Third Party Liability Flashcards
Trustees de son tort / De facto trustees
Where a stranger who had not been appointed as a trustee takes it upon himself to act as a trustee and deals with the trust property accordingly, he will be held liable for any breach of trust that was committed just as if he were in fact a properly appointed trustee.
what is third person liability
Third party liability is when a person has not been appointed as a trustee but chooses to act as if they are one therefore they are able to be held liable if they commit a breach of trust
Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555
In such a case the expressions ‘constructive trust’ and ‘constructive trustee’ are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are ‘nothing more than a formula for equitable relief’ - per Ungoed Thomas J.
Dishonest assistance: type of liability
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
[Beneficiaries] are entitled to expect that third parties will refrain from intentionally intruding in the trustee-beneficiary relationship and thereby hindering a beneficiary from receiving his entitlement in accordance with the terms of the trust instrument
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548
Cass, a partner in a firm of solicitors, had used money from the firm’s client account to finance his gambling habit. As well as seeking a remedy against the club in which the money had been spent, the firm claimed that the bank at which the client account was held was liable as an accessory to the partner’s breach of trust. The manager of the bank, which also held Cass’s personal account, had been aware that Cass had been cashing cheques at the casino and had warned him that his gambling was not controlled.
At first instance it was held that the bank had sufficient knowledge of Cass’s misuse of funds to render it liable to account for the money that had been misappropriated. The claim against the bank was, however, subsequently dismissed by the Court of Appeal33 on the grounds that the bank had not been sufficiently aware that a breach of trust was being committed.
Dishonest assistance: trust & breach of trust
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
The plaintiff airline used a firm to act as their agents for the sale of tickets. Under the contract between the parties, the firm agreed to hold any money received from the sale of tickets on trust for the airline until it was paid over. The defendant was the founder and principal shareholder of the firm. In breach of the terms of the contract the firm, authorized by the defendant, used money received from ticket sales for its own purposes. On the insolvency of the firm the airline claimed that the defendant was liable to account as an accessory to the breach of trust that had been committed by the firm.
Dishonest assistance: assistance
Brinks Ltd v Abu-Saleh (No 3) [1995] 10 WLUK 83
the defendant’s husband had couriered some of the proceeds of the Brinks-Matt gold robbery to Switzerland. It was claimed that the defendant had knowingly assisted in a breach of trust by accompanying her husband on his trips so as to give the impression that they were enjoying a family holiday, thus cloaking the illegal nature of his activities and making it easier for him to cross borders.
Rimer J held that she had not in fact assisted the breach of trust, and that she was not, therefore, liable to account for the £3 million her husband had couriered. He held that she had not participated in the breach because she was not party to the couriering agreements entered into by her husband, and he had carried out all elements of the couriering exercise. Her only role had been to provide him with company on the long and tiring drives. In essence, Rimer J seems to have held that a stranger will only be liable as an accessory if he participates in the breach by performing positive acts of assistance.
Adelaide Partnerships v Danison [2011] EWHC 4090 (Ch)
Mr Danison ran a fraudulent investment scheme, the proceeds from which were paid into an account on which his wife was a signatory. The judge held the wife was liable for dishonest assistance:
It is an obvious help to the setting up of a fraudulent scheme such as this that the fraudster should have available destination accounts to which the money can be transferred or through which it can be laundered, which served the purpose of frustrating, or impeding at least, the tracing of those funds from the account to which the victims of the fraud initially pay it. It would be very helpful to such a fraudster to have an account which was not, immediately at least, traceable to his name, but under what he might regard as friendly control.
Twinsectra v Yardley [2002] 2 AC 164 - combined test of dishonesty
…before there can be a finding of dishonesty, it must be established that the defendant’s conduct was dishonest by the ordinary standards of reasonable and honest people and that [the defendant] realised that by those standards his conduct was dishonest.
Starglade Properties Ltd v Nash [2010] EWCA Civ 1314
It was held that the deliberate removal of the assets of an insolvent company in order to defeat the legitimate claims of creditors was ‘not in accordance with the ordinary standards of honest commercial behaviour’ and the director responsible was therefore dishonest.
Ivey v Getting Casinos (UK) Ltd [2017] UKSC 62
an accountant member, Mr Landman, in a multi-disciplinary solicitors firm, was held liable for dishonest assistance for permitting monies from a client account to be used as part of a fraudulent money laundering scheme. The Court of Appeal stressed the importance of the objective nature of the dishonesty test as highlighted in Ivey:
[T]he defendant’s actual state of knowledge and belief as to the relevant facts forms a crucial part of the first stage of the test for dishonesty set out in Tan. But once the relevant facts have been ascertained, including the defendant’s state of knowledge or belief as to the facts, the standard of appraisal which must then be applied to those facts is a purely objective one. The court has to ask itself what is essentially a jury question, namely where the defendant’s conduct was honest or dishonest according to the standard of ordinary decent people.
Appeal dismissed – D had cheated
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669
[The defendant] cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, ie until he is aware that he is intended to hold the property for the benefit of others… or of the factors which are alleged to affect his conscience.
Baden Delvaux v Société Général [1983] BCLC 325
Baden knowledge categories
1. Actual knowledge, ie the knowledge someone possesses
2. Wilfully shutting one’s eyes to the obvious, ie deliberately ignoring something
3. Wilfully and recklessly failing to make inquiries that an honest man would make
(These 2 have been linked with negligence)
4. Knowledge of circumstances that would indicate facts to a reasonable and honest man, ie does not know all the details but could make a reasonable guess based on what he does know
5. Knowledge of circumstances which would put an honest and reasonable man on inquiry, ie doesn’t know all the details but knows enough to think that maybe he should ask some questions
Negligence as a standard of knowledge
El Ajou v Dollar Land Holdings Plc [1994] 1 All ER 685
[A] recipient is not expected to be unduly suspicious and is not to be held liable unless he went ahead without further inquiry in circumstances in which an honest and reasonable man would have realised that the money was [probably trust property].
BCCI v Akindele 2001
unconscionable receipt: breach of trust
the defendant received money as a return on an invalid loan. the liquidators claimed this sum on the basis that he had dishonesty received it and therefore held it as a constructive trustee. he did not know that he loan was fraudulent, nor of the other frauds that were being perpetrated within the group
held: he was not held liable to account as contructive trustee of the monies, since he had not acted unconscionably
