third party liability

the liability of 3rd parties can be v important where the errant trustee or fid is ____________________________

judgment proof

> e.g. because they are insolvent or unlocatable

some cases refer to the knowing recipient or dishonest assistant being liable as a ‘constructive trustee’. why ahs there been concern about using this language?

it may suggest that D has assumed the duties of a trustee or that a proprietary remedy is available

what are the 5 types of knowledge according to Baden?

1. actual knowledge

2. wilful blindness

3. wilfully + recklessly failing to make such inquiries as an honest and reasonable person would have made

4. knowledge of circumstances that would indicate the facts to an honest + reasonable person

5. knowledge of circumstances that would put an honest + reasonable person on inquiry

where liability is receipt-based, the recipient is simply liable to ______________________

account for the value of the property that has been received

where liability is accessorial, what is the usual remedy?

accessory must compensate C for the loss that has been caused by their assistance

Williams v Central Bank of Nigeria: liability on the basis of knowing receipt does NOT require ___________________________

proof of any dishonesty

knowing assistance is baaed on ______

fraud (Williams v Central Bank of Nigeria)

knowing assisters are liable on account of ___________________________, irrespective of the trustees’ dishonesty

their own dishonesty

Virgo: in a receipt-based claim, D’s behaviour is unconscionable (or dishonest) when _________________________________________________________

they should have made restitution of the value of the property received in the light of the facts involving breach of trust/fid duty which D knew or suspected

in Byers v Saudi National Bank, why did Newey LJ consider that a lesser test of fault was justified for receipt-based claims compared to accessorial claims?

because in receipt-based claims D had received the benefit of property

why does Davies argue that a higher level of fault is required for accessorial liability than receipt-based claims?

need to restrict liability to cases of clear fault

when is D liable for knowing receipt?

when he acts unconscionably by receiving trust property with the knowledge that it was transferred to him in breach of trust

why do trustees de son tort and knowing recipients incur similar liabilities?

because the courts have treated them both as though they were duly appointed express trustees who are chargeable with the property they receive

a knowing recipient is NOT responsible for __________________________; his primary duty is to ______________________________

administering the misapplied trust property

restore the property immediately

what are the different reasons why duties are imposed on a knowing recipient compared to a trustee de son tort?

knowing recipient

• D receives property which he knows was transferred to him in breach of trust

trustee de son tort

• he has voluntarily assumed responsibility for handling the trust property as though he were a duly appointed express trustee

what duties do trustees de son tort owe?

fiduciary duties of the same full nature as an express trustee

where does knowing receipt arise?

• a 3rd party receives trust property (or traceable proceeds) transferred in breach of trust or fid duty;

• the recipient receives that property beneficially; and

• the relevant knowledge req is met

where knowing receipt is made out, the 3rd party is _________________________ to pay for the value of the property even if the 3rd party no longer holds the trust property

personally liable

what was held in Byers v Saudi National Bank?

a claim in KR depended on C having a continuing equitable proprietary interest in the property transferred to D at the time it was received by D

concern has been expressed that a lower standard of constructive knowledge for KR may be _______________________________________

inconsistent with the realities of commercial transactions

key point of Re Montagu’s Settlement Trusts?

actual knowledge is needed for KR

key point of BCCI v Akindele?

the focus on diff variants of knowledge deflected attention from the true question, namely whether the recipient ‘can conscientiously retain the funds’

facts of BCCI v Akindele?

• Cs were the liquidators of 2 companies controlled by the same holding company

• employees of the 1st company, acting in fraudulent breach of their fid duties, procured the 2nd company, then in financial difficulties, to enter into an artificial agreement with D

• $10m was paid by D to the 2nd company in exchange for 250,000 shares in the holding company

• the shares were sold and D received $16.7m

what was held in BCCI v Akindele?

D’s knowledge was not unconscionable

key point of Criterion Properties v Stratford UK Properties LLC?

it is an improper use of a director’s power to frustrate a takeover bid through issuing a poison pill

facts of Criterion Properties v Stratford UK Properties LLC?

• C entered into a joint venture with D, documented by an an ISA

• its managing director had entered C into an amendment which was a ‘poison pill’ (a provision that frustrates takeover attempts of C)

what was held in Criterion Properties plc v Stratford UK Properties LLC?

the creation by contract of contractual rights did not constitute a ‘receipt’ of assets

where does liability for dishonest assistance arise?

where a 3rd party assists a trustee of fid in a breach of trust or fid duty

key point of Royal Brunei Airlines v Tan?

in dishonest assistance it is dishonesty of the 3rd party that we are concerned with

> dishonesty on the part of the trustee is not relevant

facts of Royal Brunei Airlines v Tan?

• C airline appointed a travel agency to account to C for the proceeds of ticket sales

• the terms of the agreement made the travel agency a trustee of the proceeds of sale for C

• the travel agency acted in breach of trust

• the travel agency became insolvent so C sought a remedy against the principal shareholder and director of the travel agency

what was held in Royal Brunei Airlines v Tan?

Tan was liable for dishonestly assisting in the travel agency’s breach of trust

> no further req of dishonesty on the part of the travel agency

what did Lord Nicholls state was the standard for dishonest assistance in Royal Brunei Airlines v Tan?

OBJECTIVE

• not acting as an honest person would in the circumstances

facts of Twinsectra v Yardley?

• T intended to lend Y money for the purchase of property, without specifying which property

• Y’s solicitor had given an undertaking to T that the loan moneys would be utilised solely for the acquisition of property on behalf of their client and not for other purposes

• T paid over the loan amount to the solicitor, who then paid it to a 2nd solicitor acting for Y

• Y used the loan for purposes other than the purchase of property

• T claimed that the payment from the 1st to 2nd solicitor amounted to a breach of trust with which the 2nd solicitor had assisted

what was held in Twinsectra v Yardley?

for a person to be liable as an accessory to a breach of trust he had to have acted dishonestly by the ordinary standards of reasonable + honest people had have been himself aware that by those standards he was acting dishonestly

key points of Novoship (UK) v Mikhaylyuk?

• account of profits is a remedy available in dishonest assistance

• the causative connection between the profits and the dishonesty is not merely but for causation; a higher threshold must be reached

key point of Group Seven Ltd v Notable Services LLP?

the following constitutes ‘dishonesty’ in context of dishonest assistance to breach of trust:

• blind eye knowledge

  > when you abstain from enquiry to avoid certain knowledge of what you suspect to be the case

  > but not enough to simply suspect something and negligently refrain from making further enquiries

facts of Re Barney?

• a testator left his property to his wife and children, but gave no direction as to the carrying on of his business

• the widow, by the advice of her husband’s friends, decided to carry on her husband’s business

• 2 of the friends, who were aware that the carrying on of the business would be a breach of trust, agreed to assist her

• a bank account was opened in her name, but her cheques could not be honoured unless they bore the initials of the 2 friends

• held: the fact that the widow could not draw any money without the friends’ concurrence did NOT give them such a control over the moneys drawn out as was nec to establish them as trustees de son tort