Liability of strangers to the trust

Question 1

What is accessory liability?

Answer 1

Accessory liability in trusts is a claim that can be brought against a non-trustee who has helped a trustee breach their trust.

The non-trustee is considered an accessory to the breach if they acted dishonestly and assisted in the breach.

Question 2

What are the requirements for accessory liability as set out in Group Seven Ltd v Nasir (2019)?

Answer 2

It is necessary to establish that:

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

(b) the trustee committed a breach of that trust

(c) the D assisted the trustee to commit that breach of trust; and

(d) the D’s assistance was dishonest

Question 3

What level of assistance is required to establish accessory liability?

Answer 3

The D must assist the trustee or fiduciary in connection with the breach. The assistance must be more than minimal and it must make the commission of the breach (or its concealment) easier than it would otherwise have been.

Question 4

What level of dishonesty is required to establish accessory liability?

Answer 4

Ivey v Genting Casinos Ltd (2017): when dishonesty is in question, the Court must first subjectively ascertain the actual state of the individual’s knowledge or belief as to the fact. When this is established, the question to be determined is by applying the objective standard of ordinary decent people.

Question 5

Describe the case of Royal Brunei Airlines v Tan (1995) in relation to accessory liability.

Answer 5

FACTS: the C airline appointed a company to sell tickets for its flights. The company agreed to hold the proceeds from the sale of the tickets on trust for the C and in breach of trust, the company applied the proceeds for its own purposes and went insolvent.

The D was the company’s managing director and principal shareholder-the C sued for dishonest assistance.

HELD: the D was liable-he knew that the proceeds from the sale of the tickets were held on trust and he helped the company to apply them for its own purposes.

Question 6

What is recipient liability?

Answer 6

Recipient liability holds a person liable for receiving trust property that was transferred in breach of trust. This liability is known as “knowing receipt”.

It is a fault-based claim: a defendant is only liable if they had the requisite knowledge.

Question 7

What are the four requirements for a knowing receipt claim?

Answer 7

1. A misapplication of trust property or property held in another fiduciary capacity
2. Beneficial receipt by the D of the misapplied property or its traceable proceeds
3. Persistence of the C’s equitable proprietary interest in the property received by the D e.g. overreaching will prevent a knowing receipt claim
4. Knowledge of circumstances on the part of the D which makes it unconscionable for them to retain the benefit of the receipt

Question 8

Do knowing receipt claims apply to cases where the recipient acquired the requisite knowledge after receipt?

Answer 8

Yes, they extend to cases where the recipient acquired that knowledge after receipt but before they disposed of or dissipated the property.

Question 9

What is the Baden scale of knowledge in determining whether a D’s receipt is unconscionable?

Answer 9

It comprises five types of knowledge:

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