Graduate Diploma in Law (GDL) 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. List the four heads of charitable purpose recognised before the Charities Act, now within s.3 Charities Act 2011.

   Per Pemsel's Case: (1) relief of poverty; (2) advancement of education; (3) advancement of religion; (4) other purposes beneficial to the community. The Charities Act 2011 s.3 expands these into 13 descriptions of charitable purposes.

2. What are the two essential requirements for a valid charitable trust, beyond falling within a charitable description?

   (1) The purpose must be exclusively charitable (no substantial non-charitable purposes); and (2) it must be for the public benefit (s.4 Charities Act 2011), comprising a benefit element and a public element.

3. How does the public benefit requirement differ for the relief of poverty compared with other charitable heads?

   For the relief of poverty, the 'public' element is relaxed: trusts for the relief of 'poor relations' or 'poor employees' can be charitable despite a personal nexus (Dingle v Turner). For education and other heads, a personal nexus between beneficiaries and a named individual/employer generally fails the public element (Oppenheim v Tobacco Securities).

4. State three advantages charitable trusts enjoy that private trusts do not.

   (1) They are exempt from the beneficiary principle (enforced by the Attorney General / Charity Commission); (2) they are not subject to the rule against perpetual duration (may last indefinitely); and (3) they enjoy significant fiscal/tax advantages. They also need not satisfy certainty of objects in the usual way.

5. What is the cy-près doctrine?

   Where a charitable purpose fails (initially or subsequently) but the donor showed a general charitable intention, the court/Charity Commission may apply the property to another charitable purpose as near as possible to the original. For initial failure, general charitable intention must be shown; for subsequent failure it is not required.

6. What is a non-charitable purpose trust and what is the general rule about its validity?

   A trust for a purpose rather than for ascertainable beneficiaries. The general rule is that such trusts are void for offending the beneficiary principle and (often) for uncertainty and perpetuity, save for a small group of anomalous exceptions (the 'trusts of imperfect obligation').

7. List the recognised anomalous exceptions (Re Endacott) where non-charitable purpose trusts are valid.

   (1) Trusts for the erection/maintenance of monuments and graves; (2) trusts for the maintenance of specific animals; (3) trusts for the saying of private masses; and (arguably) the promotion of fox-hunting (Re Thompson). These are concessions to human weakness, narrowly confined (Re Endacott).

8. Explain the Re Denley approach to purpose trusts.

   A trust expressed as a purpose may be valid if the purpose is sufficiently certain and directly or indirectly benefits an ascertainable class of individuals who have locus standi to enforce it. Such a trust is treated as being for the benefit of those persons rather than offending the beneficiary principle (Re Denley's Trust Deed).

9. What is the rule against perpetual duration (inalienability) for purpose trusts, and the common perpetuity period used?

   A non-charitable purpose trust must not tie up capital indefinitely; it must be limited to the perpetuity period. The common law period is a life in being plus 21 years, or simply 21 years where no life is referenced; trusts must use a 'royal lives' clause or limit to 21 years to be valid (note: the Perpetuities and Accumulations Act 2009 does not apply to such purpose trusts).

10. What is a trustee's duty of care, both at common law/equity and under statute?

    At common law/equity a trustee must act with the prudence of an ordinary person of business managing their own affairs (Speight v Gaunt). Under s.1 Trustee Act 2000, a statutory duty of care requires such care and skill as is reasonable in the circumstances, having regard to any special knowledge/experience the trustee has or holds himself out as having (a higher standard for professionals).

11. What is the trustees' statutory power of investment and the key duties attaching to it under the Trustee Act 2000?

    Section 3 gives a general power to invest as if absolutely entitled (the 'general power of investment'). Trustees must have regard to the standard investment criteria — suitability and diversification (s.4) — and must obtain and consider proper advice (s.5), all subject to the s.1 duty of care.

12. Define a breach of trust and the basis of a trustee's personal liability.

    A breach of trust is any failure by a trustee to carry out the duties imposed by the trust instrument or by law (e.g. unauthorised distribution, improper investment, profiting). The trustee is personally liable to restore the trust fund (equitable compensation) to the position it would have been in but for the breach; liability is generally strict, not fault-based, and is joint and several between co-trustees.

13. How is the measure of equitable compensation for breach of trust assessed (Target Holdings; AIB v Redler)?

    The trustee must restore the loss actually caused by the breach, assessed with the full benefit of hindsight at the date of judgment, applying a 'but for' causation test. The aim is restitution of the fund's loss flowing from the breach, not common-law remoteness/foreseeability (Target Holdings v Redferns; AIB Group v Mark Redler).

14. What statutory and equitable defences may protect a trustee from liability for breach?

    (1) Section 61 Trustee Act 1925: court relief where the trustee acted honestly and reasonably and ought fairly to be excused. (2) Beneficiary consent/acquiescence (a sui juris beneficiary cannot complain of a breach they consented to). (3) An exemption clause (valid even for gross negligence, but not fraud/dishonesty — Armitage v Nurse). (4) The Limitation Act (6 years), though no limitation period applies to fraudulent breaches or recovery of trust property still held.

15. Define equitable tracing and distinguish it from following and claiming.

    Tracing is the process of identifying a new asset as the substitute for the original (identifying the value through substitutions). Following is identifying the same asset as it moves between hands. Claiming is the assertion of a proprietary or personal remedy against the identified asset/person. Tracing is a process, not a remedy.

16. What is the key precondition for equitable (as opposed to common law) tracing?

    There must be an initial fiduciary relationship to invoke equity's tracing rules (Re Diplock; Westdeutsche). Equitable tracing is advantageous because, unlike common law, it can trace through a mixed fund.

17. State the rule in Re Hallett's Estate for a wrongdoer who mixes trust money with his own and dissipates part.

    Where a trustee mixes trust money with his own in a bank account and then makes withdrawals (e.g. spends some), he is presumed to spend his own money first, leaving the trust money intact as far as possible. The trust can claim the remaining balance.

18. State the rule in Re Oatway and how it can conflict with Re Hallett.

    Where a trustee mixes funds and uses money from the account to buy an asset that increases in value, then dissipates the remaining balance, the beneficiary may assert a charge over (claim) the surviving asset purchased, i.e. trust money is treated as used to acquire the surviving asset. The beneficiary may 'cherry-pick' to claim whichever is most advantageous (Shalson v Russo).

19. What is the rule in Clayton's Case, and the modern approach to it?

    Clayton's Case applies 'first in, first out' (FIFO) to withdrawals from an active running (current) bank account mixing innocent parties' funds. Modern courts treat it as a rule of convenience that may be displaced where it is impractical or unjust, preferring a pari passu (rateable) distribution (Barlow Clowes v Vaughan; Russell-Cooke v Prentis).

20. What is the lowest intermediate balance rule in tracing?

    Where a mixed account dips to a low balance and is later topped up with the wrongdoer's own money, the beneficiary can only trace into the lowest intermediate balance reached; later unconnected deposits are not treated as trust money unless an intention to restore is shown (Roscoe v Winder).

21. What is the difference between the personal and proprietary claims available after successful tracing?

    A proprietary claim asserts an equitable ownership/charge over the identified asset — giving priority on insolvency and capturing any increase in value. A personal claim is a money claim against the recipient or wrongdoer (e.g. equitable compensation, the in personam claim in Re Diplock against overpaid recipients), which does not give priority over creditors.

22. Distinguish the two forms of third-party (stranger) liability for breach of trust.

    (1) Knowing/dishonest receipt: a stranger who receives trust property (or its traceable proceeds) for their own benefit with knowledge of the breach is personally liable to account. (2) Dishonest assistance: a stranger who dishonestly assists in a breach of trust/fiduciary duty is personally liable, even if they never receive trust property.

23. State the elements of dishonest assistance (Royal Brunei Airlines v Tan; Barlow Clowes v Eurotrust).

    (1) A trust or fiduciary duty exists; (2) there is a breach of that duty (need not be dishonest/fraudulent by the trustee); (3) the defendant assisted in the breach; and (4) the defendant did so dishonestly. Dishonesty is assessed objectively: failing to act as an honest person would, judged on the defendant's actual knowledge of the facts (combined objective test, Ivey v Genting clarifying).

24. State the elements of knowing receipt and the test for the requisite knowledge (BCCI v Akindele).

    (1) A disposal of assets in breach of trust/fiduciary duty; (2) beneficial receipt by the defendant of property traceable to that breach; and (3) knowledge on the defendant's part such that it would be unconscionable for him to retain the benefit (the 'unconscionability' test in BCCI v Akindele). Receipt must be for the defendant's own benefit, not merely ministerial.

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