Remedies (Claims Against Third Parties) Flashcards
Where a 3rd party receives property in breach of trust, what are the possible claims?
2 main considerations:
- (A) Is the 3rd party financially solvent?
- (B) Does the 3rd property own property of value/interest?
Four possible scenarios
1) A+B = Yes
* Personal and proprietary claims are possible
2) A = Yes, but B = No
* Personal recipient claims
3) A = No, but B = Yes
* Proprietary recipient claims
4) A + B = No
* No practical point in bringing 3rd party claim
Where a 3rd party receives property in breach of trust and a personal claim is possible, what will be the maximum value of these?
Personal claims under these will be up to the value of any loss the 3rd party’s assistance has caused and are for ‘knowing receipt’
Where the 3rd party has not received property in breach of trust, what possible claims might arise?
In this situation, main consideration is whether the 3rd party assisted with the breach
- If yes - Dishonest assistance claim
- If no - There is no claim
What is intermeddling?
A 3rd party who isn’t a trustee, but acts as if they were one, is held personally liable for any losses caused by their actions, as if they were expressly appointed as a trustee
What is needed for a claim of dishonest assistance?
To bring a claim, need to prove 3 things:
1) There was a breach of trust or fiduciary duty
- Whether trustee acted dishonestly or intentionally is irrelevant
2) The third party assisted in that breach
- Assistance must be a positive act
- Drafting documents
- Drawing up accounts to hide breach
- Setting up accounts where proceeds can be transferred
3) Their assistance was dishonest (objective test)
- Court must ask whether the ordinary, honest person imbued with the same experience and intelligence as D would have acted differently
- If they would have acted differently, D’s conduct is likely dishonest
The 3rd party doesn’t need to know they are assisting a breach of trust specifically
Who are often targets for a dishonest assistance claim?
Commonly brought against professionals like solicitors, accountants and financial advisors
When should a claim for knowing receipt not be brought?
As it is a personal claim, don’t bring it if 3rd party is bankrupt.
It is useful if the 3rd party no longer has trust property
What is needed for a claim of knowing receipt?
To bring a claim, need to prove:
1) Third party received property in breach of trust/fiduciary duty
- May use tracing rules to identify trust property
2) Third party must receive property for their own benefit
- Rather than someone else’s benefit
3) Third party must have such knowledge as to render retaining/dealing with the property unconscionable
- Where a third party knows that the property belonged to a trust or they have wilfully shut their eyes to the obvious or deliberately refused to ask questions about it, this will make it unconscionable for them to deal with/retain the property, as if it was their own
- Claim won’t succeed if someone only finds out they received trust property after they have disposed of the property
If the 3rd party has trust property in their possession, a proprietary claim may be appropriate.
How will a proprietary claim work against a bona fide purchaser for value without notice?
There is no claim
- Paid for property without knowing it belonged to a trust
- This third party is known as equity’s darling
If the 3rd party has trust property in their possession, a proprietary claim may be appropriate.
How will a proprietary claim work against someone guilty of knowing receipt?
1) Treat them like a trustee
- Received property, knowing it was trust property
2) Can use same tracing rules as you would for a trustee
- Take original property
- Clean substitution
- Proportionate share or lien on mixed asset
- Re Hallett and Re Oatway – mixed funds and various withdrawals
If the 3rd party has trust property in their possession, a proprietary claim may be appropriate.
How will a proprietary claim work against someone innocent of knowing receipt?
1) Treat them like a beneficiary
- Received property as a gift, but had no knowledge of breach of trust
- They are known as an innocent volunteer
2) Must use ‘innocent’ set of tracing rules
- Take original property
- Clean substitution
- Proportionate share in mixed asset, regardless of increase or decrease in value
- Mixed funds in account and various withdrawals - Clayton’s Case and Barlow Clowes
3) With mixing funds in account, innocent volunteer has a defence if they use the trust money to improve buildings they already own
- Beneficiary cannot trace an interest in the improvement
- Doesn’t apply to wrongdoing recipients
- Does not apply to mixed assets/property yet to be acquired (deposit on a house made of mixed funds)
