Summary Liability of Strangers Sumamry notes- Equity and Trusts
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Course
Law of Trusts (LX2083)
Institution
Brunel University (BU)
Book
The Principles of Equity & Trusts
These are notes on liability of strangers created in 2019. They follow a structured format which condenses the relevant case law, statutory provisions and academic opinion that are relevant to the topic to aid with exam revision.
Equitable remedies Summary notes- Equity and Trusts
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Law of Trusts (LX2083)
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Strangers as constructive trust (liability of 3rd parties) still held to be liable even there was no dishonesty from
the trustee
Personal liability of third parties: Brinks Ltd v Abu-Saleh – Must be shown that the
Different from liability owed to beneficiary by trustee or accessory assisted in the enterprise or breach. The
fiduciary assistance need not to have been the cause of the loss
Can take form in two ways but must have been positive as opposed to passive
Strangers may be liable to beneficiary under conduct. Merely accompanying someone committing a
Accessorial liability (dishonest assistance) breach is not relevant assistance
Receipt based liability (knowing receipt) (unconscionable 4. Fault-
receipt) Agip (Africa) Ltd v Jackson- The true distinction is
Strangers are liable as if they were trustees due to their between honesty and dishonesty and not between
improper behaviour. Some of the duties and obligations various levels of knowledge
of a trustee are imposed upon them Zambia v Meer Care- The stranger must be shown to
Paragon Finance Plc v DB Thakerar & Co/Dubai have had a dishonest state of mind, negligence will not
Aluminium Company v Salaam- Strangers become suffice
trustees in all but name Before Tan, the test was knowledge based (Barnes v
Where the trustee/fiduciary has retained the property, Addy)
the claim will usually be a proprietary one. When third No loner concerned with the state of mind of trustee
parties improperly acquire trust property the claim is a after Tan, breach of trust is always breach
personal one Royal Brunei v Tan- What is honest conduct is not
subjective and is not based on the moral standing of
Accessorial liability: each individual
Happens when third party has assisted, encouraged or Defining dishonesty- fault:
facilitated a breach of trust resulting in loss to the
beneficiary principle Tan- Old test of knowing assistance/Baden categories no
Takes form in two ways longer relevant. An appropriate test for fault should be
Primary liability- accessory liable due to the commission dishonesty rather than simple knowledge of the breach,
by himself of a primary wrong move towards a more objective test
Secondary liability- Accessory liable in a secondary sense Two issues in determining liability which are the extent
for encouraging or assisting in a breach of trust of the defendant knowledge concerning the breach and
Dishonest assistance in a breach of trust: would a reasonable man consider the defendant
Where a third party assist a trustee or fiduciary in culpable in the light of what he knew (element of
breach of their duties, the 3rd party may be personally subjectivity)
liable to the principal/beneficiary After Tan
Focus is on the accessory’s state of mind, originally Twinsectra v Yardale- Courts chose to follow a hybrid
known as knowing assistance tests of subjective and objective elements
Barnes v Addy- requirement that the 3rd party must Courts were unsure which case to follow after this but
assist in the breach of trust. Strangers are not made to should have followed Twinsectra as it was a HOL case
be constructive trustees unless the agents receive trust Barlow v Eurotrust- Stated the appropriate test was
property, or they assist with knowledge in a dishonest reflected in Tan
and fraudulent design on the part of the trustees Abou-Rahmah v Abacha- Followed Tan (Privy Council)
Agip (Africa) Ltd v Jackson- Liability of accessory does over Twinsectra, HOL did not consider the conflict
not depend on receipt of trust property, the basis of between these three cases
stranger’s liability is participation in fraud Current state:
Royal Brunei Airlines v Tan- Difficulties with fixing
liability as constructive trustee, company went bankrupt Starglade Properties v Nash- Objective test preferred
but agent who authorised they payment was held liable and demanded for policy reasons, focus on defendant’s
based on knowing assistance conduct rather state of mind. Policy reasons are
protecting the beneficiaries/principal.
Four requirements for accessorial liability: Two part test for dishonesty:
1. Existence of a trust/fiduciary relationship Courts must asses the defendant’s knowledge and
JD Weatherspoon Plc v Van De Berg & Co Ltd- No suspicion as to the enterprise in question
formal trust needs to exist, a fiduciary relationship is In the light of the defendant’s knowledge, combined
sufficient with his experience and expertise, the court should
2. Breach consider whether the defendant’s actions fell below the
Royal Brunei v Tan- Innocent breach of trust on the part ordinary standard of dishonesty
of the fiduciary will suffice, it’s not necessary to show Remedies for accessorial liability:
fraud of dishonesty
3. Assistance Equitable compensation:
A question of fact/evidence usually involves agents and
other fiduciaries but not exclusively Target Holdings Ltd v Returns- Restorative in nature,
Eaves v Hickson- Trustee pays out money to people they returns what has been misappropriated
believe are the proper beneficiaries but are mistaken, Grupo Torras SA v Al- Sabah- Compensation for loss
caused as opposed to restitutionary compensation
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