Third Party Liability Flashcards
Knowing Receipt and Dishonest Assistance
What are the two main personal claims that a beneficiary may bring against a third parrty for a breach of trust?
- Knowing Receipt: Defendant received property / a right held on trust for their own benefit as a result of a breach of trust, and it would be unconscionable for them to retain it
- Dishonest Assistance: A form of accessory liability in which the defendant dishonestly assists, encourages or procures a breach of trust
Why may a trustee wish to sue a third party over the trustee?
- If the trustee is insolvent and would be unable to satisfy any claim
- Third party defendants in most cases are financial institutions or professionals with insurers who can pay
What three things must be satisfied for dishonest assistance?
- Primary wrong (i.e. breach of trust by trustee in the first place)
- Conduct element
- Mental element
What is the conduct element required for dishonest assistance?
- D must do anything that helps the commission of the breach of duty, assistance given natural meaning, must not be of minimal importance
- This is different to procuring or inducing the breach to happen, in which case D will be liable as constructive trustee
- The breach of Trust does not need to be dishonest itself per Tan
What is the mental element required for dishonest assistance?
Royal Brunei Airlines v Tan
* Dishonesty means simply not acting as a honest person would, an objective standard but still importany to establish what the defendant knew
* If a person knowingly appropriates another’s property he will not escape a finding of dishonesty because he sees nothing wrong in such behaviour
* It matters not whether the trustee has been dishonest or not, it only matters how the third party acted
Twinsectra v Yardley
* Confirmed Tan as good law as it was a Privy Council decision
* However, Lord Hutton seemed to depart from the test by adding that the D must have realised that what he did would be considered dishonest by reasonable people (subjective standard)
* Makes the test similar to criminal law, which Lord Nicholls in Tan did not want
* Lord Millet dissented arguing this addition introduced an unecessary distinction between the equitable claim and its tort counterparts
Group Seven v Notable Services
* Once the relevant facts have been ascertained, including D’s state of knowledge, the standard of appraisal should be purely objective (i.e. dishonest according to the standards of ordinary people)
What is the remedy available in a claim of dishonest assistance?
D is said to be a constructive trustee, therefore they will have the same liability as an express trustee to restore trust assets without deduction for fiscal liabilities
Novoship (UK) V Nikitin
* Follows from the fact that D is held liable as if he were a true trustee that he is liable to make good loss and to account for profits
* Gain based remedies are in principle rightly considered to be available against an accessory
* Notion of a sufficiently direct causal connection in gains made by the assistant and beneficiaries lost
What are the elements required for knowing receipt?
- Proprietary Base
- Breach of Trust
- Beneficial Receipt of Property
- Fault
What is meant by proprietary base?
Claimant in knowing receipt must have an equitable proprietary interest in the property. Claimant must be able to follow or trace their interest to the defendant
How must the third party receive the trust property?
Must recieve such in breach of the trust
* Criterion Properties v Stratford UK Properties: If A was acting for an improper purpose when they entered into an agreement, their ability to have it set aside depends on the application of company law. If the agreement is valid and therefore not set aside, questions of ‘knowing receipt’ by B do not arise
When will a claim in knowing receipt fail?
Byers v Saudi National Bank
* Transfer of the property to a bona fide purchaser for value without notice extinguishes the original proprietary equitable interest
* This is the case even if they later learn of such interest, or transfer it to another party who knew of it
* Extinction or overriding on a proprietary equitable interest by the time the recipient receives the property defeats a proprietary claim
* It would be logically inconsistent for the law to allow the personal claim in KR to survive where the proprietary claim has been defeated
What does it mean for the party to recieve the property beneficially?
Must receive the property for their own use and benefit
* Agip (Africa) v Jackson: Essential feature is that it must have been received for his own use and benefit. A bank paying or collecting money for a customer is not receiving it beneficially and is acting only as an agent. The exception is where money is being used to pay a customers overdraft.
What is the mental standard required for knowing receipt?
Re Montagu’s Settlement Trusts: whether a constructive trust arose depended on whether the recipient had actual knowledge, and not notice (subjective)
BCCI v Akindale:
* To be liable in knowing receipt it is not necessary to show the defendant had acted dishonestly
* Receipient’s stage of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt
Papadimitriou v Credit Agricole Corporation & Bank
Seems to show support for an objective test of unconsionability, must be something defendant knew, or would have known if he had reasonable appreciation of information, which calls for inquiry. Cannot say there might have been an honest explanation if he has not made inquires suggested by the facts to ascertain whether there is
What is the remedy for knowing receipt?
- Novoship: knowing recipient has the responsibility of an express trustee
- Most common remedy will be a personal restitutionary remedy for the value of the property received
- If the claimant’s losses exceed the defendants gains, then a compensatory remedy should be available
