3rd party liability

Question 1

When 3rd party liability can be found

Answer 1

a) Trustee de son tort
b) Person who dishonestly assists
c) Person that receives trust property for her own with knowledge
(Barnes v Addy)

Question 2

Dishonest assistance - elements of liability

Answer 2

At first: culpability of the principal: “Dishonest and fraudulent design on the part of the trustees” (Barnes v Addy)

Now: Culpability of the accessory (Royal Brunei Airlines v Tan)

a) Breach of trust/fiduciary duty (based on primary wrong)
b) Inducement or assistance
c) Fault

Question 3

Inducement or assistance

Answer 3

Question of fact: more than minimal impact, broad test

Causal connection required (Grupo Torras v Al Sabah) between the loss and the breach (Casio Computer v Sayo)

Question 4

Fault (DA)

Answer 4

Previously: Baden scale of knowledge
Currently: objective test for dishonesty on the part of the third party (Royal Brunei Airlines v Tan)

Adopted as self-conscious dishonesty instead (Twinsetra v Yardley)

Acknowledged ambiguity in Royal Brunei, held that Royal Brunei to be followed directly, defendant must have known about aspects of the transaction which made participation transgress those standards (Barlow Clowes v Eurotrust International)

Question 5

Current state of the law for fault (DA)

Answer 5

Objective dishonesty, NOT self-conscious dishonesty

Question 6

Remedies for dishonest assistance

Answer 6

Duplicates the liability of the trustee (Elliott, Mitchell)

Dishonest assistant made jointly and severally liable with trustee for the same amount (like constructive trusteeship)

Davies: not persuaded that constructive trusteeship is the way to go

Question 7

Duplicative liability for profit

Answer 7

Punitive measures, not applicable (Ultraframe v Fielding)

Primary wrongdoer and assistant are not jointly liable for profits, although they may be severally liable to disgorge their own profits (Michael Wilson v Nicholls, Grimaldi v Chameleon)

Dishonest assistant must disgorge profits she made for herself (Novoship)

Account of profits available, when there is a sufficient causal connection between dishonest assistance and the profit (Grimaldi v Chameleon, Novoship)

Question 8

Knowing receipt - elements

Answer 8

a) Proprietary base
b) Breach of duty
c) Beneficial receipt
d) Fault

Question 9

Breach of duty

Answer 9

Liability founded on breach of fiduciary obligations (Arthur v AG of Turks and Caicos)

Baden scale irrelevant (Criterion Properties v Stratford Uk Properties LLC)

Conaglen and Nolan: distinction between companies and trust

Question 10

Beneficial receipt

Answer 10

Have to derive benefit (Agip Africa v Jackson)

Implication: banks no benefit, so no liability - odd (Davies)

Question 11

Fault (KR)

Answer 11

State of knowledge that makes it unconscionable for him to retain benefit of the receipt (Akindele)
(was rejected in Royal Brunei)

Dishonesty not required (Belmont Finance Corp v Williams Furniture)

Fault or knowledge based liabiltiy is the same question (Credit Agricole Corp and Investment Bank v Papadimitriou)

Question 12

Debate about whether recipients should also owe strict liability in unjust enrichment

Answer 12

Lord Nicholls, P Birks: yes
Davies: nope

Authorities supporting strict liability

a) Re Diplock - recipient of funds improperly distributed
b) Criterion Properties - improper purpose
c) Primlake v Matthews Assoc - misappropriate trust assets used to pay off security charge, subrogation

Question 13

Defence: change of position

Answer 13

Reduces defendant’s liability to the extent to which his or her circumstance have changed as a consequence of an enrichment

Exception: bad faith (Lipkin Gorman v Karpnale)

Question 14

Remedies: constructive trust

Answer 14

Restore property immediately, as constructive trustee

If not, substitutive performance claims applied