LA3002 Equity and Trusts Pre-exam update 2024, Study notes of Law

Download LA3002 Equity and Trusts Pre-exam update 2024 and more Study notes Law in PDF only on Docsity! Page 1 of 3 LA3002 Equity and Trusts Pre-exam update 2024 The following developments should be noted: CHAPTER 6: FORMALITIES 6.3.1 What transactions are caught This section discusses what types of transactions fall within s.53(1)(c) Law of Property Act 1925, so that they require writing to be effective. Section 53(1)(c) requires a ‘disposition’ of an ‘equitable interest or trust subsisting at the time’ to be in writing. In LA Micro Group (UK) Ltd v LA Micro Group Inc [2023] EWCA Civ 214, the Court of Appeal followed Neville Estates v Wilson and IRC v Oughtred in holding that an oral agreement to transfer an equitable interest in shares in a private company did not require writing if it gave rise to a constructive trust – as it was held to do in this instance. (This would require the oral agreement to be specifically enforceable and so relates only to shares in a private company.) Constructive trusts are exempt from the need for writing by reason of s.53(2) LPA 1925 and if the equitable interest passed under that type of trust, as arising from a specifically enforceable contract, it was not caught by s.53(1)(c) because of s.53(2). Permission to appeal to the Supreme Court has been granted. In Neville and Oughtred, it was clear that the equitable interest being transferred by the oral contract was, as is usual, going to be held separately from the legal title after the oral agreement had taken effect: e.g. in these two cases, A held on trust for B, and B was transferring their interest to C. In LA Micro, the agreement was for the equitable owner (B) to transfer the equitable interest back to the legal owner (A). Thus, the purchaser (A) would be both the legal owner and trustee (as they always had been) and, for a moment, the equitable owner under the constructive trust (which would in fact be a constructive sub-trust, with A holding on trust for B who was holding on constructive sub-trust for A). This constructive sub-trust would then ‘collapse’ and the legal owner/trustee would be the absolute owner. The Supreme Court will be considering whether this is an accurate analysis. CHAPTER 9: CHARITABLE PURPOSE TRUSTS 9.5 Cy-près In Zedra Fiduciary Services (UK) Ltd v Attorney General [2023] EWCA Civ 1332, the Court of Appeal upheld the High Court and determined that the money held (currently at £600 million) under a failed charitable trust to pay off completely the national debt (currently at £2,200 billion) should be applied cy-près to reduce the national debt. The trustees had hoped that a cy-près scheme would be ordered in favour of general charitable purposes within the UK. The court held that this (reducing the national debt) was the most appropriate way in the light of s.67 Charities Act 2011 that required a court, in approving a cy-près scheme, to consider: the spirit of the original gift; the desirability of securing that the property was applied for charitable purposes that were close to the original purposes; and the need for the charity to have purposes that were suitable and effective in the light of current social and economic circumstances. LA3002 Equity and Trusts Pre-exam update 2024 Page 2 of 3 The case confirms that the cy-près jurisdiction does not exist to do anything charitable but only charitable things related to the original charitable purpose. CHAPTER 16: BREACH OF TRUST 16.4 Dishonest assistance In Hotel Portfolio II Ltd v Ruhan [2023] EWCA Civ 1120, the Court of Appeal held that, where a fiduciary had been held to account fully for their breach of duty, a person who had dishonestly assisted in that breach of duty could not also be required to pay equitable compensation. This would be double recovery for the same breach of duty. A dishonest assister could be required to disgorge gains (which was the purpose of liability to account) but not to pay equitable compensation (which was about loss), when that loss had already been recovered from the person acting in breach of fiduciary duty. A dishonest assister could of course be held liable to compensate when the person in breach could not themselves meet the liability. 16.5 Knowing receipt In Byers v Saudi National Bank [2023] UKSC 51, the Supreme Court has confirmed that for a claim in knowing receipt to succeed, the claimant’s equitable interest must be in existence immediately before receipt by defendant. Thus, where receipt by the defendant extinguishes or overrides the equitable interest – for example, by reason of statute – then the claim in knowing receipt cannot succeed in either its proprietary aspect or personal aspect. The simple reason is that the alleged knowing recipient has not actually received ay property of the claimant – that property no longer existed immediately before receipt. The Supreme Court also made general comments about liability for knowing receipt (see the Westlaw summary of the judgment on which the following test is based). • The transfer of trust property by a trustee to a bona fide purchaser for value without notice extinguished or overrode the proprietary equitable interest of the trust beneficiary, even if the trustee in so doing acted in breach of trust. • If the bona fide purchaser for value without notice later became aware that the property was transferred in breach of trust, the beneficiary's proprietary equitable interest did not revive. Nor was that interest revived when the original purchaser transferred the property to a further transferee, who, at the time of the transfer, was aware that there had been a breach of trust. • The extinction or overriding of a proprietary equitable interest by the time when the recipient received the property defeated a proprietary claim. • Given the close link between the proprietary claim and the personal claim in knowing receipt, it would be logically inconsistent for the law to allow the personal claim in knowing receipt to survive where the proprietary claim had been defeated by the lack of a continuing proprietary equitable interest. Thus, the personal claim is also defeated in such circumstances. • A personal claim in knowing receipt against a transferee was closely linked to a proprietary claim for the return of the property. A personal claim in knowing receipt came into play when the transferee, who was not a bona fide purchaser for value without notice, no longer had the property, such as when the transferee transferred, dissipated or destroyed the property in question and thereby prevented a proprietary claim.