Liability for strangers and tracing

Question 1

What are the 2 types of claims a beneficiary can make against a stranger?

Answer 1

1. Proprietary claim
2. Personal claim

Question 2

What is meant by a ‘stranger’ in trusts law?

Answer 2

person who i not a trustee or fiduciary; person outside the trust relationship

basically an un-related 3rd party

Question 3

What is a proprietary claim? Who can it be made against?

(beneficiary claiming against a stranger)

Answer 3

• 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

Question 4

Can a proprietary claim be made against a bona fide purchaser for value without notice?

(beneficiary claiming against a stranger)

Answer 4

no

Question 5

What is a bona fide purchaser for value without notice?

Answer 5

someone who:

• received property in good faith
• no knowledge of breach of trust
• provided consideration for the property

Question 6

What is a personal claim? Who can it be made against?

(beneficiary claiming against a stranger)

Answer 6

• 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

Question 7

What are the 2 types of personal claims?

Answer 7

1. Knowing receipt
2. Dishonest assistance

Question 8

What is: 1. Knowing receipt

Answer 8

• stranger receives trust property
• deals with the property knowing it has been received dishonestly

Question 9

What is: 2. Dishonest assistance

Answer 9

• stranger that helps the trustee/ fiduciary breach the trust/ duty in some way
• knows that they are acting dishonestly in doing so

Question 10

When do you use proprietary vs personal claims?

Answer 10

proprietary -> used to restore property which has been successfully traced to that stranger

personal claims -> only when there is unconscionability by the stranger

Question 11

When can a knowing receipt personal claim be used?

Answer 11

• When a trust property is lost - strangers have dissipated it or sold and dissipated proceeds
• strangers knew property/ proceeds belonged to the beneficiary

Question 12

When can dishonest assistance be used?

Answer 12

used even when a stranger never came into possession of the trust property.

Question 13

What 2 elements must be proved for dishonest assistance?

Answer 13

1. 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)

2. Assistance

some causative link between stranger and breach - very wide.

Question 14

What is the remedy if the stranger is liable for dishonest assistance?

Answer 14

must pay back any profits made from assistance

Question 15

How can a beneficiary prove a property was theirs?

Answer 15

process of equitable tracing

Question 16

What is tracing?

Answer 16

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”

Question 17

Is tracing a remedy?

Answer 17

no a process which can lead to a remedy

Question 18

What are the 4 conditions for tracing to be possible?

Answer 18

1. Fiduciary relationship
2. beneficiary has an equitable right in the property

under a trust or constructive trust for principals

3. property must not have been “disspiated”
4. cannot trace into a bona fide purchaser without notice

Question 19

Can you trace into an innocent volunteer who has received property for no consideration?

Answer 19

yes

Question 20

Once the tracing process has been completed, what can the beneficiary do?

Answer 20

1. make a proprietary claim
2. if no proprietary claim possible -> make a personal one (receipt liability) if there is a stranger

Question 21

Proprietary claims: how can you trace money where trust money has been mixed with stranger/ trustees own money?

Answer 21

1. Withdrawals from an account

• trustee presumed to spend their own money first