Personal Liability of Third Parties Flashcards
Knowing receipt
Claims centred on receiving trust property where the person knew or suspected, or ought to have known that they were trust assets.
If they do have knowledge or suspicion, they come under a duty to safeguard and return the assets.
If you breach this duty, you may be hit with knowing receipt.
When does the duty in knowing receipt arise?
From the moment D learns of the breach, he comes under a personal obligation to restore the trust property to its equitable owner and act as its custodian in the meantime.
After disposal, dissipation or destruction of the property by D, C can no longer pursue proprietary claim but D owes personal liability
(Byers)
So, the knowledge and breach must coincide. If D finds out after dissipating, no breach as he did not owe the duty.
Conditions for liability to arise for knowing receipt
- D receives property subject to trust (Byers)
- D has sufficient knowledge whilst holding property (Akindele)
Result of these two: Duty arises to safeguard and return property - D does some action in breach of duty eg transferring property, destroying it, refusing to return to owner.
Condition 1 of liability for knowing receipt - D receives property subject to trust
Byers:
Shares held on trust, transferred in breach to defendant (who knew of the breach). Under Saudi law, the transfer extinguished beneficial interest even though the transferee knew of the breach.
Held: No liability for knowing receipt, since liability required receiving property subject to a trust, and here the trust was extinguished under Saudi law
Could happen in English law - where s29 destroys beneficial interest, it will not matter if the purchaser knew (assuming beneficiary not in actual occupation), since the property will not be subject to a trust.
Parts 2 and 3 of liability for knowing receipt: knowledge and actions
Usually answered together: Considering D’s knowledge, was it unconscionable for D to transfer/destroy/refuse to return property? (Akindele)
Relevant considerations: Did D know of breach? Was D suspicious that there might be a breach? Would a reasonable person in D’s position have made further enquiries?
Criticised by Georgiou as being poorly supported by authority, too imprecise and open-textured to be practically applied. Also very subjective - means different things to different people.
Remedies for knowing receipt
Generally, liable for the value of the property alongside the trustee.
Two issues:
Where value of property fluctuates.
Where consequential loss differs from value of property.
Law very unclear in this area, some obiter dicta supports consequential loss - Williams v Bank of Nigeria.
Dishonest Assistance
Type of accessorial liability - I breached your trust, Martin helped me.
Requires fault/blameworthiness.
Requirements for dishonest assistance
1 - Trustee breaches a legal duty
2 - The defendant assists the trustee’s breach
3 - The defendant’s assistance was dishonest
Requirement 1 for dishonest assistance: Trustee breaches a legal duty
Unnecessary that the trustee was culpable/blameworthy/at fault, only that the assistant is.
Requirement 2 for dishonest assistance: The defendant assists the trustee’s breach of legal duty
Group Seven: Requires ‘more than minimal assistance’, making the trustee’s breach ‘easier than it otherwise would have been’.
Brinks: Wife accompanied man on car drives, was not dishonest assistance - making the breach more pleasurable to enjoy is not sufficient.
Requirement 3 for dishonest assistance: Dishonesty
Must be dishonest according to the reasonable person (Group Seven)
Controversial additional requirement (Ghosh test) - D must realise they are dishonest according to the standards of a reasonable person. Twinsectra suggests yes, Group Seven suggests no. UKPC in Royal Brunei Airlines also suggested it is objective.
In PQ, mention law is unclear, maybe apply Group Seven as more recent authority, especially since Ghosh test abandoned in criminal standard.
Remedies for dishonest assistance 1 - Equitable Compensation
Group Seven - DA is joint and severally liable for same quantum of compensation as the trustee.
Unnecessary that assistance but for causes consequential loss - assistant cannot say ‘but for my breach, John would have been assisted by James’.
Therefore, must identify quantum of compensation against trustee first, then say dishonest trustee joint and severally liable for that also.
Hotel Portfolio v Ruhan
Investment company director did two breaches - first one (buying the hotels which he owned) caused £0 consequential loss, second (transferring 102m profits which he held on CT out) caused £102m consequential loss. Mr Stevens dishonestly assisted both breaches.
With which breach do we quantify reparative compensation? Breach 1 would be £0, Breach 2 would be £102m.
CA: Must calculate comp with reference to breach 1, since the sale of the hotels ‘inextricably connected’ to the profits, so we needed to use breach 1 to adopt the appropriate counterfactual.
How do we tackle in a PQ? First spot the issue – there are two breaches, and whichever breach we draw the counterfactual on will affect the quantum of compensation. Then you mention Hotel Portfolio, you look at whether these breaches are inextricably connected, and they are, we use the first breach to quantify compensation. If they aren’t, we can use the second one if it yields a higher value.
What cases affected by this rule? Not so much where a trustee breaches on two types of property (eg I hold land and shares for you, I lose both) – in those cases, you would be liable for both. But this case applies more so if I do two distinct chronological breaches and I swap one item for another. Eg, I hold shares and I breach by exchanging the shares for land. Then I’m holding the land and it can be traced, then I breach in reference to the land too (eg by selling too low). This is the type of case the court is dealing with, as it is not clear you should be able to claim for all the loss here (since the first one was exchanged for the second) and you may need to pick one.
Remember: DAs not responsible for profits made by trustee. They are only jointly and severally liable for the equitable compensation payable.
Remedy for DA 2: Account of profits
Personal claim sometimes available against dishonest assistant to disgorge them of profits made as a result of their wrongdoing (Novoship)
Requirements:
- Wrongdoing but for cause of the profits
- Causation is direct
- Court exercises their discretion to grant remedy, considering proportionality
Are dishonest assistants and knowing recipients constructive or express trustees? Chambers article
Chambers - Knowing recipients are actual trustees. Although not expressly appointed to the office of trustee, people become trustees in many ways.
It is easy to understand why dishonest assistants are not true trustees, since they do not hold any asset which is on trust, and are only treated as though they are. They aren’t actual trustees, but by dishonestly participating they become subject to same liabilities.
However, knowing recipients are actual trustees with trust duties to preserve the assets and restore them to proper persons.
Although they don’t have usual powers and duties, many express trustees don’t have these - eg Quistclose trusts.
Georgieu supports this, arguing that the abstract duty of a trustee is to follow the terms of the trust - recipients must also do this - the only way to do this is to restore the assets to the person who is authorised to perform the wider duties of investment etc.
Whilst dishonest assistants are liable for their accessorial involvement in the trustee’s breach, knowing recipients are liable for their own breach of trust, which occurs when they realise that they are holding assets subject to a trust and use them for another purpose. Hence, they are true, express trustees.
Georgiou also supports this by saying knowledge isn’t necessary to become a trustee - all that is required is that they received the rights and the trust is not extinguished.
Then, in order to be liable for breach of trust, they must know (or be reasonably expected to know) of the facts which make them a trustee. Of course in express trusts, there are mostly no issue but this is relevant for knowing recipients.
Are dishonest assistants and knowing recipients constructive or express trustees?
