Remedies Against Third Parties

Question 1

what is the starting point for this type of claim?

Answer 1

Q1 - has the third party received property in breach of trust / fiduciary duty?

Question 2

if the 3rd party has not received property in breach of trust / fiduciary duty, what can B do?

Answer 2

bring a claim for dishonest assistance (also called accessory liability)

Question 3

who is usually the defendant to a dishonest assistance claim?

Answer 3

professionals i.e. solicitors, accountants, financial advisors

Question 4

when can B bring a claim for dishonest assistance?

Answer 4

where a third party assists a trustee in the commission of a breach of trust or fiduciary duty, B may be able to bring a personal claim against the third party up to the value of any loss their assistance has caused (plus interest)

Question 5

what will B need to prove for a dishonest assistance claim?

Answer 5

1. there was a breach of trust / fiduciary duty (it is irrelevant whether T acted dishonestly or intentionally in this breach)
2. the 3rd party must have assisted in the breach
3. the 3rd party must have acted dishonestly in providing the assistance

the 3rd party need not know they are assisting in a breach to be liable

Question 6

re: dishonest assistance claim

explain ‘the 3rd party must have assisted in the breach’

give examples

Answer 6

this must have been a positive act)

common forms of assistance include:
- solicitors drafting documents to help T commit a breach
- accountants drawing up accounts to hide T’s breach
- bankers setting up accounts in which proceeds of the breach are received

Question 7

re: dishonest assistance claim

explain ‘the third party must have acted dishonestly in providing the assistance’

give examples

Answer 7

this is an objective test.

the court must ask whether the ordinary, honest person imbued with the same experience and intelligence as the actual D would have acted differently

i.e. if a normal person wouldn’t have acted, or would have asked questions before doing so, it is likely D’s conduct will be dishonest

Question 8

if the 3rd party received property in breach of trust / fiduciary duty, what can B do?

Answer 8

they can either bring:
1) a personal claim for knowing receipt; or
2) a proprietary claim to recover TP still in the hands of the third party

Question 9

when can a personal claim be brought?

Answer 9

where a third party receives property in breach of trust up to the value of the trust property they received (plus interest from the date of receipt)

Question 10

what must B prove to bring a claim in knowing receipt?

Answer 10

1. the third party received property in breach of trust or fiduciary duty (may need to use tracing rules to establish they received trust property rather than money belonging to the trustee)
2. they must have received the property for their own benefit (rather than someone else’s)
3. while in receipt of the property, they must have such knowledge that made it unconscionable for them to retain the property as if it were their own

Question 11

re: claim in knowing receipt

explain ‘such knowledge that made it unconscionable for them to retain the property as if it were their own

Answer 11

it is not clear how far this test will extend, but case law has confirmed it will be unconscionable for the third party to retain the property where:
- 3rd party knew the property belonged to a trust;
- 3rd party wilfully shut their eyes to the obvious;
- 3rd party deliberately refused to ask questions (notwithstanding they had suspicions about where the property came from);

Question 12

re: proprietary claim

what is the starting point for this claim?

Answer 12

B must establish what category the third party falls into

Question 13

re: proprietary claim

what are the categories of third party?

Answer 13

1. bona fide purchaser for value without notice
2. wrongdoing recipient
3. innocent of knowing receipt

Question 14

re: proprietary claim

explain bona fide purchaser for value without notice

Answer 14

this is someone who paid for the property but did not know it was trust property

Question 15

re: proprietary claim

what is the effect if the 3rd party is a bona fide purchaser for value without notice?

Answer 15

then the claim cannot be brought. This is a barrier to a successful claim because they are ‘equity’s darling’

Question 16

re: proprietary claim

explain ‘wrongdoing recipient’

Answer 16

i.e. they are an intermeddler or they are guilty of knowing receipt (they received the trust property knowing it was trust property)

Question 17

re: proprietary claim

explain ‘innocent of knowing receipt’

Answer 17

i.e. they received the property as a gift and had no knowledge of the breach

in this case, they are an innocent volunteer. A proprietary claim can still be brought, but the innocent tracing rules (Clayton’s case and Barlow Clowes) are used

Question 18

re: proprietary claim

when is the Re Diplock defence available?

Answer 18

this is available to innocent volunteers in the cases of mixed funds where the 3rd party has used the money to improve buildings they owe. B will not be able to trace into the property where:

1) the improvement has not increased the property value. Therefore, the TP has been ‘dissipated’; or

2) the improvement has caused an increase in value, but it would be inequitable to force the third party to sell their home (if a lien was allowed then B could force the sale of their home)

Question 19

what should B consider before bringing a claim?

Answer 19

i.e. whether there is any property, any limitation issues

the same considerations discussed in the remedies against trustees flashcards

Question 20

what is ‘intermeddling’?

Answer 20

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.

Question 21

what action can be brought against an ‘intermeddler’?

Answer 21

a personal action

Question 22

give an example of intermeddling

Answer 22

T appointed an agent to collect rent. The agent paid the rent into an account in their name. The agent continued to do so after T died.

The agent claimed the money belonged to him.

However, the agent’s mandate ceased on the death of his principal (the expressly appointed trustee). He was therefore no longer acting as an agent. However, by continuing to collect the rent – ie handling trust income – the agent was doing acts characteristic of a trustee. The agent was therefore personally liable for his actions and had to account for the rent he had collected to the trust

Question 23

re: claim in knowing receipt

what is meant by ‘while in receipt of the property…’

Answer 23

the claim will only succeed if the third party had the requisite degree of knowledge whilst in receipt of trust property, i.e.:
- they knew when it was transferred to them; or
- they gain knowledge before they spend it

they will not be liable if they only became aware after they have spent it

Question 24

re: proprietary claim

how is property recovered from an innocent recipient?

Answer 24

1. if the third party still has the TP a standard proprietary claim against the TP
2. if the third party has used the TP to purchase something else, then a proprietary against the new property
3. if the third party has mixed trust funds with their own money to purchase a new asset, then a claim against the asset (they will claim a proportionate share)
4. if the third party has taken trust funds and mixed this with funds in their own bank account and made withdrawals, then the Clayton’s case and Barlow Clowes tracing rules

Question 25

re: proprietary claim

how is property recovered from a wrongdoing recipient?

Answer 25

1. if the third party still has the TP a standard proprietary claim against the TP
2. if the third party has used the TP to purchase something else, then a proprietary against the new property
3. if the third party has mixed trust funds with their own money to purchase a new asset, then a claim against the asset (they will claim a proportionate share)
4. if the third party has taken trust funds and mixed this with funds in their own bank account and made withdrawals, then the Re Hallett and Re Oatway tracing rules

Question 26

re: proprietary claims

when is Re Diplock defence not be allowed?

Answer 26

1. against wrongdoing recipients. Bs are entitled to bring a claim against the property.
2. in the case of mixed assets, including innocent parties (i.e. the third party takes trust money and combines it with their own to put a deposit down, Bs can assert an interest in the house proportionate to their contribution)

Question 27

what is the advantage of a dishonest assistance claim?

Answer 27

if it is brought against professionals, they are usually insured and so have the means to pay

Question 28

who can bring these claims against third parties?

Answer 28

any principle to a fiduciary relationship where there has been a breach of duty (i.e. this isn’t limited just to trustees and Bs)