Personal Liability of Third Parties Flashcards

Question

Accessory Liability - 4 Requirements? "dishonest" Suspicious? Agip (Africa) Ltd v Jackson

Answer 1

• It is clear that a D will be held to be dishonest even if he only has constructive knowledge. You don’t have to ACTUALLY know what was happening if you should have known – you can still be regarded as dishonest. Millett J explained this at first instance (on the handout). “If a man does not draw the obvious inferences or make the obvious enquiries, the question is: why not? If it is because, however, foolishly, he did not suspect wrongdoing or, having suspected it, had his suspicions allayed, however unreasonably, that is one thing. But if he did suspect wrongdoing yet failed to make enquiries because "he did not want to know” … or because he regarded it as "none of his business"…, that is quite another. Such conduct is dishonest.” • It is irrelevant whether making inquiries would have led to the truth or not. o What is it we must show the defendant knew/ought to have known? It needn’t be precise. Agip (Africa) Ltd v Jackson – it is not necessary to know the precise nature of the fraud or the identity of the victim. There was some evidence that they suspected a fraud (escaping Tunisian legal regulations) to a different victim and of a different type but this was held to be irrelevant.

Answer 2

- This was an interlocutory decision: an appeal against grant of a Mareva injunction. Director of a company was in dishonest breach of duty. Company funds were diverted to Cyprus. This claim was against a Cypriot Bank which was paid substantial sums in sterling in London in return for the payment of Turkish lire in Northern Cyprus. Was there anything in the circumstances that should have made the bank suspicious so that they should have made further enquiries? It was held that there was nothing as the company did have businesses in Cyprus and the Director had an unblemished reputation at the time. As a preliminary view the bank did not have sufficient knowledge to make its behaviour dishonest.

Answer 3

Both cases said it is enough D knows he is assisting in the misappropriation of money – that the recipient is not entitled. He doesn’t have to know the money is held on trust (or even what a trust is!).

Answer 4

held there has to be knowledge of facts, not just claims/allegations. Seems to be confirmed by Brunei Airlines where they said a ‘genuine doubt’ meant there was no liability. • This case was a knowing receipt case but is said to be relevant to both situations. The defendants were solicitors to a West German foundation from which they received money for fees and disbursements. The East German claimants alleged in legal proceedings that all the assets of the West German foundation belonged to them. Could the defendant solicitors have knowingly received money not belonging to the W German Foundation but to the E German Claimant. Held mere knowledge of a claim asserted by another party is insufficient unless it is known that the claim is well-founded. Here there was no such knowledge.

Answer 5

Why did the PC in Royal Brunei Airlines reject negligence as sufficient for liability? They said that you cannot expect all 3rd Parties to owe a duty of care to ensure that there has been no BoT. A 3P should only be liable for negligence if he/she has voluntarily undertaken a duty of care. If someone has done this, then they can be held liable in contract or tort. Thus no equitable remedies are necessary. Ultimately underlying this decision must be that we don’t want to discourage people from acting as agents – don’t want to impose too high a level of conduct on them.

Answer 6

Against that there are strong arguments negligence should be sufficient – perhaps specifically when we are talking about professional agents (banks, solicitors, accountants). * Many professionals hold themselves out as having high standards of expertise. They are promising to perform at a particular level and should thus be liable if they fail to fulfil that. * Professionals would become insurers for the defaults of trustees and fiduciaries. There would always be someone a beneficiary can sue. Ultimately people would have to pay for this as the professionals would increase their fees because of the risk. But it makes sure there is insurance. * Arguably the most compelling argument – it would place professionals in the role of policemen. Auditors are there to find any problems with accounts – the idea is not new that professionals police behaviour. Money laundering statutes impose a high standard on professionals at the risk of criminal liability. It may not be increasing the burden too much.

Answer 7

At what time must the recipient have the knowledge in order to be liable? Once he knows that it is trust property he should act consistently with this. If he is a bona fide purchaser for value without notice, then he doesn’t acquire trust property in the first place and there can never be personal liability. There will obviously be liability imposed upon someone who receives property with knowledge at the time of receipt that it is trust property who then goes on to deal with it inconsistently with the trust. There will also be liability imposed on someone who has no knowledge when he acquires the property but then acquires the relevant degree of knowledge before he actually deals with the property. A recipient who deals with the property before acquiring relevant knowledge will not be liable.

Answer 8

If there was knowledge in the past but it has been forgotten, then there will not be liability. The case concerned a succession of Dukes of Manchester. In 1923 the 10th Duke promised to create a trust of chattels to which he would become entitled on the death of the 9th Duke. The trustees were meant to draw up an inventory but did not. When the 9th Duke died in 1947 all the chattels were released to the 10th Duke. He disposed of some items. After his death in 1977 the 11th Duke brought an action against his estate. It was held that the estate of the 10th Duke would only be liable in relation to those assets which had been disposed of if the 10th Duke had disposed of those assets with knowledge that they were subject to the 1923 settlement. On the facts it wasn’t clear whether the duke knew of the relevant terms of the settlement, but it was clear that his solicitor had known of them. The courts said even if he had known of them, he had clearly forgotten them and therefore there was no liability.

Answer 9

Made clear the position in English law - contrary to the statements of multiple judges and academics who believe that liability should be receipt based. Nicholls LJ in Royal Brunei Airlines; Millet LJ in Twinsectra expressed these views obita. Though we don’t know what level of knowledge is required for their to be liability, it is clear that there is some required and that liability is fault based (not strict).

Answer 10

Arguably there are 2 historic reasons – firstly many of the cases concerning recipient liability include a discussion of accessory liability too. Even when the facts have only given rise to one of those liabilities, the judgments have contained a thorough discussion of both. This inevitably means that recipient liability has been influenced by the requirements for accessory liability. Secondly, there are thoughts that the courts are imposing a constructive trusteeship. Much like constructive trusts these seem to be linked to matters of conscience and unconscionable behaviour.

Answer 11

2 of the leading proponents of imposing strict liability in this situation are Lords Millett and Nicholls. A summary of their main points: - There should be harmonisation between the equitable rules for liability and the common law rules. - Recipient liability that is personal, is never the less bound up with the availability of a proprietary remedy against the recipient through tracing. The only difference is that proprietary remedies are only available if the recipient still has the property or its proceeds. The argument goes that liability should be imposed in the same circumstances regardless of whether the recipient still has the trust property or not. - This would also recognise the endurance of property rights; the unjust enrichment of the recipient at the expense of another; and to create a logical and coherent system of restitutionary remedies.

Answer 12

How would strict liability work? All you would need to show is that somebody receives trust property. State of knowledge would be irrelevant (unless the recipient was a bona fide purchaser for value without notice). A volunteer would always be liable, as would a purchaser for value with some knowledge. Fairness would be ensured by allowing an honest and reasonable defendant to make use of the defence of change of position. Basically the burden of proof would be reversed. Rather than the beneficiaries having to prove the recipient had the necessary degree of knowledge, the recipient would have to prove they should be excused from liability.

Answer 13

This is available to an innocent person acting in good faith who has changed his position so that it would be inequitable to require him to pay compensation or full compensation. The defence is never available to a wrongdoer. It is not entirely clear what degree of knowledge makes someone a wrongdoer. A sufficient change of position would seem to require some sort of extraordinary expenditure. Other than that we don’t know enough about the defence, it is to develop on a case-by-case basis.

Answer 14

- The reversal of the burden of proof is regarded as commercially unworkable – Norse LJ in Akindele. - It is also considered an unfair reallocation of risk onto third parties. - For organisations such as banks it would be very difficult to prove that nobody within them had any knowledge. Commercial bodies would feel that such liability did not protect them sufficiently. - Those who argue for receipt based liability say that fairness will be included in the law by the change of position defence. However this defence is relatively new (only accepted as law in 1991) and therefore it is not clear whether it would protect everyone who ought to be. Simon Gardner argues this – liability should be incorporated into the test itself, not in a defence. It is important that the law is fair, and that innocent and honest recipients of trust funds are not found personally liable. This is an equitable rule of liability and equity is all about conscience and fairness. We can say the recipient will have benefited from the money received (clearly the recipient no longer has the trust money but he may have enjoyed it very much) but the recipient has probably spent money he otherwise would not have. Maybe he couldn’t have afforded to go on holiday but the windfall justifies it If you then require them to pay compensation from their own pocket they will be worse off. We need to justify imposing liability on someone who is honest and innocent. The defence of change of position is still unclear. Bear in mind that the courts are not just imposing personal liability – they are imposing a constructive trusteeship. This gives rise to greater obligations than mere personal liability. There is a liability for profits, to pay interest and a lack of limitation periods. If the courts were simply imposing personal liability it might be easier to argue for receipt-based liability.

Answer 15

Not a particularly important claim because its availability is servely limited. But it’s interesting that it’s available at all. Equity imposes strict liability on a recipient of property. It is primarily important as evidence that equity will do this in some circumstances. There is also a suggestion that there is scope for expanding this claim.

Answer 16

The case was concerned with the payment of sums to charity in response to gifts in a will. The gifts turned out to be invalid and so the testator’s next of kin tried to recover the sums. The AC considered proprietary and personal liability. The HoL however simply considered personal liability on the charities. If you look at the start of this section, the HoL held that “if, in the administration of an estate, a payment has been wrongfully made, any unpaid or underpaid creditor, legatee or next of kin can recover that payment from the recipient.” Therefore the charities were held to be personally liable to the next of kin for the sums they had wrongfully received. Clearly here it was by next of kin as against charities who appeared to be beneficiaries under the will but were not because it was deemed to be invalid. It would also apply if a beneficiary had been overpaid or if payment was made to someone who was in fact not a beneficiary at all. The reason for the mistaken payment is irrelevant, the only Q is: was a payment wrongfully made? It is clearly a situation of receipt based liability. The charities were clearly completely innocent but were not allowed to benefit from the windfall they’d received. Unlike recipient liability this did not involve the imposition of a constructive trusteeship. There was simply an obligation to make a payment – personal liability.

Answer 17

There are some limitations on the claim – it is only available against a volunteer (not a purchaser for value). The claimant has to sue the personal representatives first (this is only backup liability). They can only claim the principle sum and not interest. There seems to be no justification for limiting it. Why should there be a difference between a beneficiary under a will and under an inter vivos trust. There is possibly scope for extending this if the courts wish to. There are defences available: - Bona fide purchaser - If the claimant acquiesced in the payment - 12yr limitation period - Maybe the change of position defence will be available – we don’t know yet. This claim will be completely irrelevant if receipt liability becomes strict. If it remains fault based then this claim is in theory useful.