Equitable Remedies against third parties

Question 1

Harper is the trustee of the Fitch family trust. He sold some shares belonging to the trust for £10,000 and spent the money on his daughter’s wedding. Harper’s cousin, Victor, who is a stockbroker, carried out the sale on Harper’s behalf and accounted to Harper for the sale proceeds.

Is the following statement TRUE or FALSE?

Victor is only liable to the beneficiaries if he knew that Harper was committing a breach of trust.
1.
True
2.
False

Answer 1

The statement is FALSE.

Victor is liable to the beneficiaries for assisting a breach of trust if he did not act as an honest stockbroker would have acted in the same circumstances (Royal Brunei v Tan). It is not necessary for a third-party stranger to know he is assisting a breach of trust; it is sufficient to be implicated in something which is illegal (Barlow Clowes v Eurotrust).

Question 2

1. Is this statement TRUE or FALSE?

Where someone (who is not a trustee) is implicated in a breach of trust, the beneficiaries may be able to bring an equitable personal action against him, or an equitable proprietary action (if he has received trust property in breach of trust and still holds it or its traceable substitute).

1. True
2. False

Answer 2

The statement is TRUE.

The beneficiaries may seek a personal remedy against a non-trustee, third party through either recipient liability or accessory liability. A proprietary remedy is a further possibility in the circumstances described in the statement. A company may seek similar remedies against third parties in similar circumstances.

Question 3

Select from the actions against third parties listed on the left-hand side of your screen and match it to the state of mind required for the liability on the right.
Prompts
Submitted Answers
1. Recipient liability
Unconscionability
2. Accessory liability
Dishonesty
3. Intermeddling
Strict liability

Answer 3

You have matched all the claims with the correct state of mind to establish the defendant’s potential liability.

Question 4

Gustav, a company director, steals company money and gives it to his wife Cindi.

Is the following statement TRUE or FALSE?

The company cannot use equitable tracing against Cindi as the company is the legal owner of the stolen money and is not a beneficiary under a trust.
1.
True
2.
False

Answer 4

The answer is FALSE. Gustav’s theft represents a breach of his fiduciary duty to the company. This makes equitable remedies available to the company as well as the ability to trace into a mixed fund in the hands of a third-party recipient

Question 5

Wayne is a trustee. He stole £40,000 from the trust and gave it directly to his partner, Henrietta, telling her not to ask where the money came from. She paid the money into her bank account, which contained £30,000 of her own money. A few days later, Henrietta withdrew £30,000 and spent it on a holiday to the Maldives. Henrietta has now been declared bankrupt because her debts exceed her assets. The beneficiaries seek your advice on whether they can claim anything from Henrietta.

Which case would you apply to determine whether Henrietta spent her own money or the trust’s money on her holiday to the Maldives?
1. Re Hallett.
2. The Rule in Clayton’s case
3. Re Oatway
4. Foskett v McKeown

Answer 5

The answer is A. It is necessary to determine whether Henrietta was a wrongdoer or an innocent volunteer before allocating the withdrawal from the mixed bank account. She is clearly a wrongdoer, as she chose not to inquire where the money came from, despite being put on notice that there was some illegality involved. The relevant case to apply would be Re Hallett, as she is taken to spend her own money first, where, as here, it has been dissipated. If the first withdrawal had been spent on an asset, the appropriate case would be Re Oatway. Clayton’s case is relevant where the account holder is innocent. Foskett v McKeown relates to the purchase of an asset with a mixed fund, rather than the allocation of withdrawals from a bank account

Question 6

Rory is a trustee of the Smith family trust. Rory has wrongly taken £50,000 from the trust bank account for his own benefit. Rory was able to withdraw the trust money because Carl (the manager of the bank where the trust had its account) did not query why only one trustee had signed the cheques when the account mandate required the signatures of both trustees.

Which ONE of the following statements is CORRECT?
1. The beneficiaries cannot bring any action against Carl because he did not receive any trust property for his own benefit
2. Carl will be liable to the beneficiaries because of his assistance in Rory’s breach of trust; strict liability applies.
3. Carl may be liable for assisting Rory’s breach of trust if he had knowledge making it unconscionable for him to have acted as he did
4. Carl will be liable for assisting Rory’s breach of trust if he was dishonest which means not acting as an honest person would have acted in the circumstances

Answer 6

The answer is D. This statement reflects the requirements which need to be established for a claim in dishonest assistance (accessory liability). The standard of honesty is objective. However, there are subjective elements - the court will ask: ‘How would a hypothetical honest person knowing the facts the defendant knew and with the defendant’s knowledge and experience have acted?’ If he would have refused to proceed or asked questions before getting involved or sought advice, then a defendant who reacts differently is dishonest. It often comes down to whether the claimant acted any differently to someone else in his profession/business would have acted.
A is not correct because receipt of trust property is not the only criteria underlying a possible claim against a third-party stranger to the trust
B is not correct because it is accepted that third parties should not become liable to the beneficiaries merely because they deal with trustees in some way. Strict liability does not apply as the third parties will not have received trust property and may even be unaware and have no reason to suppose any breach when they are dealing with trustees.
C is not correct because unconscionability is the test for recipient liability; it was rejected as being relevant for accessory liability in Royal Brunei v Tan.

Question 7

Taylor is a trustee for Imran. Aided by her husband, Ulrich, Taylor stole a painting belonging to the trust and sold it for £40,000. She gave the £40,000 to her son, Vere, who spent it on his wedding. Ulrich and Vere knew that Taylor had stolen the painting.

Which ONE of the following statements is CORRECT?
1. Imran could bring a personal claim against Ulrich for knowing receipt.
2. Imran could bring a personal claim against Ulrich for dishonest assistance and a proprietary claim against Vere.
3. Imran could bring a personal claim against Ulrich for dishonest assistance and a personal claim against Vere for knowing receipt.
4. Imran could sue Ulrich for intermeddling. He is a trustee de son tort.

Answer 7

The answer is C. Ulrich has acted dishonestly by assisting Taylor in the theft of the painting from the trust and Vere received trust property with knowledge that made his retention of that property unconscionable.

A is not correct because Ulrich did not receive trust property.

B is not correct because Vere has dissipated the proceeds of the trust property on his wedding and therefore, a proprietary claim would fail.

D is not correct; Ulrich is not a trustee de son tort because he did not act as though he were a trustee. He merely assisted the trustee with her breach.

Question 8

David is a trust of King family trust. The trust owned two small sculptures by Amy Chatterton worth £30,000 when the trust was created five years ago. David recently sold the sculptures to Louis Braden. David used the sale proceeds to pay off his gambling debts.

Is the following statement TRUE or FALSE?

The trust will not be able to bring an equitable proprietary claim against Mr Braden to recover the sculptures if he was not aware that the paintings belonged to the trust.

1. True
2. False

Answer 8

The statement is TRUE. A bona fide purchaser for value without notice is “equity’s darling”. A third party such as Mr Braden who purchases the trust property in good faith without knowledge of its true provenance takes the property free from the equitable interests of the beneficiaries. Consequently, the trust would have no proprietary claim against him to recover the sculptures

Question 9

Arun is a trustee of a substantial trust fund. Six months ago, Arun took £30,000 from the trust bank account and paid it direct to a gallery with £10,000 of his own money to buy a painting. The painting is now worth £45,000. Arun took a further £20,000 from the trust and gave it to his mother, Mina. She genuinely had no idea that the money did not belong to her son. Mina used the money to buy a car and to install central heating in her house.

Which ONE of the following statements is CORRECT?
1. The beneficiaries of the trust are likely to succeed in a proprietary claim against Mina’s house to recover the cost of the central heating.
2. The beneficiaries only remedy is to claim a three-quarters share of the painting.
3. A lien would allow the beneficiaries to require the sale of the painting to recover what they are owed from the sale proceeds.
4. The beneficiaries will have no remedy against Mina as she is an innocent volunteer.

Answer 9

The answer is C. This is a mixed asset situation (one asset purchased with a combination of the trust’s money and the trustee’s personal funds). As the painting has been bought, in part, with the trust’s money, the beneficiaries could exert their equitable lien over the painting to cover their £30,000. (Given the painting’s increase in value, this would not be the best course of action.)
A is not correct because the addition of the central heating to Mina’s house may not have increased its value, in which case it is dissipated. In any event, as an innocent volunteer, Mina would have the Diplock inequitable defence to such a proprietary claim.
B is not correct because, in a mixed asset situation the beneficiaries could claim either a proportionate share of the asset purchased or an equitable lien over it. It is their choice. Given the increase in value, the proportionate share would be the better option to pursue.
D is not correct because even though she is an innocent volunteer, the beneficiaries could still bring a proprietary claim against Linda to recover the car.

Question 10

Alison is a trustee for Danielle. In breach of trust, Alison took £30,000 of trust money and gave it to her son, Basil, for his 21st birthday. Basil was an innocent volunteer. Basil paid the £30,000 into his bank account, which already contained £10,000 of his own money. He withdrew £8,000 to pay off a car loan. Alison took a further £5,000 of trust money and gave it to her boyfriend, Chris. Chris knew that Alison had stolen the money from the trust. Chris paid the £5,000 into his bank account, which already contained £10,000 of his own money. He withdrew £8,000 to pay off his credit card balance.

Which ONE of the following statements is the CORRECT advice which you would give Danielle?
1. No action will lie against Basil because he was innocent.
2. Danielle can sue Chris in a personal claim for knowing receipt
3. Danielle could bring a proprietary claim against Basil and use the presumption in Re Hallett’s Estate to show that he dissipated his own money on repaying the car loan.
4. Danielle could bring a proprietary claim against Chris and use the presumption in Clayton’s case to show that he dissipated his own money on repaying the credit card balance

Answer 10

The answer is B. Chris has received trust property in breach of trust with knowledge that made him unconscionable (BCCI v Akindele). This means that Danielle could bring a personal claim for knowing receipt or a proprietary claim to recover the property.

A is not correct. A personal action for knowing receipt will not succeed against an innocent volunteer like Basil. However, Danielle could bring a proprietary claim.

Where the innocent volunteer has mixed the money in a bank account and made withdrawals, the rule in Clayton’s case is applied to see whose money was withdrawn. The presumption in Re Hallett’s Estate does not apply because it only relates to trustees and strangers against whom a knowing receipt claim can be brought (so C is not correct).

D is not correct. As regards a proprietary claim against Chris, it would be necessary to see whether the trust money has been partly dissipated in paying the credit card bill. The tracing rule in Re Hallett’s Estate applies (rather than Clayton’s case) because Chris would be a wrongdoer with liability as a knowing recipient.

Question 11

1. A trustee for two beneficiaries stole £45,000 from the trust and gave it to his girlfriend.

Which of the following statements best describes the beneficiaries’ ability to bring a personal claim against the girlfriend?

1. The beneficiaries will have to prove that the girlfriend received the trust property in breach of trust for her own benefit and that she acted dishonestly.
2. The beneficiaries will not have to prove anything as strict liability applies against a person who has received trust property in breach of trust.
3. The beneficiaries will have to prove that the girlfriend received the trust property in breach of trust for her own benefit and her subsequent actions were negligent.
4. The beneficiaries will have to prove that the girlfriend received the trust property in breach of trust for her own benefit and her knowledge of the facts made her retention of the property unconscionable.
5. The beneficiaries will have to prove that the girlfriend received the trust property in breach of trust for her own benefit and her knowledge of the facts made her actions reckless.

Answer 11

Option D is correct. To make the girlfriend personally liable to pay compensation, the beneficiaries will have to show that she is a wrongdoer on the ground of knowing receipt (recipient liability). They will have to prove that she received the trust property in breach of trust for her own benefit and her knowledge of the facts made it unconscionable for her to have dealt with the property as she did (BCCI v Akindele). According to the Akindele decision, unconscionability is wider than dishonesty (so Option A is wrong).

Option B is wrong because the mere fact of receipt of the trust property is not sufficient to establish a liability to pay compensation. The claim is fault-based; there must be knowledge that makes the retention of the trust property unconscionable.

Options C and E are wrong because being negligent or reckless are not the appropriate determinants giving rise to the liability of a third party who has received property in breach of trust (see Option D).

Question 12

With the help of her stockbroker husband, a trustee stole shares from the trust fund. The trustee sold the shares for £30,000; she gave the sale proceeds to her son who spent the money on his wedding and honeymoon. The son knew that his mother has stolen the shares. The trustee has just been made bankrupt.

What kind of claim should the beneficiaries bring and against whom?
1. The beneficiaries should bring a personal claim against the husband as he has intermeddled in the trust.
2. The beneficiaries should bring a proprietary claim against the trustee as she is bankrupt.
3. The beneficiaries should bring a personal claim against the husband and a proprietary claim against the son.
4. The beneficiaries should bring a personal claim against the husband and a personal claim against the son.
5. The beneficiaries should bring a proprietary claim against the husband

Answer 12

D is correct. The husband has acted dishonestly by assisting the trustee in the theft of the shares from the trust and the son received trust property with knowledge that made his retention of that property unconscionable.

Option A is wrong because the husband is not classed as an “intermeddler”; he is not a trustee de son tort because he did not act as though he were a trustee. He merely assisted the trustee with her breach.

Option B is wrong because the trustee no longer holds misappropriated trust property.

Option C is wrong because the son has dissipated the proceeds of the trust property on his wedding and, therefore, a proprietary claim would fail.

Option E is wrong because the husband did not receive trust property; his dishonest assistance renders him personally liable.

Question 13

A director of a company has wrongly taken £30,000 from the company bank account. The director was able to withdraw the money because the manager of the bank where the company had an account did not query why only one director had signed the cheques when the account mandate required the signatures of two directors. After giving, £10,000 of the money to their grandson for university fees, the director gave £5,000 to his goddaughter for her birthday. She had no idea the money was stolen and used it to pay for a weekend at a luxury spa. The director used the remaining money to buy a luxury yacht and pay for sailing lessons.

Which of the following statements best describes the action the company can bring?
1. The company cannot bring any action against the bank manager because he did not receive any company property for his own benefit.
2. The company will be able to bring a claim against the bank manager because of his assistance in director’s breach of duty; strict liability applies.
3. The company cannot bring any action against the grandson because he has spent the money he received.
4. The company will be able to bring a claim against the director to recover the yacht.
5. The company will be able to bring a proprietary claim against the goddaughter as she has received company money for her own benefit.

Answer 13

Option D is the correct answer. The director has breached his fiduciary duty to the company. As a result, the company will be able to bring a proprietary claim against him and use equitable tracing to establish that company money was used to buy the yacht.
Option A is wrong because, while the bank manager has not received company property, he could be liable to the company under a claim in dishonest assistance (accessory liability). In the circumstances, given that the bank manager was aware of the requirements of the account mandate, he has arguably acted dishonestly in effecting the transaction which enabled the director to withdraw the money.
Option B is wrong because, while the bank manager may be liable to the company (see Option A) it is accepted that third parties should not become liable merely because they deal with trustees or fiduciaries in some way. Strict liability does not apply as the third parties will not have received misappropriated property and may even be unaware and have no reason to suppose any breach when they are dealing with directors (or trustees).
Option C is wrong because the fact that the grandson has spent the money only rules out a possible proprietary claim by the company against him. The company may be able to bring a personal claim against him for recipient liability. The grandson has received company property arising from a breach of duty for his own benefit. The issue will be whether he has knowledge which makes it unconscionable for him to retain the benefit (BCCI v Akindele). More information will be needed.
Option E is wrong because while the goddaughter has received company property, she has dissipated the money she received on the luxury spa weekend.

Question 14

In breach of trust, a trustee gives some of the trust’s shareholdings to his daughter. The daughter sold the shares and used the sale proceeds to buy a sports car.
Which of the following statements best describes the beneficiaries’ position?

1. The only action which the beneficiaries can bring is a personal action against the trustee for compensation for breach of trust.
2. The only action which the beneficiaries can bring is a proprietary action against the daughter to recover trust property.
3. The beneficiaries cannot bring a proprietary action against the daughter as the misappropriated property has changed form.
4. The beneficiaries can bring a proprietary action against the trustee for breach of trust.
5. The beneficiaries can bring a personal claim against the trustee for breach of trust or a proprietary action against the daughter to recover trust property

Answer 14

Well done. Option E is correct. The breach by the trustee gives the beneficiaries the right to seek personal compensation from the trustee for the loss to the trust. Additionally, as the daughter has received trust property arising from that breach, the beneficiaries could bring a proprietary claim against the daughter to recover the trust property, regardless of whether the daughter knew about the provenance of the shares she received or whether she was an innocent volunteer (so Options A and B are wrong because in each case the suggested claim is not the only claim which the beneficiaries can bring).

Option C is wrong because equitable tracing allows for the beneficiaries to exert their proprietary rights where trust property has changed form. Here, there is a clear substitution of the misappropriated shares for the sports car purchased with the proceeds from the sale of those misappropriated shares.

Option D is wrong because a proprietary action aims to recover the trust property and the trustee does not hold the misappropriated property.

Question 15

Last year a director of a property development company instructed the company’s bank to transfer £50,000 from one of the company’s bank accounts to a solicitor (supposedly to finance the company’s purchase of some equipment). It was a ruse to disguise the director fraud. A month later, the solicitor was told not to proceed with the purchase and to return the money to the director rather than the company, having first deducted his costs. This the solicitor did. The director used some of the money to pay some gambling debts and then gave the £35,000 balance to his wife. She added the sum to her bank account, which had £20,000 in it. She then used £20,000 to buy herself a sports car and £35,000 on a luxury round-the-world cruise.

Which of the following statements best describes the company’s position?
1. The company will be able to bring a personal equitable claim against the wife because she has received company property in breach of her husband’s fiduciary duty, for her own benefit
2. The company might be able to bring a personal equitable claim against the solicitor.
3. The company will not be able to bring a personal equitable claim against the wife because she has spent the company’s money.
4. The company will not be able to bring a proprietary claim against the wife because the company’s money has been dissipated.
5. The company will be able to bring a proprietary claim against the director.

Answer 15

Option B is the correct answer. A personal equitable action for dishonest assistance might be possible against the solicitor. It will be necessary to show that he assisted the director’s breach of fiduciary duty and that he was dishonest. He assisted by disguising what had happened to the money. Dishonesty means not acting as an honest solicitor with his knowledge of the facts and experience would have acted. A hypothetical, honest solicitor might be suspicious that the instructions were part of a money laundering scheme and may have made enquiries, reported the matter to the police for investigation or taken steps other than simply returning the money to the director rather than the company. Further details of the solicitor’s actions are necessary to determine whether he was dishonest.
Option A is wrong because to bring a claim of recipient liability, in addition to establishing that the wife received company property, it would be also necessary to prove that she had knowledge making it unconscionable for her to have dealt with the property as she did (BCCI v Akindele). We need more information about the wife’s state of mind when she received the money from her husband (or when she used the money subsequently).
Option C is wrong as the equitable personal claim arises merely from the wrongful receipt with the requisite knowledge. It is a claim for compensation from the third-party recipient. The fact that the money has been spent does not negate the personal liability. The compensation is payable in any event.
Option D is wrong because the company could consider an equitable proprietary claim against any property purchased with company money. The tracing rules differ depending on whether the wife was a wrongdoer on the grounds of knowing receipt (see A above) or an innocent volunteer. If she was a knowing recipient, the presumption is that she spent her own money first (Re Hallett). Thus, the car would belong to the wife and the company’s money would be dissipated on the cruise. However, the company could use Re Oatway to assert their charge over any part of the mixed fund. Accordingly, the company could claim a lien over the car and enforce that lien by demanding a sale of the car so that it can recover its money from the sale proceeds. On the other hand, if the wife is innocent, the rule in Clayton’s case would presume that the first payment into the account was the first payment out. Thus, she bought the car with her own money. The company’s money would be allocated to the cruise. However, the court may be persuaded to come to another solution if it would be unjust to apply Clayton (Vaughan v Barlow Clowes).
Option E is wrong because the director no longer holds company money – he has given some to his wife and has dissipated the rest on gambling debts.

Question 16

A trustee has wrongly taken sums amounting to £50,000 from the trust’s bank account. The trustee paid the £50,000 into her own bank account which already contained a balance of £10,000. She spent £15,000 on a holiday for herself and then paid the balance to her partner. The partner was surprised at the size of the trustee’s gift but did not ask any questions about where the money came from. With £5,000 of his own money, he used the trustee’s gift to buy shares in a large public company.

Which of the following statements best describes the beneficiaries’ position?

1. The beneficiaries will be able to bring a proprietary claim against the trustee because she is in breach of trust.
2. The beneficiaries will be able to bring a proprietary claim against the partner to recover all the company shares.
3. The beneficiaries will be able to establish that the partner received trust money using equitable tracing rules.
4. The beneficiaries will not be able to bring a proprietary action against the partner because he is an innocent volunteer.
5. The beneficiaries will not be able to bring a personal action against the partner because he was not dishonest.

Answer 16

Option C is correct. The trustee mixed the trust’s money with her own in her bank account from which she then made two withdrawals, one for the holiday, one to the partner. Under Re Hallett, it is presumed that the trustee’s own money was dissipated on the holiday. Although £5,000 of the trust’s money would also have been dissipated on the holiday, the beneficiaries will be able to establish that the remaining £45,000 was given to the partner.
Option A is wrong because the trustee no longer retains any trust property. She has either dissipated the money she took or given it away. The beneficiaries will only have a personal claim against her.
Option B is wrong because the beneficiaries will not be able to recover all the shares. The partner contributed £5,000 of his own money to the purchase (out of a £50,000 total); the beneficiaries will only be able to recover 95% of the shares.
Option D is wrong because the partner is unlikely to be an innocent volunteer; his failure to ask questions about where the money came from despite his surprise at the amount, may make it unconscionable for him to retain the receipt (BCCI v Akindele). In any event, the beneficiaries would have a proprietary claim against him, even if he was an innocent volunteer.
Option E is wrong because dishonesty is the state of mind required to establish a personal claim of accessory liability. The beneficiaries will be able to bring a personal claim against the partner as a recipient (see option D).

Question 17

A mother is being pursued by a company to recover £10,000 she recently received from her daughter who was a director of the company. She realises she should have been suspicious when she received the money, but as she was struggling financially, she did not want to ask where it came from. She paid the money into her own bank account which had £5,000 in it. The first thing she did was to buy a fixed interest rate investment bond with a Building Society for £10,000. The bond has another six months to go before it matures. She spent the rest of the money in the account on paying bills, buying food and petrol.

Will the company be able to bring a claim against the mother?
1. No, because the mother is an innocent volunteer.
2. No, because the mother will have a defence that it would be inequitable.
3. No, because the mother has spent all the money she has received.
4. Yes, but they will only be able to recover half the value of the bond.
5. Yes, the company should be able to bring a personal and a proprietary claim against the mother.

Answer 17

Option E is the correct answer. The company should be able to bring the personal claim of recipient liability (knowing receipt) against the mother; she received trust property as a result of a breach of fiduciary duty for her own benefit and it is arguable that she had knowledge of which made it unconscionable for her to spend it as she did (BCCI v Akindele). The mother did not have actual knowledge that the money belonged to the company, but she did shut her eyes to obvious facts and deliberately refrained from making enquiries because she did not want to know the truth. This could give rise to liability as unconscionability is wider than dishonesty. As a result, the mother would not be an innocent volunteer (so Option A is wrong)
A proprietary claim can be brought against the mother regardless of whether she is liable as a wrong doer under recipient liability or as an innocent volunteer. Because of the breach of fiduciary duty, the company will be able use equitable tracing which can be used to establish that the company’s money purchased the investment bond.

Option B is wrong because the inequitable defence (see Re Diplock) arises only in relation to proprietary claims brought against innocent volunteers. Here, the mother could potentially be a liable as a knowing recipient. In any event, the defence is only relevant when the innocent volunteer uses the wrongful receipt to add value to an asset already owned. Here, the mother purchased a new asset with the money she received.

Option C is wrong because a personal claim can be brought against her regardless of what the mother has done with the money as a personal claim is for compensation. The liability would be for the £10,000 she received (although the success of such a claim would depend on whether the mother has the money to settle it). Also, while the money spent paying bills, buying food and petrol has been dissipated, the investment bond presents an asset which can be claimed in a proprietary action.

Option D is wrong because as the mother is a wrong doer under recipient liability (see Option E above), the harsher tracing rules would apply. The mother added the £10,000 she received to her own account which already contained £5,000. She spent £10,000 on a bond and dissipated the balance on food, petrol etc. There is a presumption that a wrongdoer is deemed to spend his own money first (Re Hallet) which means that the mother spent her £5,000 and £5,000 of company money on the bond; the company and the mother would own half each. However, in Re Oatway, it was held that the fiduciaries’ charge can be asserted against any part of the mixed fund and must be satisfied before the defendant can set up her own claim. It follows that the company could claim its £10,000 was used to buy the bond and that the trust has a lien over the bond for the entire sum

Question 18

A doctor is a trustee. He stole £50,000 from the trust and paid this into the bank account of an offshore company.
The doctor instructed the trust’s accountant to draw up some ‘inventive accounts’. She did so. These accounts have hidden the doctor’s wrongdoing until now.

The offshore company has been wound up and the shareholders have since disappeared.

Which of the following claims is most likely to give the beneficiaries a positive outcome?
1. A claim for personal recipient liability against the accountant.
2. A claim that the accountant has intermeddled in the affairs of the trust.
3. A proprietary claim to recover any property that the accountant owns.
4. A personal claim against the accountant for breach of trust.
5. A claim for personal accessory liability against the accountant.

Answer 18

E is correct. The accountant has positively assisted the doctor’s breach of trust. If she has acted dishonestly (which seems likely given the facts – she was instructed to draw up ‘inventive accounts’), a claim for personal accessory liability should be successful.
Options A and C are wrong. At no point has the accountant received trust property.
Option B is wrong. The accountant has not acted as if she were an expressly appointed trustee, so she cannot be liable for intermeddling.
Option D is wrong. The accountant is not an expressly appointed trustee, so she is not herself in breach of trust.

Question 19

A trustee steals £50,000 from a trust. She transfers £20,000 of the money to her daughter who uses the money to pay off her credit card debts. She transfers the remaining £30,000 to her son who uses the money as a deposit towards a flat. The trustee and her son are facing bankruptcy proceedings.

Which of the following claims is most likely to give the beneficiaries a positive outcome?
1. A claim for personal recipient liability against both the daughter and the son.
2. A proprietary claim to recover trust property from both the daughter and the son.
3. A claim for personal recipient liability against the daughter; a proprietary claim against the son.
4. A proprietary claim against the daughter; a claim for personal recipient liability against the son.
5. A claim for personal recipient liability against the daughter; a claim for personal accessory liability against the son.

Answer 19

Option C is correct. The daughter has received trust property but has dissipated it by using it to pay off her credit card debts. There is no point bringing a proprietary claim against the daughter. However, depending on whether her state of knowledge as to the origins of the money she received made it unconscionable for her to spend that money, a claim for personal recipient liability might be successful.
The son has received trust property, which might be traceable into the flat. The beneficiaries should therefore assert a proprietary claim against the flat. However, the son is facing bankruptcy proceedings, and therefore there is unlikely to be any practical purpose in bringing any personal claim against him.
The son’s bankruptcy means that bringing a personal claim against him would be practically worthless. As a result, options A, D and E are wrong. (Option E is also wrong because there is nothing on the facts to suggest that the son has assisted his mother’s breach of trust.)
The fact that the daughter has dissipated the trust property she received renders meaningless a proprietary claim against her. As a result, options B and D are wrong

Question 20

Two years ago, a trustee stole £80,000 from a trust fund. She paid £40,000 into her boyfriend’s bank account. She combined the remaining £40,000 with £40,000 of her own money to buy a Mercedes AMG coupe, which is now valued at £60,000.
Her boyfriend’s bank account already contained £10,000 of his own money. He used £10,000 from the account to pay off his extensive gambling debts. He used the remaining £40,000 to purchase a sculpture for his garden. He was used to receiving large sums of money from the trustee, who was then independently wealthy but now has been made bankrupt, so he did not think anything was unusual when she transferred the sum of £40,000 to him.

Which of the following claims is most likely to give the beneficiaries the best outcome?

1. Asserting an equitable lien over the Mercedes AMG coupe; a proprietary claim asserting an equitable lien over the sculpture.
2. Claiming a 50% share in the Mercedes AMG coupe; a proprietary claim asserting an equitable lien over the sculpture.
3. A personal claim for breach of trust against the trustee.
4. Claiming a 50% share in the Mercedes AMG coupe; a claim for personal recipient liability against the boyfriend.
5. Asserting an equitable lien over the Mercedes AMG coupe; a claim for personal recipient liability against the boyfriend.

Answer 20

This question is designed to remind you that beneficiaries can choose to bring claims against both wrongdoing trustees and third parties as needed to ensure full recovery for the losses the trust has sustained.
Sorry. Option A is correct. The trustee has mixed some trust money with her own money to purchase the Mercedes. This car is a ‘mixed asset’. Given that it has decreased in value, the beneficiaries are best advised to assert an equitable lien over the car to the full extent of their contribution towards that asset, ie £40,000.

The boyfriend still has property – the sculpture – that the beneficiaries can trace into. As he is an innocent volunteer (see below), the beneficiaries would have to use the kinder tracing rules. The beneficiaries would start by applying Clayton’s Case and FIFO, which in this scenario would mean that the boyfriend’s own money was spent paying off his gambling debts, whereas the trust money was used to pay for the sculpture enabling the beneficiaries to assert an equitable lien over that sculpture.

Options B and D are wrong for suggesting that the beneficiaries should claim a 50% share in the Mercedes coupe. Given that the car has gone down in value, this does not represent the best outcome for the beneficiaries.

Option C is wrong. A personal claim against the trustee is now worthless given that bankruptcy proceedings have been opened against her.

Options D and E are wrong for suggesting that the beneficiaries can bring a claim for personal recipient liability against the boyfriend. The facts suggest that the boyfriend was used to receiving lavish gifts from the trustee. He may not, therefore, have had the requisite degree of knowledge about the origins of the money he received to have made it unconscionable to spend it. The chances of a claim for personal recipient liability being successful therefore look low.