Common Professional Examination (CPE) Equity and Trusts Syllabus

What is the test for certainty of objects in a DISCRETIONARY trust?

The 'is or is not' / 'given postulant' test from McPhail v Doulton (Re Baden No.1): the trust is valid if it can be said with certainty whether any given individual is or is not a member of the class of objects.

Distinguish conceptual certainty from evidential certainty in the context of objects.

Conceptual certainty concerns whether the class is defined with sufficient precision of meaning (e.g. 'relatives' vs 'friends'). Evidential certainty concerns whether, as a matter of fact, a person can be proved to fall within the class. Conceptual uncertainty is fatal; evidential uncertainty is not necessarily fatal (Re Baden No.2).

What is 'administrative unworkability' and to which trusts does it apply?

Even where the 'is or is not' test is satisfied, a discretionary trust can fail if the class is so hopelessly wide that it is administratively unworkable (e.g. 'all the residents of Greater London' in R v District Auditor ex p West Yorkshire). It applies to discretionary trusts, not mere powers.

Distinguish a trust power from a mere (bare) power of appointment.

A trust power (discretionary trust) imposes a duty to distribute among the class; trustees must exercise it and the court will if they do not. A mere power confers a discretion that may be exercised but need not be; there is no duty to distribute. Both use the 'is or is not' test (Re Gulbenkian), but only trust powers are subject to administrative unworkability.

State the formality required to declare a trust of land under s.53(1)(b) Law of Property Act 1925.

A declaration of trust respecting land or any interest in it must be manifested and proved by some writing signed by the person able to declare the trust (or by their will). It is an evidential requirement; absence of writing makes the trust unenforceable, not void.

State the requirement of s.53(1)(c) Law of Property Act 1925 for dispositions of subsisting equitable interests.

A disposition of a subsisting equitable interest must be in writing signed by the person disposing of it (or their agent), otherwise it is void. This concerns transferring an existing equitable interest, distinct from declaring a new trust.

What are the two methods of constituting a trust according to Milroy v Lord?

(1) The settlor transfers the legal title of the property to the trustee(s) to hold on trust; or (2) the settlor declares themselves trustee of the property. Equity will not treat a failed transfer as a self-declaration, nor perfect an imperfect gift.

State the maxim concerning incompletely constituted trusts and volunteers.

'Equity will not assist a volunteer' and 'equity will not perfect an imperfect gift.' A volunteer (someone who has given no consideration) cannot compel completion of an incompletely constituted trust or gift.

Explain the rule in Re Rose (the 'every effort' principle).

Where the transferor has done everything necessary and within their own power to transfer legal title, equity treats the transfer as effective in equity from that point, even if a third party's act (e.g. company registration) is still outstanding. Title in equity passes when the transferor has done all they can do.

What did Pennington v Waine add to the Re Rose principle?

It held a transfer could be perfected even though not every step had been taken by the transferor, where it would be unconscionable for the transferor to resile from the gift. It introduced an 'unconscionability' gloss, extending Re Rose.

State the rule in Strong v Bird on perfection of an imperfect gift.

If a donor makes an imperfect inter vivos gift to a person who is later appointed the donor's executor (or administrator), the vesting of legal title in that person on death perfects the gift, provided the donor had a continuing intention to give until death.

What are the requirements for a valid donatio mortis causa (deathbed gift)?

(1) The gift is made in contemplation of impending death; (2) it is conditional on death, taking effect only if the donor dies (revocable if they recover); and (3) there is delivery of the property or the means/indicia of control (dominion) to the donee (Cain v Moon; Sen v Headley for land).

Define a secret trust and explain when it arises.

A fully secret trust arises where a will (or intestacy) leaves property to a person absolutely with no mention of any trust on its face, but the testator has separately communicated to that legatee an intention that they hold it on trust for another, which the legatee accepts.

State the three requirements for a valid fully secret trust.

(1) Intention by the testator to create a trust; (2) communication of the trust (and its terms) to the legatee during the testator's lifetime (before or after the will but before death); and (3) acceptance (express or by acquiescence) by the legatee (Ottaway v Norman).

How does a HALF-secret trust differ from a fully secret trust, and what is the key difference in the communication rule?

In a half-secret trust the will discloses that the legatee takes as trustee but does not reveal the terms/beneficiary. The key difference: communication of the terms must occur before or at the time of executing the will (Blackwell v Blackwell; Re Keen), whereas for a fully secret trust communication may be at any time before death.

On what theoretical basis are secret trusts enforced despite not complying with the Wills Act 1837?

They operate 'dehors (outside) the will' — the trust takes effect not under the will but as an independent equitable obligation arising from the testator's communication and the legatee's acceptance, so the Wills Act formalities are not engaged. They are often analysed as constructive trusts to prevent fraud.

State the beneficiary principle.

For a (non-charitable) trust to be valid there must be ascertainable human beneficiaries who can enforce it; a trust must have someone in whose favour the court can decree performance (Morice v Bishop of Durham). Trusts for abstract non-charitable purposes are generally void.

What are the 'anomalous' exceptions to the beneficiary principle (Re Endacott)?

A limited group of non-charitable purpose trusts upheld as valid concessions: trusts for the maintenance of specific animals; trusts for the erection/maintenance of tombs and monuments; and trusts for the saying of private masses. These are exceptions of 'imperfect obligation' not to be extended (Re Endacott).

How does the rule against inalienability (perpetual duration) affect non-charitable purpose trusts?

A non-charitable purpose trust must not tie up capital for longer than the perpetuity period (a life in being plus 21 years, or '21 years' commonly used). If it could last indefinitely, it is void for offending the rule against inalienability, unless confined within the period (e.g. 'so long as the law allows').

State the statutory definition framework of a charity under the Charities Act 2011.

A charity is an institution established for charitable purposes only that is for the public benefit. A charitable purpose must (a) fall within one of the descriptions of purposes in s.3(1) and (b) be for the public benefit (s.4), and be exclusively charitable.

List five of the descriptions of charitable purposes under s.3(1) Charities Act 2011.

Any five of: prevention/relief of poverty; advancement of education; advancement of religion; advancement of health or saving of lives; advancement of citizenship/community development; advancement of arts, culture, heritage or science; advancement of amateur sport; advancement of human rights/conflict resolution; advancement of environmental protection; relief of those in need (age, ill-health, disability); advancement of animal welfare; promotion of the armed forces/emergency services.

Explain the public benefit requirement and the rule in Oppenheim v Tobacco Securities Trust.

A charitable purpose must benefit the public or a sufficient section of it. In Oppenheim, a trust for education of employees' children of a single company failed because the class was defined by a 'personal nexus' (relationship to a particular employer), so it was not a section of the public.

How does the public benefit requirement differ for trusts for the relief of poverty?

The 'poor relations' / 'poor employees' exception (Dingle v Turner) means trusts for the relief of poverty can be valid even where beneficiaries are defined by a personal nexus (e.g. poor relations or poor employees), and need not satisfy the strict Oppenheim public section test.

What is the requirement that a charity be 'exclusively' charitable, and how do non-charitable purposes affect validity?

All the purposes of the trust must be charitable. If funds may be applied to non-charitable purposes (e.g. 'charitable OR benevolent' — Chichester Diocesan Fund v Simpson), the trust fails. 'And' may save it; 'or' is usually fatal, unless the non-charitable purpose is merely incidental or severable.

Define the cy-près doctrine and when it applies.

Cy-près allows charitable property to be applied to a similar charitable purpose where the original purpose fails or becomes impossible/impractical. For initial failure, a general charitable intention must be shown; for subsequent failure (after the gift has taken effect for charity), cy-près applies without needing general charitable intention.

How can gifts to unincorporated associations be construed so as to be valid (the contract-holding theory)?

The preferred analysis (Re Recher; Neville Estates v Madden) is that a gift to an unincorporated association takes effect as a gift to the existing members, held subject to their contractual rights and obligations inter se under the association's rules (the 'contract-holding theory'), avoiding the beneficiary principle and perpetuity problems.

On dissolution of an unincorporated association, how are surplus funds distributed?

Surplus funds are generally distributed among the existing members at the date of dissolution according to the contract (the rules), as in Re Bucks Constabulary Fund (No.2), typically in equal shares. The bona vacantia/resulting trust analysis is now disfavoured for member-funded associations.

Distinguish an automatic resulting trust from a presumed resulting trust (Re Vandervell No.2).

An automatic resulting trust arises where an express trust fails or does not exhaust the beneficial interest, so the interest returns to the settlor automatically. A presumed resulting trust arises from a presumed intention where a person voluntarily transfers property to another, or contributes to its purchase, in another's name.

In what circumstances does a presumed resulting trust arise on a purchase?

Where A provides (all or part of) the purchase money for property vested in B's name, B is presumed to hold the property on resulting trust for A in proportion to A's contribution (Dyer v Dyer), unless rebutted by evidence of gift, loan, or the presumption of advancement.

Explain the presumption of advancement and where it applies.

The presumption of advancement presumes a gift (not a resulting trust) where there is a relationship suggesting the transferor intended to benefit the transferee — historically father to child, and husband to wife. It rebuts the resulting trust presumption. (Note: s.199 Equality Act 2010 would abolish it, but is not yet in force.)

How does a constructive trust differ from a resulting trust and an express trust?

A constructive trust is imposed by operation of law, irrespective of the parties' intentions, to prevent unconscionable conduct/unjust enrichment (e.g. fiduciary profits, breach). A resulting trust arises from presumed intention/failure of trust. An express trust arises from the settlor's actual declared intention.

State the rule in Keech v Sandford regarding fiduciaries and trust property.

A trustee/fiduciary who renews a lease (or otherwise acquires a benefit) in a position connected with the trust holds it on constructive trust for the beneficiaries. A fiduciary must not profit from their position, even where the beneficiary could not have obtained the benefit themselves.

What is required to establish a common intention constructive trust over the family home (Lloyds Bank v Rosset / Stack v Dowden)?

A common intention (express agreement, or inferred from conduct such as financial contributions) that the claimant should have a beneficial interest, plus detrimental reliance by the claimant on that intention. Where there is a sole legal owner, the claimant must establish both that they have an interest and its quantum.

How is the size of the beneficial share quantified in a family home case where the legal title is in joint names (Stack v Dowden; Jones v Kernott)?

Joint legal ownership raises a presumption of joint (equal) beneficial ownership. This can be rebutted by evidence of a different common intention; where intention as to shares cannot be deduced, the court imputes a fair share having regard to the whole course of dealing between the parties (a holistic survey).

Distinguish a common intention constructive trust from proprietary estoppel in the home context.

A constructive trust requires common intention plus detrimental reliance and gives a proprietary interest reflecting that intention. Proprietary estoppel requires an assurance, reliance, and detriment, and the court has flexibility to satisfy the 'equity' by the minimum necessary remedy (which may be less than a full beneficial share, e.g. money or a licence).

State the trustee's core duty of care under s.1 Trustee Act 2000.

A trustee must exercise such care and skill as is reasonable in the circumstances, having regard in particular to any special knowledge or experience the trustee has or holds themselves out as having, and (if acting in a professional capacity) to any special knowledge or experience reasonably expected of a person acting in that profession.

What is the trustee's general power of investment under the Trustee Act 2000, and what must trustees have regard to?

Under s.3 a trustee may make any investment that an absolute owner could make (the 'general power of investment'), excluding land other than by way of loan. Trustees must have regard to the 'standard investment criteria' (s.4): suitability of investments and the need for diversification; and must obtain and consider proper advice (s.5).

State the fiduciary duties of a trustee.

A trustee must act in good faith for the benefit of the beneficiaries, must not allow conflicts between personal interest and duty, must not profit from the trust (the no-profit and no-conflict rules), and must not act for their own benefit without authority. Unauthorised profits are held on constructive trust.

What is the rule against self-dealing and the fair-dealing rule?

Self-dealing rule: a trustee who purchases trust property may have the transaction set aside by a beneficiary regardless of fairness (it is voidable ex debito justitiae). Fair-dealing rule: a trustee who purchases a beneficiary's equitable interest must show the transaction was fair, fully disclosed, and at no advantage from their position.

What is the statutory power of maintenance (s.31 Trustee Act 1925)?

Trustees may apply income of trust property for the maintenance, education or benefit of a minor beneficiary who has a vested or contingent interest, at their discretion, accumulating any surplus income. On reaching 18 the beneficiary becomes entitled to the income.

What is the statutory power of advancement (s.32 Trustee Act 1925)?

Trustees may pay or apply capital for the 'advancement or benefit' of a beneficiary with an interest in capital, before they become absolutely entitled. Since the Inheritance and Trustees' Powers Act 2014, up to the whole of the beneficiary's presumptive share may be advanced; any advance is brought into account.

Define a breach of trust.

A breach of trust is any failure by a trustee to carry out the duties imposed on them by the terms of the trust or by the general law — whether by doing something they ought not to (e.g. unauthorised investment) or failing to do something they ought (e.g. failing to invest or distribute). It may be innocent or fraudulent.

What is the measure of a trustee's personal liability for breach of trust?

The trustee is liable to restore the trust fund to the position it would have been in but for the breach (equitable compensation), accounting for losses caused. Causation must be shown (Target Holdings v Redferns; AIB v Mark Redler): liability is to make good the loss flowing from the breach.

Is the liability of multiple trustees for breach of trust joint and several, and can a trustee claim contribution?

Trustees are jointly and severally liable for breach, so a beneficiary may sue any one for the full loss. A trustee who has paid may seek contribution or indemnity from co-trustees under the Civil Liability (Contribution) Act 1978; an indemnity may be ordered where one trustee is more culpable (e.g. solicitor-trustee, fraud, or sole benefit).

What relief from liability is available to a trustee under s.61 Trustee Act 1925?

The court may wholly or partly relieve a trustee from personal liability for breach if satisfied that the trustee acted honestly and reasonably and ought fairly to be excused for the breach and for omitting to obtain the court's directions.

Distinguish the personal liability of a 'dishonest assistant' from that of a 'knowing recipient' (accessory liability).

Dishonest assistance: a stranger who dishonestly assists in a breach of trust is personally liable to account, even if they never received trust property (Royal Brunei Airlines v Tan; test of dishonesty per Ivey v Genting). Knowing receipt: a stranger who receives trust property for their own benefit with knowledge making retention unconscionable (BCCI v Akindele) is personally liable to account.

Define tracing and distinguish it from following and claiming.

Following is the process of locating the same asset as it moves between hands. Tracing is the process of identifying a new asset as the substitute for the original (exchanged value). Claiming is asserting a proprietary (or personal) right against the asset or its proceeds once it has been followed or traced.

What are the prerequisites for tracing in equity?

Equitable tracing requires (1) an initial fiduciary relationship and (2) an equitable proprietary interest in the property. Equity can trace through mixed funds, unlike the more limited common law tracing which cannot trace through a mixture.

State the rule in Re Hallett's Estate for tracing where a trustee mixes trust money with their own in a bank account and makes withdrawals.

Where a trustee mixes trust money with their own and dissipates some, the trustee is presumed to spend their own money first (and the trust money remains). The trustee is treated as drawing out their own money before the beneficiary's, preserving the trust fund as far as possible.

State the rule in Re Oatway, and how it qualifies Re Hallett's Estate.

Where a trustee mixes funds and uses money from the account to buy an asset that survives, then dissipates the remainder, the beneficiary may claim a charge on the surviving asset — the trustee cannot rely on Re Hallett to say they spent their own money on the asset. The beneficiary can elect to trace into the surviving asset.

What is the rule in Clayton's Case for distributing losses in an active running bank account, and how have later cases treated it?

Clayton's Case applies a 'first in, first out' (FIFO) rule to current accounts — the first sums paid in are treated as the first paid out. Later cases (Barlow Clowes v Vaughan; Russell-Cooke v Prentis) have treated FIFO as a rule of convenience to be displaced where it would be impractical or unjust, preferring pari passu (rateable) distribution.

What is the equitable remedy of a 'charge' versus a proprietary claim to the asset itself in tracing, and when is each preferred (Foskett v McKeown)?

A beneficiary tracing into a substitute asset may claim either a proportionate beneficial share of the asset (advantageous if the asset has risen in value) or an equitable lien/charge over it to secure the amount owed (advantageous if the asset has fallen in value). The beneficiary may elect the more favourable (Foskett v McKeown).