necessary for the defendant to know he was being dishonest.

Answer 523

A

Royal Brunei; as confirmed by Barlow Clowes

Answer 524

A

Not necessary for the defendant to know exact details of the breach, but must know he was participating in some illegal scheme.

Answer 525

A

Barlow Clowes

Answer 526

A

Strangers found to be accessories are personally liable for the loss to the trust. No proprietary claim can be brought if they have not received any trust property.

Answer 527

A

Where someone who is not a trustee, acts:
• As though he were a trustee; or
• Beyond the scope of his authority as an agent;

Answer 528

A

He will be liable for loss just as if he’d been appointed as an express trustee

Answer 529

A

Mara v Browne

Answer 530

A

For example, the agent of trustee continuing to collect rent from tenants after death of trustee is liable as a ‘trustee de son tort’. This is strict liability.

Answer 531

A

Lyell v Kennedy

Answer 532

A

Recipient liability arises when the following three criteria are satisfied:
• Trustee (or fiduciary) transferred trust property to stranger in breach of trust (or fiduciary duty);
• The stranger received trust property for his own benefit
• The stranger received trust property with requisite degree of knowledge that the transfer was in breach of trust, or later acquired that knowledge and then dealt with the property in a manner inconsistent with trust. (Consider whether the defendant is used to receiving similar gifts/sums of money.
o Explain on the facts: has the defendant’s knowledge made it ‘unconscionable’ for him to retain the property (as per BCCI v Akindele)? It is still unclear what constitutes ‘unconscionable’, but it’s wider than the test for dishonesty in Royal Brunei.
o Unconscionability unlikely to encompass constructive NOTICE (Re Montagu’s Settlement) approved (obiter) in Westdeutsche Landesbank Girozentralle v Islington London Borough Council; BUT may encompass constructive KNOWLEDGE.

Answer 533

A

Actions may only be brought by beneficiaries under a trust/people owed fiduciary duty.

Answer 534

A

Trustee (or fiduciary) transferred trust property to stranger in breach of trust (or fiduciary duty);
The stranger received trust property for his own benefit
The stranger received trust property with requisite degree of knowledge that the transfer was in breach of trust, or later acquired that knowledge and then dealt with the property in a manner inconsistent with trust.

Answer 535

A

has the defendant’s knowledge made it ‘unconscionable’ for him to retain the property

Answer 536

A

BCCI v Akindele

Answer 537

A

It is still unclear what constitutes ‘unconscionable’, but it’s wider than the test for dishonesty in Royal Brunei.

Answer 538

A

Unconscionability unlikely to encompass constructive NOTICE BUT may encompass constructive KNOWLEDGE.

Answer 539

A

Re Montagu’s Settlement) approved (obiter) in Westdeutsche Landesbank Girozentralle v Islington London Borough Council

Answer 540

A

A stranger will be an innocent volunteer where the first two conditions for recipient liability are met, but the stranger lacked the requisite degree of knowledge. This means that their retention of the trust property is not ‘unconscionable’.

Answer 541

A

Personal Equitable Action
Common Law Action for Restitution
Proprietary Equitable Claim

Answer 542

A

Can be brought against intermeddlers and those with recipient liability only. No personal claim can be bought against an innocent volunteer.

Answer 543

A

Can be brought against: intermeddlers, recipients and innocent volunteers.

Answer 544

A

The claimant can consider bringing a personal common law action for restitution.

Answer 545

A

Under Lipkin Gorman v Karpnale Ltd, a personal common law action can be sought where:
• The claimant is the legal owner, e.g. where a director has breached his fiduciary duty, company is the legal owner of the property
• The defendant has been unjustly enriched (application to facts: of yes, must be clear on WHY – e.g. if director misappropriated company money, state that the company’s consent is vitiated because of director’s fraud.); and
• There is no mixing PRIOR to receipt by the defendant. Any mixing or dissipation of funds after receipt will not defeat the action.

Answer 546

A

Lipkin Gorman v Karpnale Ltd

The claimant is the legal owner, e.g. where a director has breached his fiduciary duty, company is the legal owner of the property
The defendant has been unjustly enriched (application to facts: of yes, must be clear on WHY – e.g. if director misappropriated company money, state that the company’s consent is vitiated because of director’s fraud.); and
There is no mixing PRIOR to receipt by the defendant. Any mixing or dissipation of funds after receipt will not defeat the action.

Answer 547

A

There is strict liability in such cases – the defendant will have to return any enrichment unjustly received unless they have a defence. However, if the defendant is bankrupt, any action will be fruitless (as personal claim).

Answer 548

A

The defendant is a bona fide purchaser who has provided full consideration, i.e. has not been unjustly enriched.
‘Change of position by innocent defendant.’ – would it be unjust to force restitution? This will be the case where the defendant spent all the cash in an irretrievable manner before he knew he wasn’t entitled to it and made exceptional expenditures that he wouldn’t have otherwise made. (Lipkin Gorman)

Answer 549

A

• ‘Change of position by innocent defendant.’ – would it be unjust to force restitution? This will be the case where the defendant spent all the cash in an irretrievable manner before he knew he wasn’t entitled to it and made exceptional expenditures that he wouldn’t have otherwise made.

Answer 550

A

Lipkin Gorman

Answer 551

A

This defence is only available if made in good faith

Answer 552

A

Abou-Rahmah v Abacha

Answer 553

A

Can be brought against intermeddlers, those with recipient liability and innocent volunteers.

Answer 554

A

‘The claimant can consider bringing a proprietary equitable claim against the defendant.’

Answer 555

A

Claim ownership of new asset; or

* Claim an equitable lien (a charge over the asset to secure the amount).

Answer 556

A

Assume that the first withdrawal uses trustee’s own funds; the second withdrawal is the trust’s money (Re Hallet); or,
If necessary to satisfy the beneficiaries claim, it can be assumed that the first withdrawal was from trust money (Re Oatway).

Answer 557

A

Claimant can choose to take proportionate share of asset or equitable lien over it, e.g. if additions to real property have increased its value (Foskett v McKeown). Consider whether the beneficiaries can claim any balance in the account.

Answer 558

A

There are two options available to the beneficiary:
• Claim ownership of new asset; or
• Claim an equitable lien (a charge over the asset to secure the amount)

Answer 559

A

• FIFO Re Clayton’s Case
• If unjust, rule in Clayton wont be used, instead court will share funds out in appropriate portions (Barrows v Clowes)
o Defence: Inequitable result (Re Diplock)
o Can beneficiaries claim any balance in the account?

Answer 560

A

Withdrawal from mixed bank account: FIFO

Answer 561

A

Re Clayton’s Case

Answer 562

A

• If unjust, rule in Clayton wont be used, instead court will share funds out in appropriate portions

Answer 563

A

Barrows Clowes

Answer 564

A

o Defence: Inequitable result

Answer 565

A

Re Diplock

Answer 566

A

Trust can only make a claim proportional to its initial investment, i.e. not a lien as well as in Foskett.
Court will not allow a claimant a lien over innocent volunteer’s real property.

Answer 567

A

No claim.

Answer 568

A

Mention that all possible claims should be considered but that you can’t recover the same loss twice, so suggest which one claim is best to bring on the facts

Answer 569

A

Trusts may be used by potential creditors to gain priority in instances of insolvency. If the claimant has made a prepayment a trust can be used to protect their money.

Answer 570

A

Re Kayford, Re Goldcorp Exchange Ltd

Answer 571

A

What motivates companies to set up trusts? A director may have to contribute from his personal wealth if he has not taken all possible steps to minimise the risk to creditors

Answer 572

A

s.214 Insolvency Act 1986

Answer 573

A

Step One: Will a valid trust be found to exist over the claimant’s money? Go through the usual requirements
Step Two: If a trust is found to exist in favour of a company’s customers, and later becomes insolvent, consider the preferences of its creditors – is the declaration of trust unlawful?
Step Three: Conclude – does the company hold the customers pre-payments on trust for the customers?

Answer 574

A

There must be certainty of intention
There must be certainty of subject matter
There must be certainty of objects
Beneficiary Principle
Formalities
Trust must be properly constituted

Answer 575

A

Separate bank account need not be labelled ‘customer’ or ‘trust’ as per Paul v Constance. Certainty of intention to create trust for customers can be inferred from:
• Payments of customers’ money into a separate bank account
• Evidence that the company’s accountants had advised the above, in order to protect the customers’ money; or
• The company need not expressly state that the bank account was held on trust for customers, if evidence of such intention existed otherwise

Answer 576

A

Re Kayford

Answer 577

A

Cannot create a trust over undifferentiated massive property; therefore, the company must keep customers’ property separated, e.g. in a different account

Answer 578

A

Re London Wine Company (Shippers) Ltd

Answer 579

A

o For example: specific gold ingots had not been assigned to customers; as the stock of bullion was constantly traded, there was no intention to create a trust over the bullion for the customers and it was unclear which ingots belonged to the customers. trust failed due to lack of certainty of subject matter and intention.

Answer 580

A

Re Goldcorp Exchange Ltd

Answer 581

A

The company can create a valid trust over a percentage of that property if the subject matter comprises intangible assets.

Answer 582

A

Hunter v Moss

Answer 583

A

‘urgent suppliers’ deemed uncertain. Must be able to draw up a complete list of objects (customers)

Answer 584

A

OT Computers Ltd v First National Tricity Finance Ltd

Answer 585

A

A preference occurs if a company does anything which puts one of its unconnected creditors in a better position than it otherwise would have been on the company’s insolvency.

Answer 586

A

s.239 Insolvency Act 1986

Answer 587

A

The Effect of such preference
The court can make an order to put the parties into the same position they would have been in without the trust if:
• preference occurs within six months before onset of insolvency (or two years if creditor is connected to company); and
• company is influenced by desire to put creditor in better position
1. Declaration of trust by company in favour of its future customers was not an unlawful preference (Re Kayford)
2. But, declaration of trust over money already paid by existing customers is an unlawful preference (Re Farepak Food and Gifts Ltd)

Answer 588

A

The court can make an order to put the parties into the same position they would have been in without the trust if:
• preference occurs within six months before onset of insolvency (or two years if creditor is connected to company); and
• company is influenced by desire to put creditor in better position

Answer 589

A

Declaration of trust by company in favour of its future customers was not an unlawful preference

Answer 590

A

Re Kayford

Answer 591

A

But, declaration of trust over money already paid by existing customers is an unlawful preference

Answer 592

A

Re Farepak Food and Gifts Ltd

Answer 593

A

If so, on insolvency:
• If a trust is declared over existing customers’ money, will be unlawful. (Re Farepak)
• If a trust is declared over new customers’ money, will be lawful and therefore recoverable. (Re Kayford)
• But, if old and new customers’ money has been mixed, may not be possible to distinguish new from old, and therefore the whole trust might fail.

Answer 594

A

If a trust is declared over existing customers’ money, will be unlawful.

Answer 595

A

Re Farepak

Answer 596

A

If a trust is declared over new customers’ money, will be lawful and therefore recoverable.

Answer 597

A

Re Kayford

Answer 598

A

Step one: Introduce the concept of Quistclose trust
Step two: is the Quistclose Trust validly established? Are the three certainties present? Not necessary to address the beneficiary principles and formalities
Step three: Has the purpose of the primary trust failed?

Answer 599

A

State: ‘In scenarios of insolvency, a Quistclose trust may arise. a Quistclose trust comprises of two trusts: a primary trust, where a lender has lent money for a specific purpose; and, on failure of the purpose of this trust, a secondary, resulting trust in favour of the lender.’

Answer 600

A

Barclays Bank v Quistclose Investments Ltd

Answer 601

A

Quistclose trusts may be used to protect purely private contractual interests

Answer 602

A

Cooper v PRG Powerhouse Ltd

Answer 603

A

‘In scenarios of insolvency, a Quistclose trust may arise. a Quistclose trust comprises of two trusts: a primary trust, where a lender has lent money for a specific purpose; and, on failure of the purpose of this trust, a secondary, resulting trust in favour of the lender.’

Answer 604

A

The money should have been lent for a sole specified purpose and not intended to be at the borrowers’ free disposal.

Answer 605

A

Quistclose Investments; Twinsectra v Yardley

Answer 606

A

The money was lent for the sole purpose of paying third party creditors said the defendant was never free to deal as it so pleased with the monies

Answer 607

A

Carreras Rothmans Ltd v Freeman Matthews Treasure Ltd

Answer 608

A

the money was lent for the sole purpose of buying new equipment and so could not be used in any other way

Answer 609

A

whether money is at the free disposal of the defendant no trust will arise and the customers or lenders will be ordinary unsecured creditors

Answer 610

A

Re Farepak

Answer 611

A

The lender is likely to be deemed to be the object of a Quistclose trust as per Lord Millett in Twinsectra however this issue has not yet been conclusively decided

Answer 612

A

A resulting trust arises in favour of the original lender. The original lender has a trust interest. As the lender has a trust interest, any proprietary claim they make will have priority overall other secured and unsecured creditors on the business’s insolvency.

Answer 613

A

The primary trust ceases. No longer having a beneficial interest the lender will then only have a contractual claim for the repayment of the loan and will consequently rank alongside other unsecured creditors

Answer 614

A

• Parties and decide when title to the goods passes from the seller to the buyer
• Sellers can protect themselves with a retention of title clause (ROT). this means the seller holds the title in the goods until some future event (usually full payment).
• If the buyer becomes insolvent:
o without ROT, the supplier will rank as an unsecured creditor and will be unlikely to recover any outstanding debt owed by the buyer;
o with ROT, a successful ROT close gives the seller a proprietary right, affording him priority status over all other (secured and unsecured) creditors.
(Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd)

Answer 615

A

• A.I.V supplied aluminium foil to Romalpa. Romalpa went into liquidations till owing A.I.V. £122,239. The case concerned A.I.V.’s attempts to recover this debt from two potential sources:
o £50,000 unsold aluminium foil
o £35,152 in proceeds from sub-sales to third parties
• A.I.V. relied on the following clause: ‘the ownership of the material to be delivered by A.I.V. will only be transferred to the purchaser when he has met all that is owing to A.I.V., no matter on what grounds.’

Answer 616

A

The client was successful in its claim over the 50,000 pounds of unsold foil. it was held that this clause enabled A.I.V. to recover the unprocessed foil because the claimant had effectively retained title to it.
Second, the Court of Appeal argued that as the parties were fiduciaries, A.I.V. was entitled to the proceeds of sub sales on the basis of the equitable doctrine of tracing established in Re Hallet’s Estate.

Answer 617

A

Courts have shown reluctance to allow suppliers to trace a transformed product:
Borden (UK) Ltd v Scottish Timber Products
• Seller supplied resin to the buyer. Buyer used resin to make chipboard. HELD: resin ceased to exist once used in making chipboard; therefore, fell outside retention of title clause and the seller lost title. (Borden (UK) Ltd v Scottish Timber Products)
Re Peachdart Ltd
• Seller supplied leather; buyer cut leather into shape to make handbags. HELD: cutting the leather is irreversible manufacturing process therefore lost identity and retention of title didn’t work (Re Peachdart Ltd)

Answer 618

A

• Seller supplied resin to the buyer. Buyer used resin to make chipboard. HELD: resin ceased to exist once used in making chipboard; therefore, fell outside retention of title clause and the seller lost title.

Answer 619

A

Borden (UK) Ltd v Scottish Timber Products

Answer 620

A

• Seller supplied leather; buyer cut leather into shape to make handbags. HELD: cutting the leather is irreversible manufacturing process therefore lost identity and retention of title didn’t work

Answer 621

A

Re Peachdart Ltd

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