Liability for strangers and tracing Flashcards
What are the 2 types of claims a beneficiary can make against a stranger?
- Proprietary claim
- Personal claim
What is meant by a ‘stranger’ in trusts law?
person who i not a trustee or fiduciary; person outside the trust relationship
basically an un-related 3rd party
What is a proprietary claim? Who can it be made against?
(beneficiary claiming against a stranger)
- claim to return the property/ value of property to the beneficiary
Who:
- any stranger who:
i. takes trust property from a trustee or profits from a fiduciary knowing/ with notice that it belongs to the trust, or;
ii. someone who receives property as a gift but has no paid consideration
Can a proprietary claim be made against a bona fide purchaser for value without notice?
(beneficiary claiming against a stranger)
no
What is a bona fide purchaser for value without notice?
someone who:
- received property in good faith
- no knowledge of breach of trust
- provided consideration for the property
What is a personal claim? Who can it be made against?
(beneficiary claiming against a stranger)
- claim against the stranger personally for breach of trust of fiduciary duty
- stranger needs to account for any profits or losses to beneficiary
- can only be used if stranger’s conscience is at fault -> knew there was a breach of trust
What are the 2 types of personal claims?
- Knowing receipt
- Dishonest assistance
What is: 1. Knowing receipt
- stranger receives trust property
- deals with the property knowing it has been received dishonestly
What is: 2. Dishonest assistance
- stranger that helps the trustee/ fiduciary breach the trust/ duty in some way
- knows that they are acting dishonestly in doing so
When do you use proprietary vs personal claims?
proprietary -> used to restore property which has been successfully traced to that stranger
personal claims -> only when there is unconscionability by the stranger
When can a knowing receipt personal claim be used?
- When a trust property is lost - strangers have dissipated it or sold and dissipated proceeds
- strangers knew property/ proceeds belonged to the beneficiary
When can dishonest assistance be used?
used even when a stranger never came into possession of the trust property.
What 2 elements must be proved for dishonest assistance?
- dishonesty, 2 stage test
a. what was the stranger’s knowledge of the facts?
b. with that knowledge, did the stranger act dishonestly? (objective test)
- Assistance
some causative link between stranger and breach - very wide.
What is the remedy if the stranger is liable for dishonest assistance?
must pay back any profits made from assistance
How can a beneficiary prove a property was theirs?
process of equitable tracing
What is tracing?
allows beneficiaries to identify their property or a substitute property whether in the hands of the fiduciary or stranger and claim that property.
Follows “transactional links”
Is tracing a remedy?
no a process which can lead to a remedy
What are the 4 conditions for tracing to be possible?
- Fiduciary relationship
- beneficiary has an equitable right in the property
under a trust or constructive trust for principals
- property must not have been “disspiated”
- cannot trace into a bona fide purchaser without notice
Can you trace into an innocent volunteer who has received property for no consideration?
yes
Once the tracing process has been completed, what can the beneficiary do?
- make a proprietary claim
- if no proprietary claim possible -> make a personal one (receipt liability) if there is a stranger
Proprietary claims: how can you trace money where trust money has been mixed with stranger/ trustees own money?
- Withdrawals from an account
- trustee presumed to spend their own money first
