Liability of Strangers Flashcards
1
Q
Stranger
Liability of Strangers
A
Someone not appointed as a trustee or in a fiduciary position to the claimant.
- Strangers may be personally liable to account to the beneficiary/principal for a breach of trust or fiduciary duty because of some fault on their part.
- 2 ways:
- Knowing Receipt – may knowingly deal with trust property in breach of trust or fiduciary duty, e.g. not returning property to rightful owner, when they know it should be returned
- Dishonest Assistance – dishonestly assist or procure a breach of trust or fiduciary duty
2
Q
Why bring personal claims against ‘strangers’?
Liability of Strangers
A
- Wouldn’t bring these claims unless you had no other option - Claims of last resort
-
Knowing Receipt of property traceable to a breach of trust/fiduciary duty - Dissipation prevents tracing so proprietary claim would be impossible
- Personal claim against trustee/fiduciary may not be possible
- Therefore, only claim is against 3rd party for knowing receipt.
-
Dishonest Assistance with a breach of trust/fiduciary duty - No receipt of trust property by 3rd party - can’t trace but can sue for what they have done to assist in the trustee stealing the property
- Personal claim against trustee/fiduciary may not be possible
- Therefore, only claim is against 3rd party for assisting
3
Q
Trustee de son tort
Liability of Strangers
A
- Someone not expressly appointed a trustee
- ‘a person [who] by mistake or otherwise assumes the character of trustee’
(Lewin on Trusts (18th ed.), para 42-74))
- Trustee of his own wrong
- Liable as if a trustee
4
Q
Barnes v Addy [1874]
Liability of Strangers
A
- ‘…strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents _receive_ and become chargeable with some part of the trust property, or unless they _assist_ with knowledge in a dishonest and fraudulent design on the part of the trustees.’
5
Q
El Ajou v Dollar Land Holdings plc [1994]
Recipient Liability
A
- (per Hoffmann LJ) - Cause of Action:
- Disposal of C’s assets in breach of trust or fiduciary duty;
- Beneficial receipt by defendant of assets which are traceable as representing the C’s assets;
- Knowledge on defendant’s part that the assets received are traceable to a breach of trust or fiduciary duty.
6
Q
Twinsectra v Yardley [2002]
Recipient Liability
Beneficial Receipt
A
- Where receipt is not beneficial, but in a ministerial capacity (e.g. banker/solicitor) on behalf of the client to pass it on as directed by the client, can be no liability (only for dishonest assistance)
7
Q
Independent Trustee Services Ltd v GP Noble Trustees Ltd [2012]
Recipient Liability
Knowledge
A
- Liability depends on recipient’s knowledge. Recipient of property cannot be liable until they have requisite knowledge that another person had a better right to that property.
8
Q
Baden Delvaux [1983]
Criteria for Knowledge
Recipient Liability
Knowledge
A
-
Actual knowledge
- (i) actual knowledge
- (ii) wilfully shutting one’s eyes to the obvious
- (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make
-
Constructive knowledge
- (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man
- (v) knowledge of circumstances which would put an honest and reasonable man on inquiry
- A lot of overlap between iii, iv, and v
9
Q
Re Montagu [1987]
Criteria for Knowledge
Recipient Liability
Knowledge
A
- Need to fall within Baden (i), (ii) or (iii) to be liable for recipient liability.
- (i) actual knowledge
- (ii) wilfully shutting one’s eyes to the obvious
- (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make
10
Q
Belmont v Williams [1980]
Criteria for Knowledge
Recipient Liability
Knowledge
A
- Questioned whether Constructive knowledge sufficient for recipient liability?
- Depends on facts of case
- Under certain circumstances, it may be sufficient
11
Q
BCCI v Akindele [2001]
Recipient Liability
Knowledge
Liability of Strangers
A
- Retreat from Baden
- All that is necessary is that the _recipient’s state of knowledge should be such as to make it unconscionable_ for him to retain the benefit of the receipt.’
- Still use 3 stage test, but Akindele now used for 3rd stage of knowledge.
12
Q
Marshall Futures Ltd v Marshall [1992]
Recipient Liability
Unconscionability
A
- Academic feedback has criticised decision in Akindele as unconscionable is not defined.
- the herald of equity [should] be wearing more distinctive clothing.’ (per Tipping J,
13
Q
Starglade v Nash [2010]
Recipient Liability
Unconscionability
A
- High Ct – Unconscionability meant actual knowledge putting a reasonable man on enquiry – similar language to Baden scale but not mentioned by name
14
Q
Armstrong DLW GmbH v Winnington Networks Ltd [2013]
Recipient Liability
Unconscionability
A
- Stephen Morris QC, ‘…the position,… can be summarised as follows:
-
(1) Baden types (1) to (3) knowledge on the part of a defendant render receipt of trust property “unconscionable”.
- It is not necessary to show that the defendant realised that the transaction was “obviously” or “probably” in breach of trust or fraudulent; the possibility of impropriety or the claimant’s interest is sufficient.
- 2) …Baden types (4) and (5) knowledge also render receipt “unconscionable” but only if, on the facts actually known to this defendant, a reasonable person would either have appreciated that the transfer was probably in breach of trust or would have made inquiries or sought advice which would have revealed the probability of the breach of trust.’
-
(1) Baden types (1) to (3) knowledge on the part of a defendant render receipt of trust property “unconscionable”.
- Applied in: Group Seven Ltd v Nasir [2017].
15
Q
The Personal Action in Re Diplock
Recipient Liability
Liability of Strangers
A
- Where money is wrongly paid out in the administration of an estate, a personal action is available against those who received the money, even when they were innocent volunteer.
- 2 limitations:
- Unpaid legatees should first sue personal representative who acted wrongly, the claim being limited to the amount which can be recovered from the personal representative.
- The entitlement is to claim the principal sum only, not the interest on it
- No defences allowed
