Advise Ciaran and Karl on their potential liability, if any, for breach of trust and their ability to recover some or all of their so-called investments.

EQUITY AND TRUSTS – COURSEWORK – 2020-21

Task One

The well-known psychic, Freddy Foresight, who recently became a multi-millionaire through the runaway success of his television programme, “Messages from the Other Side”, a programme created by his own production company, Nostradamus & Co. Ltd. (in which he owns 75% of the issued share capital comprising 80,000 £1 shares), decided to ‘give something back’ to his less fortunate family and friends.

Accordingly, he executed a document which contained the following inter vivos dispositions –

“I GIVE:

‘£500,000 to my wife, Fenella, trusting that she will use this money wisely for the spiritual education and enlightenment of our three children’;

‘30,000 shares in Nostradamus & Co. Ltd. to Sally Sceptic, my co-presenter on “Messages from the Other Side”’;

‘One of my collection of Rolls Royce Silver Ghosts to my good friend, Ciaran, the rest I give to Karl, the producer of “Messages from the Other Side”, in recognition of the excellent work that he has done on the programme’;

‘One of my signed Liverpool shirts, one of my signed Everton shirts and one of my signed Tranmere Rovers shirts to each of my three dearest and oldest friends, Ciaran will know who they are and, if there is any doubt, his judgement on the matter is to be final’;

‘£1,000,000 to myself as trustee with the absolute discretion to make payments of either capital or income to such exceptionally talented psychics residing in Harrogate as I shall think fit, and I hereby direct that, following my death, this decision-making power shall be exercised by Ciaran and Karl’;

‘£2,000,000 to the National Spiritualists Society (an unincorporated association) on trust for the purpose of training and developing all persons who may be interested in becoming practising mediums’.

Shortly after executing the above document, Freddy’s fortunes suffered a serious downturn, and he soon began to regret his earlier generosity. In fact, so serious was this downturn in Freddy’s fortunes that it led him to attempt to avoid all of the above provisions in an effort to regain full ownership and control of all the money and property mentioned in the document.

To this end, Freddy put pressure on Fenella to return the £500,000 that he had given to her under the terms of the document, he asked his fellow directors of Nostradamus & Co. Ltd. to refuse to register Sally as the new owner of the shares, he put his collection of Rolls Royce Silver Ghosts and the above-mentioned football shirts up for sale on an internet auction site, and, finally, claimed that the so-called ‘trusts’ in favour of the psychics and the National Spiritualists Society were void. Sally was particularly upset over Freddy’s actions as, thinking that she would soon be the new owner of the shares, she had lent Nostradamus & Co. Ltd. £25,000 for the purpose of attempting to break into the Chinese entertainment market, which she cannot now recover.

To help take Freddy’s mind off his current problems, Ciaran decided to take him off on a skiing holiday. Regrettably, on that holiday Freddy was gravely injured in an avalanche, which, unfortunately, he did not foresee. Fearing the worst, Freddy said to Ciaran: ‘I’ve been feeling so bad about trying to sell your car, mate. I want you to have it after all. Here, take the keys for the blue one.’ And Freddy thereupon handed these car keys to Ciaran.

A few days later, Freddy died of his injuries, and, in his will, Karl is named as both executrix and one of three residuary beneficiaries. Advise Karl as to the validity of each of Freddy’s purported gifts and/or dispositions into trust.

Task Two

In the aftermath of Freddy’s death, Ciaran and Karl were left to decide what to do with the £1,000,000 given to them under clause E of Freddy’s document. On the advice of their lawyer friend, Ted, they decided that the money needed to be invested pending the court’s decision on whether or not the trust referred to in that clause was valid. Ciaran thereupon withdrew £200,000 and decided to invest the money in the purchase of shares in a second production company called, ‘Spanner Horror Plc.’, which made low-budget horror films involving the supernatural and other unexplained events. With this money, Ciaran obtained a controlling interest in the company and was appointed as one of its directors.

In time, the company became a great success, Ciaran was able to draw significant sums by way of salary (£75,000 per year for a period of three years) in consequence of his position as a director and the value of the company’s shares rose significantly on the stock market, proving to be an excellent investment for the trust. In fact, Ciaran learnt a great deal as a company director at ‘Spanner Horror Plc.’ so much so that he was approached by a rival company called, ‘Chainsaw Crazy Plc.’ who offered him the chance of directing their forthcoming movie, ‘Nightmare on Taggart Road’, for a fee of £200,000. Having always wanted to become a movie director, Ciaran immediately resigned as a director of ‘Spanner Horror Plc.’, joined the staff of ‘Chainsaw Crazy Plc.’ and started to exploit all of the contacts and opportunities that had come his way while he was a director of ‘Spanner Horror Plc.’

Jealous of Ciaran’s success, Karl withdraw £300,000 from the trust fund and attempted to invest the money in a construction company by the name of ‘Way Ahead Plc.’ who were intent of building a block of new flats, offices and commercial premises in Liverpool, where Karl was living. No advice was obtained in relation to this investment, and, unfortunately, this venture was not a success. Indeed, when planning permission for the intended development was finally refused, the company went into liquidation and Karl only recovered £60,000 of the sum that he had lent to ‘Way Ahead Plc.’ earlier in the year.

Nevertheless, having been repaid this money, Karl saw another business opportunity and used this money to purchase a bar in Torremolinos with a friend of his called Charlie. As the local law in Torremolinos stated that only people who had been resident in the area for at least three years could own licensed premises in the south of the city, the legal title to the bar was put in Charlie’s sole name.

Charlie has now disappeared and cannot be traced. However, before he left Torremolinos he transferred the legal title to the bar into the name of his girlfriend, Francesca, and told her to look after it while he was away. The bar was purchased for £120,000. But, since the partial recovery of the tourist industry in the area, its value has now risen to £150,000, assisted by Francesca’s astute management of the business.

Ciaran and Karl have now consulted their lawyer friend, Ted, about the forthcoming hearing relating to the validity of the disposition of the £1,000,000 to then in clause E of Freddy’s document. On hearing what Ciaran and Karl had done with a substantial part of this money, Ted expressed his concern over whether either or both of them might be in breach of their duties as trustees of this money. Advise Ciaran and Karl on their potential liability, if any, for breach of trust and their ability to recover some or all of their so-called investments.

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