Liability of Strangers Flashcards
What is accessory liability?
A personal claim against a person who dishonestly assisted or procured the breach of trust. This claim is a form of accessory liability and is generally described as ‘dishonest assistance’.
Fault-based claim: defendant is only liable if their assistance was dishonest.
What are the requirements to find a person liable for dishonest assistance of a breach of trust?
- There was a trust in existence at the time
- The trustee committed a breach of that trust
- The defendant assisted the trustee to commit that breach; and
- The defendant’s assistance was dishonest
Dishonest: an honest person in possession of the same facts would have considered their actions to be dishonest
Not required to show direct link between assistance and the loss - just need to show that the conduct assisted the breach.
What is meant by assistance to breach of trust?
Must assist in connection with the breach, it is sufficient if the defendant assists the trustee or fiduciary to plan, commit or cover up the breach.
Assistance must be more than minimal and it must make the commission of the easier than it would otherwise have been.
Not a defence that trustee or fiduciary would have committed the breach even if the defendant had not assisted them.
What is the Ivey test?
- What was the actual state of mind as to the knowledge or belief as to the facts
- Based on that knowledge, was the defendant’s behaviour dishonest based on the standard of ordinary decent people?
What are the remedies for dishonest assistance?
- Liable for the loss occasioned by the breach they assisted.
- Also potentially liable for profits they acquire by reason of their participation in the breach (but claimant must demonstrate that their participation was the ‘real’ or ‘effective’ cause of the profits - simple but for test is not appropriate. Also not automatic right, court has discretion to withhold.
What is knowing receipt?
A personal claim against a recipient of the misapplied trust property or its traceable proceeds.
Fault based claim: a defendant is only liable if they had the requisite degree of knowledge.
Not limited to trusts - extend to all misapplication of property by a fiduciary
What are the requirements for a knowing receipt claim?
- Misapplication of trust property or property held in another fiduciary capacity
- Beneficial receipt by the defendant of the misapplied property or its traceable proceeds
- Persistence of the claimant’s equitable proprietary interest in the property received by the defendant
- Knowledge of circumstances on the part of the defendant which makes it unconscionable for them to retain the benefit of the receipt - knowledge extends to after receipt (but before subsequent disposal or dissipation)
Note: dishonesty not a requirement
What is beneficial receipt?
i.e. wouldn’t apply to agents holding property for another - or if money is paid to a bank to be credited to an account bank does not receive money beneficially (unless overdrawn).
Persistence of equitable proprietary interest
Equitable interests of the beneficiaries must continue after the sale.
For example: if two trustees were paid money for land by purchaser (regardless if the purchaser knew the sale involved a misapplication of property) the beneficiaries interests in the land would be overreached and purchaser would acquire the land free of interests. Could not claim knowing receipt.
What is used to determine whether a defendant has knowledge required for knowing receipt?
Baden Scale:
- actual knowledge
- wilfully shutting one’s eyes to the obvious
- wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make
- knowledge of circumstances which would indicate the facts to an honest and reasonable man
- knowledge of circumstances which would put an honest and reasonable man on inquiry
