Liability of Strangers Flashcards
What two key claims can be made against a stranger to the trust?
Accessory liability - dishonest assistance
Recipient liability - knowing receipt
How is dishonest assistance established?
Must show that the third party assisted the breach and acted objectively dishonestly in doing so
How is recipient liability established??
3rd party has knowledge making it unconscionable for them to retain the funds
When is knowing receipt a useful claim?
When the asset has been dissipated by the recipient, meaning that a proprietary claim is no longer available.
Why are dishonest assistance claims likely to result in a greater remedy than knowing receipt?
Assistant will be liable for loss caused - overall
KR claim is generally limited to the value of what has been beneficially received by the 3rd party
What are the key features of accessory liability?
Personal claim
Fault - based - only liable if their assistance was dishonest
What four features must be present to find someone liable for dishonest assistance of a breach of trust?
Trust in existence at the material time
Trustee committed a breach of that trust
Defendant assisted the trustee to commit that breach of trust
Defendant’s assistance was dishonest
How is ‘assistance’ understood in a dishonest assistance claim?
Sufficient to plan, commit, or cover up the breach
Must be more than minimal
Must make the commission of the breach easier than it would otherwise have been
Sufficient to assist, procure or instigate the breach of duty
How is ‘dishonest’ understood in a dishonest assistance claim?
Would ordinary decent people find the individual dishonest - judge is the fact finder
What remedies are available for dishonest assistance?
Dishonest assistant is liable for the loss occasioned by the breach which they assisted.
No need to show a direct link between assistance and the loss - must be shown that the conduct assisted the breach of trust and that but for the breach, loss would not have happened.
Also liable for any profits they make - but claimant must show that participation was ‘real’ / ‘effective’ cause of profits - court has discretion here
What are the four requirements for a knowing receipt claim?
Misapplication of trust property or property held in another fiduciary capacity
Beneficial receipt by D of misapplied property / traceable proceeds
Persistence of C’s equitable proprietary interest in the property received by D
Knowledge of circumstances on the part of D which makes it unconscionable for them to retain the benefit of the receipt
What is important to remember about beneficial receipt?
It must be for D’s benefit or in the sense of setting up a title of his own to the property
Agent receiving property is not liable
Money to bank account in credit - bank does not receive the money beneficially - but it does if its overdrawn
What can extinguish a KR claim?
If a misapplied property is transferred, it could extinguish proprietary claim in that property
e.g. trustees of land selling it to purchaser who pays purchase money to 2 trustees - Bs cannot maintain KR claim.
How is knowledge understood in a KR claim?
Essential to claim - once knowledge happens must restore property to trust - if they dispose / dissipate they will be subject to personal claim
No requirement for dishonesty but the recipient’s state of knowledge must be such as to make it unconscionable for him to retain benefit
What are the five types of knowledge on the Baden scale?
1) Actual knowledge
2) Wilfully shutting one’s eyes to the obvious
3) Wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make
4) Knowledge of circumstances which would indicate the facts to an honest and reasonable man
5) Knowledge of circumstances which would put an honest and reasonable man on inquiry
How does the Baden scale get applied commercially?
Knowledge types 1-3 render receipt of trust property ‘unconscionable’
4 and 5 render it unconscionable if a reasonable person would have realised what is going on / sought advice
