Remedies against third parties Flashcards
Third party claims
- equitable personal actions against third parties who take it upon themselves to act as a trustee - known as ‘intermedding’;
- equitable personal actions against third party recipients - the primary claim is often called ‘knowing receipt’;
- equitable proprietary actions against third party recipients; and
- equitable personal actions against third party assistors - the primary claim is often called ‘ dishonest assistance’
Intermedding
A third party who is not expressly appointed as a trustee, but takes it upon themselves to act as if they were, will be held personally liable for any losses caused by their actions as if they were an expressly appointed trustee. Susc third parties are referred to as a ‘trustee de son sort’ (a trustee of their own wrongdoing)
For example, an agent who collected rent after the death of trustee, ie he was no longer acting as an agent.
Equitable personal recipient liability (knowing receipt)
If a third party receives trust property without providing consideration for such receipt (ie they did not pay for that property), it may be possible to bring a personal claim against them. A key element of this claim is that the third party’s liability is fault-based - unless and until the third party was aware that they had received trust property.
The elements of this claim are as folllows:
a) the third party has received property in breach of trust or fiduciary duty;
b) the third party has received that property for their own benefit; and
c) while in receipt pf the property, the third party has such knowledge that makes it unconscionable for them to retain or deal with the property as if it were their own.
A claim for personal recipient liability will only succeed if the third party had the requisite degree of knowledge while in receipt of trust property. A third party will be liable if:
a) they receive trust property, knowing that property was transferred to them in breach of trust; or
b) they receive trust property without any knowledge that it belongs to the trust, but gain that knowledge while in receipt of the property and before they spend it.
BUT, the third party will not be liable where they only become aware that they received trust property AFTER they have disposed of that property.
Equitable proprietary claims
Where a trustee has transferred trust property to a third party, and that third party still holds that property, the beneficiaries may be able to assert a proprietary claim in order to recover that property.
The first step when bringing a proprietary claim to recover property held by a third party is to decide inro which of the following three categories the third party falls:
a) Bona fide purchaser for value without notice. No proprietary claim
b) Wrondoing recipient. A proprietary claim is possible, the harsher tracing rules are relevant.
c) Innocent volunteer (no consideration and no knowledge). Proprietary claim can still be brought, but tracing ruels are kinder.
WRONGDOING TRACING RULES:
a) if the third party still holds trust property in its original form, the beneficiaries can assert a proprietary claim against that property to recover it.
b) If the third party has used trust property to buy something new, the beneficiaries can assert a propertietary claim against that new property.
c) If the third party mixed trust funds with their own money to purchase property in their own name, the beneficiaries can assert a proprietary claim agains that mixed asset. They can claim a proportionate share in the mixed asset or assert an equitable lien over the mixed asset, depending on whether the mixed asset has increased or decrased in value.
d) If the third party has taken trust funds and paid this into their own bank account mixing it with monet of their own, before making various withdrawals from that bank account, the beneficiaries will use the tracing rules of Re Hallet and Re Oatway to determibe into what forms of property they can trace.
INNOCENT TRACING RULES
Same with exceptions in (d), ie the beneficiaries will use the tracing rules of Clayton’s case and Barlow to determine into what forms of property they can trace.
BUT, when it comes to the mixing of monies in a bank account, the innocent party might be able to assert a defense against the beneficiaries’s proprietary claim. If an innocent party receives trust money and uses that money to improve buildings they already own, then the beneficiary will not be able to trace any interest into that improvement.
Equitable personal accessory liability (dishonest assistance)
If a third party assists a trustee in the comission of a breach of trust or fiduciary duty, it may be possible to bring a personal claim against them up to the value of any loss their assistance has caused. The third party’s liability is fault-based - the third party must have acted dishonestly when providing that assistance.
For instance:
a) a solicitor if they draft documents that help the trustee commit a breach of trust;
b) an accountant if they draw up accounts that help the trustee hide their breach of trust; and
c) a banker if they set up accounts to which trust monies are wired in breach of trust.
