Common Professional Examination (CPE) Equity and Trusts Flashcards

24 sample cards from the Equity and Trusts deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. 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.

2. 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.)

3. 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.

4. 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.

5. 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.

6. 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).

7. 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).

8. 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.

9. 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).

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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).

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. 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.

24. 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).

What this deck covers

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