6. Liability to Strangers to the Trust

Question 1

What is recipient liability (knowing receipt)?

Answer 1

• A personal claim against a recipient of misapplied trust property brought by beneficiaries
• Only liable if recipient had requisite degree of knowledge

Question 2

What are the requirements for recipient liability?

Answer 2

1. Misapplication of trust property
2. Beneficial receipt by D of misapplied TP (must be for his own benefit or in how own right)
3. D knew property was misapplied TP: if they dispose of/dissipate property before knowing, don’t incur liability but as soon as they find out, should restore property to the trust

Question 3

When would someone trace property, rather than follow?

Answer 3

If original property has been substituted and if there’s an equity’s darling

Question 4

What is accessory liability (dishonest assistance)?

Answer 4

Personal claim against those who dishonestly assisted or procured the breach of trust
Must be dishonest

Question 5

What are the requirements for accessory liability?

Answer 5

1. Trust in existence at material time
2. Trustee committed breach of that trust
3. D assisted trustee in committing breach: must have made planning, commission or obfuscation of breach easier for trustee - more than minimal
4. D’s assistance was dishonest: actual state of mind and apply objective standard of ordinary decent people

Question 6

What are the remedies for accessory liability?

Answer 6

Compensation - Liable for loss incurred: C must show that but for breach, loss wouldn’t have occurred

Potentially liable for profits but only if proportionate - not automatic right to profits

Question 7

In what capacity must the property be received?

Answer 7

Personal.

Receipt in a ‘ministerial’ capacity is insufficient for knowing receipt. For example, receipt of property by an agent on behalf of a principal does not expose the agent to a knowing receipt claim .

**Banks:
* **Where money is paid to a bank to be credited to an account which is in credit, the bank does not receive the money beneficially.
* The position is different if the account to be credited is overdrawn. In such cases, the bank does receive the money beneficially to the extent that the payment reduces or discharges the customer’s indebtedness to the ban

Question 8

What is the necessary state of knowledge for recipient liability?

Answer 8

If they dispose of the property, or dissipate it before they acquire such knowledge, they do not incur any personal liability.

Dishonesty is not a requirement for a knowing receipt claim; and ‘[t]he recipient’s state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt.’

Question 9

Is recipient liability a personal claim?

Answer 9

Yes

Question 10

What is the test for dishonesty for accessory liability?

Answer 10

Ivey v Gentings Casino test for honesty: subjective/ objective.