Dishonest Assistance and Unconscionable Receipt Summarised Notes for the Equity and Trusts Law module, LLB, at City, University of London - can of course be used for other universities as well! Should be used with the full bundle of notes!
DISHONEST ASSISTANCE
Liability for dishonest assistance for ‘stranger’ to trust – not a trustee of that trust
Stranger is personally liable to account as constructive trustee to beneficiaries for any loss caused
by breach of trust if the stranger assisted to that breach + did it dishonestly
Stranger ‘personally liable to account’ as not hold trust property, not ordinary constructive
trustee, liability to compensate from own personal property normally cash equivalent
Personal not a proprietary liabilitycan be liable for whole of beneficiaries loss
‘Assistance’ is any substantive act or omission that facilitates breach of trust
‘Dishonesty’ no need in dishonest assistance stranger has possession/control of property at time
Barnes v Addy* : D’s liability based on dishonest participation in actions which constitutes breach
of trust – test is ‘knowledge’ of dishonesty by trustee (was known as ‘knowing assistance’)
Currently objective (what honest person do in circumstances) used more now after Tan case
REQUIREMENTS FOR LIABILITY
Existence of trust or fiduciary relationship (e.g. director) concerning property
Breach of trust e.g. misapplied company funds
3rd party must assist in breach can be very small help
Dishonesty on the part of the 3rd party who assisted in breach of trust.
Note – no requirement that trustees must be aware acting in breach of trust or be dishonest
Royal Brunei v Tan [1995]* test= objective what an honest person would do in circumstances,
objective can consider personal attributes, experience + intelligence of D, but not personal beliefs
Facts= agreement with travel agency, BLT sell tickets, Tan put in accounts + used for BLT’s
expenses held Tan personally liable assisting‘dishonesty’ honest person do circumstances
Before Tan, was ‘knowing assistance’ subjective ideas what D knew, now what honest (objective)
Twinsectra v Yardley [2002]*: test= objective + subjective (what D consider dishonest)
Barlow Clowes v Eurotrust [2005]*: D sought to argue his personal morality was such he did not
know that honest people would thought his actions were dishonest, his morality was he would do
whatever his clients wanted with no questions asked held reasonable person= dishonest
Reason to impose dishonest liability
Dishonest assistance in breach of trust protects beneficiaries from acts of strangers interfering
with trust in such a way that assists or facilitate the breach can be several people involved in
breach any recipients of trust property, anyone innocently/knowingly hold traceable proceeds
It is secondary form of liability sued once liability for breach established or trustee cannot be
held liable for breach of trust for some reason
Trustee NOT need to be dishonest to be liable sufficient breach of trust + loss for beneficiaries
Sufficient if assistance was dishonest even if trustee unaware of breach of trust
Constructive trust used to impose liability stranger liable to account as though an express
trustee so trustees able to fulfil their fiduciary duties without interference from third parties
3rd party conspires with trustees to commit breach or assist breach of trustees’ obligations
Nature of dishonest assistance
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, Breach of trust: D liable for act of assisting + fault in doing so dishonestly, stranger liable for loss
Sufficient if dishonest + breach of trust or fiduciary duty assistance have link with loss suffered
Time and nature of assistance to breach: trustee liable for any loss by breach of trust (primary),
someone who assists in breach dishonestly liable (secondary)
Trustee not need be dishonest some way responsible breach, assistant conspire with trustee
Assistance can be after breach of trustee as fault based not receipt based (Twinsectra) so
assistance after breach but still liable
Where third party is dishonest, third party liable to account not enough to impose liability on
assistant that fiduciary was dishonest but assistant was not dishonest assistants liability
depends on the dishonesty of the assistant
OBJECTIVE TEST – for ‘dishonesty’
Royal Brunei v Tan made ‘knowledge’ to ‘dishonesty’ and made test for dishonesty ‘objective’
Objective standard= not acting as an honest person would in the circumstance
What an honest person would do in passive sense e.g. fail to make enquiries, or ensure
proposed investment risk not too great Tan test
Brunei v Tan travel agency ran by Tan not act dishonestly, rather poorly run business with too
many expenses + Tan hoped pay airline back eventually but ‘dishonest’ test different enough
find Tan ‘dishonest’ if not done what ordinary person would do in circumstances dishonest
Honest person not intentionally deceive others, or take anothers property, or participate in
transaction if knows misapplication of trust assets to beneficiaries detriment, or deliberately
ignores or not asks questions so to learn something not rather know
Royal Brunei Airlines v Tan [1995]: agreement with travel agency, BLT sell tickets, Tan put in
accounts and used for BLT’s expenses held Tan personally liable for assisting breach, as
‘dishonesty’ if not what a honest person would do in circumstances
What is the ‘honest person’?
How does honest person differ from reasonable person? What attributes does honest person
have? Does it relate to every action in one’ life?
Court focuses on acts or omissions in a set of circumstances e.g. to eat sandwich dishonestly
could be it is stolen or pretended to pay for it see circumstances
So what would the hypothetical person, in the same shoes as D, in the circumstances have done
Hard to identify characteristics of ‘honest person’
SUBJECTIVE TEST – for ‘dishonesty’
Subject test= whether D considers their action to be dishonest
Referred as ‘Robin Hood’ defence as he subjectively would see theft honest to distribute poor
Twinsectra v Yardley [2002]: objective + subjective Yardley sought to borrow money from
Twinsectra to acquire property, stated used for that sole purpose, money misapplied by solicitor in
Yardley’s orders held liability for dishonest assistance both actions considered dishonest by honest
people + D themselves realised actions considered dishonest by honest people
Adds second limb D realised other people consider actions dishonest hybrid test
Tan test continues in a hybrid form with a quasi-subjective element to it but unfortunately adds
an element of ‘knowledge’ as test of dishonesty developed to move away from this leaves law
in confused state
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