Liability of strangers to the trust

Question 1

What are the two types of liability third party’s have to the trust?

Answer 1

Accessory liability + Recipient liability

Question 2

What is a claim for dishonest assistance (accessory liability)?

Answer 2

Where the third party has not received property in breach of trust/fiduciary duty but did assist with the breach → can bring claim up to the value of any loss their assistance caused

Must show:

1. There was a breach of trust / fiduciary duty
2. The third party assisted in that breach (must be positive act eg. drawing up accounts to hide)
3. The third party acted dishonestly in providing that assistance (assessed objectively)

Question 3

When will a third party be held to have acted dishonestly in providing assistance in accessory liability?

Answer 3

Ask: would the ordinary honest person with the same experience & intelligence as the actual defendant have acted differently?

If yes, dishonest

Nb. TP doesn’t need to know they are assisting in breach of trust/fiduciary duty - will be liable if were aware assisting in illegal scheme even if didn’t appreciate it amounted to breach of trust

Question 4

What are the two types of claim that can be brought against a third party who has received property in breach of trust / fiduciary duty?

Answer 4

1. Personal claim for knowing receipt
2. Proprietary claim for trust property which third party still holds

Question 5

What is a personal claim for knowing receipt?

Answer 5

Personal claim for the value of the trust property the third party received → must prove:

(1) The third party received property in breach of a trust/fiduciary duty

(2) The third party received the property for their own benefit

(3) The third party had such knowledge as to render retaining or dealing with the property unconscionable

Question 6

In a personal claim for knowing receipt, what is meant by ‘with such knowledge as to render retaining / dealing with the property unconscionable’?

Answer 6

Not clear how far it extends but includes:

• Knowing property belongs to trust
• Wilfully shutting eyes to the obvious
• Deliberately refusing to ask questions despite having suspicions about where the property came from

Question 7

What are the different ways of approaching a proprietary claim against a third party?

Answer 7

Depends which category the TP falls into:

• Third party is equity’s darling ie. bona fide purchaser for value without notice that belonged to trust → no claim
• Third party had knowing receipt → treat them like a wrongdoing trustee re tracing rules
• Third party is an innocent volunteer ie. received property as gift but had no knowledge of breach → treat them like a beneficiary re tracing rules

Question 8

In a proprietary claim against a third party, what happens if there has been a clean substitution?

Answer 8

Recover the property (regardless of which tracing rules)

Question 9

In a proprietary claim against a third party, what happens if an asset has been purchased with mixed funds?

Answer 9

If third party is wrongdoer: get to choose between proportionate share or equitable lien

If third party is innocent: get proportionate share

eg. innocent third party takes trust money & combines it with their own to put down deposit on house → trust get interest in the house proportionate to their contribution

Question 10

In a proprietary claim against a third party, what happens if money has been mixed in a bank account & withdrawals made?

Answer 10

If the third party is a wrongdoer: FIFO / dissipated after (Re Hallett + Re Oatway)

If third party is innocent: FIFO or rateable share of remaining where would impossible / injustice / contrary to intention (& Re Diplock defence available if used to improve buildings already own)

Question 11

What is the Re Diplock defence that may be available to an innocent volunteer who has used the trust funds to improve their home?

Answer 11

Innocent volunteer might be able to assert defence if they used the money to improve buildings they already own (inequitable to force innocent TP to sell their property to realise beneficiary’s proprietary interest)

Question 12

What are the steps to establishing which claim to bring against a third party?

Answer 12

Has the third party ever received property in breach of trust/fiduciary duty?

If no: did the third party assist with the breach of trust/fiduciary duty

• Yes: Accessory liability - (a) breach of trust/fiduciary duty (b) assisted by third party (c) dishonestly
• No: No claim

If yes: (a) Is the third party financially solvent? (b) Does the third party own property of value/interest?

• If financially solvent + owns property of value/interest: can issue personal knowing receipt claim & proprietary claim
• If financially solvent but doesn’t own property of value/interest: personal recipient claim
• If not financially solvent but own property of value/interest: proprietary recipient claim
• If neither financially solvent nor own property of value/interest: no practical point bringing TP claim