Liability of strangers

Question 1

what are two key claims that can be made against a ‘stranger’ to the trust?

Answer 1

1. A claim for accessory liability (also known as “dishonest assistance”)
2. A claim against the recipient of the traceable proceeds of a breach of trust (often known as “knowing receipt”)

Question 2

1st claim; what is accessory liability?

Answer 2

The claimant has the right to sue a third party for the loss caused by the trustee or
fiduciary.

Necessary to show that the third party assisted the breach (by helping to plan it, carry it out or cover it up in more than a minimal way) and acted objectively dishonestly in doing so.

Question 3

What are the requirements to prove accessory liability or ‘dishonest assistance’?

Answer 3

P.S these claims also apply to breach of fiduciary duty.

(a) there was a trust in existence at the material time;

(b) the trustee committed a breach of that trust;

  (i) the defendant assisted the trustee to commit that  breach of trust; and

(c) the defendant’s assistance was dishonest

Question 4

What are the remedies for the first claim of accessory liability?

Answer 4

in regards to the dishonest assistant being liable for:

• the loss created by the breach
• potentially liable for any profits acquired by reason of partaking in the breach.

PS!
the claimant does not have an automatic right to the assistant’s profits.
The court has a discretion to grant or withhold the remedy (where it would be disproportionate in relation to the form and extent of the assistant’s wrongdoing)

Question 5

2nd claim; what is recipient liability?

Answer 5

Allows the claimant to recover the amount of money beneficially received by a third party.

Knowing receipt is available in cases where the third party has knowledge making it unconscionable for them to retain the funds - FAULT BASED claim.

Question 6

What are the requirements to prove a knowing receipt claim?

Answer 6

1. A misapplication of trust property or property held in another fiduciary capacity.
2. Beneficial receipt by the defendant of the misapplied property or its traceable
   proceeds.
3. Persistence of the claimant’s equitable proprietary interest in the property received by the defendant.
4. Knowledge of circumstances on the part of the defendant which makes it unconscionable for them to retain the benefit of the receipt.

Question 7

What are the four types of knowledge articulated by the Baden scale?

Answer 7

i. actual knowledge

ii. willfully shutting one’s eyes to the obvious

iii. willfully and recklessly failing to make such inquiries as an honest and reasonable man would make

iv. knowledge of circumstances which would indicate the facts to an honest and reasonable man