Topic 4 - Accessories: Intermeddlers in trust and fiduciary relations Flashcards
Trust and fiduciary relations
o A trust imports fiduciary obligations between trustee and beneficiary
o A trust is also called a fiduciary relation
o Underlying wrong must be a breach of trust or a breach of fiduciary duty
o Accessory wrong is the dishonest assistance or knowing receipt of the breach of relations
o A trustee (fiduciary) must not benefit from their trust
o Boardman v Phipps
Traditional accessory liability
o Barnes v Addy
o Division into 1. Knowing Receipt and 2. Knowing Assistance
o Problems with this – what amounts to knowledge? What is a constructive trustee in this context?
Shades of knowledge: Baden Delvaux
o Baden Delvaux
o Actual Knowledge
Actual knowledge
Wilfully shutting one’s eyes to the obvious
Wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make
o Constructive Knowledge
Knowledge of circumstances which would indicate the facts to an honest and reasonable man
Knowledge of circumstances which would put an honest and reasonable man on inquiry
o Problems with this – such variability was seen
Dishonest assistance - from knowledge to assistance
o Royal Brunei Airlines v Tan
The trustee’s does NOT need to be dishonest – the accessory’s breach MUST be
Introduced fault-based liability – got rid of the Baden-Delvaux scale and instead we should ask if the assistant was dishonest
Two kinds of dishonesty:
* Was the conduct dishonest by the standards of ordinary decent people? (OBJECTIVE)
* Did the defendant realise that his behaviour was dishonest by those standards? (SUBJECTIVE)
Decided only the OBJECTIVE limb was required – rejected old criminal law Ghosh test
Dishonest assistance - brief time of subjective honesty
o Twinsectra v Yardley
Three kinds of dishonesty:
1. Purely subjective: the defendant’s personal view of morality (‘Robin Hood Test’)
2. Purely Objective: ‘was the conduct dishonest by the standards of ordinary decent people?’ (Tan)
3. Combined test: Objective dishonesty plus awareness the conduct was dishonest by the standards of ordinary decent people (rather than D’s own standards)
Held: COMBINED test was required – applied Ghosh
o Lord Millett’s dissent:
Dishonesty connoted ‘moral turpitude’ or conduct that is ‘morally reprehensible’
Consciousness of wrongdoing is an aspect of criminal law – knowledge is more apt for civil liability
Subjective dishonesty is a jury question
Consequently, knowledge is more appropriate than dishonesty as the test
Dishonest assistance - labelling dishonesty or knowledge?
o Three Rivers DC v Bank of England
Dishonesty and knowledge are rather like the chicken and the egg, but Lord Nicholl’s reference to a ‘gradually darkening spectrum’ explains the difficulties inherent in the ‘sort’ of knowledge required
Agreement with Lord Millet’s Twinsectra dissent
Dishonest assistance - back to objective dishonesty?
o Barlow Clowes International v Eurotrust International
Declared that Twinsectra involved OBJECTIVE dishonesty all along – went back to Tan
The law is Tan – apply this to problem question
o Ivey v Genting Casinos
OBJECTIVE test was applied at the highest lebel to a non-fiduciary accessory case
o Stanford International Bank v HSBS Bank; Group Seven v Notable Services
Ivey was applied in dishonest assistance cases
o Barton v Booth
OBJECTIVE dishonesty was applied to criminal law
Dishonest assistance - complications in the objective test
o Royal Brunei v Tan
The court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did
o Weavering Capital v Dabhia & Platt
Should not completely disregard subjective elements
Held not liable for dishonest assistance as doing ‘his incompetent best’
Should assess 3rd party on basis of actual knowledge at time not what they should have appreciated but should take into account intelligence etc (subjective characteristics)
Dishonest assistance - must be assistance as well as dishonesty
o Brinks v Abu-Saleh (No 3)
There must be factual assistance as well as dishonesty
Wife knew she was married to someone doing dodgy actions but did not know about robbery. She did not actually do anything to assist – she was just in passenger seat
Knowing receipt - elements
o The defendant must receive trust property or property belonging to the fiduciary
o Elements
o El Ajou v Dollar Land Holdings (No. 1)
1. Disposal of assets in breach of trust of fiduciary duty (trustee wrongly gives property to someone)
2. Beneficial receipt of property (accessory must beneficially receive it)
3. Knowledge (recipient must know of wrongdoing)
Knowing receipt - knowledge standard
o BCCI (Overseas) v Akindele
The recipient’s state of knowledge must be such as to make it UNCONSCIONABLE for him to retain the benefit of the receipt
Dishonesty NOT required
o Starglade Properties v Nash
This is a flexible test, which requires the court to consider what is right, taking into account the nature and extent of the defendant’s knowledge and all the circumstances relating to the receipt
Means that actual knowledge which would put a reasonable man on enquiry, coupled with a failure to enquire, may suffice
Knowing receipt - strict liability?
o Twinsectra v Yardley
Liability for ‘knowing receipt’ is receipt-based. It does not depend on fault. The cause of action is restitutionary
o Strict liability formula
1. That the defendant has been enriched
2. This enrichment was gained at the claimant’s expense
3. The defendant’s enrichment at the claimant’s expense was unjust
The defendant is not liable is she can show she changed her position bona fide in reliance of the receipt
There was a push to remodel knowing receipt in this image by Lord Nicholls of Birkenhead, Lionel Smith, Peter Birks
o Could this be a more effective claim – unjust enrichment?
Lipkin Gorman v Karpnale
Partner in firm of solicitors had gambling problem – stole money from client account and spent it at casino. Law firm tries to get money back from casino. Client account fund is held as a trust. Is this dishonest assistance? Did not have sufficient knowledge to know of receipt. Was unjust enrichment
o However the law still remains with Akindele
Trusteeship de son tort (de facto trustee)
o The wrong is that someone acts like a trustee when they have not been formally appointed
o Mara v Brown
o Where they assumed the position of a trust in fact, even though not properly appointed, and they intended to act as trustee
o Re Barney
o Where a person has obtained such command or control; of the trust property that they can call for title to be vested in themselves
o Blyth v Fladgate
o F’s solicitors held exchequer bills on trust. There were three trustees and solicitor were not actually a trustee. The wrong of the solicitors made it a Trustee de son tort. Invested the exchequer on mortgages and trusts suffered losses – this was breach of trust. Beneficiaries successfully sued the firm.
o They were liable as became trustees without being properly authorised and they mismanaged the trust which amounted to breach of trust.
The equitable proprietary claim
o Knowing receipt is a personal claim, so it brings none of the advantages of the proprietary claim.
o However, if the recipient had disposed of the property a personal claim is all there is left, enabling the claimant to sue for the property’s money equivalent
o Disadvantage: you need to prove knowledge rather than ‘notice’, which is harder to do
o The equitable proprietary claim us available against all recipients EXCEPT Bona Fide purchasers for value without notice of the breach of trust or fiduciary duty
o Advantage: if the recipient has not given value, there is no need to prove any level of notice or knowledge at all
o If the recipient has given value, one needs to prove notice, which is easier to do so
o Both are constructive – the courts will infer what one ought to have known even if one dd not know it
o Eagle Trust v SBC Securities
o ‘Notice’ is often used in a context where the facts do not support the interference of knowledge. A man may have actual notice of a fact and yet not know it (he may have been supplied with a document and so have actual notice of its content, but he may not have read it or read it a long time ago and forgot it)
o Re Montagu’s Settlement Trusts
o Duke 10 received valuable chattels from previous Duke 9’s settlement. Had use of them but not ownership, they were on trust. He sold them. Duke 11 was beneficiary.
o Duke 11 sued his father’s estate for knowing receipt of these chattels (known value of what was taken). Did Duke 10 know there was a problem?
o Duke 10 relied on his solicitor to clear it and so didn’t have knowledge of the trust over the chattels. However his solicitor clearly did have knowledge if it – rule that if solicitor knows of it, you also have notice of it.
o Duke 10 has notice but not knowledge of this breach of trust. Back up claim was not made out as only notice not knowledge.
What are Constructive trusts and constructive trustees?
o ‘Constructive’ – not so, but treated as if so
o We treat a non-trustee as if a trustee and the relevant property, which is not on trust, as if it were
