Trusts - Liability of Strangers

What are the 2 claims that can be made against a third party to the trust?

1. Dishonest assistance/accessory liability- a personal claim against a person who dishonestly assisted or procured the breach of trust.

2. Knowing receipt - a personal claim against a recipient of the misapplied trust property or its traceable proceeds.

How are the remedies for dishonest assistance and knowing receipt different?

dishonest assistance = liable for loss caused, whether or not they personally benefitted or not

knowing receipt = limited to value of what was received by third party

When is dishonest assistance available?

applies to misapplication of trust assets

- and to breaches of fiduciary duty by a trustee (third party may have dishonestly assisted T to breach their duties)

- or breach of duty by any fiduciary, not just trustees

What must be established for a claim of dishonest assistance for a breach of trust/fiduciary duty?

1) There was a trust in existence;

2) The trustee committed a breach;

3) The defendant assisted the breach;

4) The assistance was dishonest.

What is the meaning of 'assistance'?

- The assistance must help with the commission or concealment of the breach - i.e. plan, instigate, commit or cover up

- not a defence to prove the breach would have occurred anyway without their assistance - as long as they did assist, they are liable

What is the standard for determining dishonesty for dishonest assistance? (Ivey v Genting Casinos standard adopted)

1. must ascertain D's subjective knowledge or belief of the facts

2. then assess that subjective knowledge objectively to what the reasonable ordinary person would do with that knowledge

What are the remedies available following dishonest assistance?

1. assistant liable for loss occasioned by the breach they assisted

- C does not need to show link between assistance and loss, just that assistance aided breach of trust, and the breach caused loss

2. assistant also possibly liable for profits acquired by reason of their participation in breach

- but C must demonstrate that their participation was the 'real' or 'effective' cause of the profits (not just but-for)

- court will consider the extent of the wrongdoing and proportionality

What is a claim for knowing receipt?

A claim against a recipient of the misapplied trust property or its traceable proceeds

- fault based, unlike dishonest assistance - will only be liable if they had requisite knowledge (an innocent recipient will not be liable)

- applies to all fiduciary situations eg misapplication of company funds by director

What are the four requirements for a knowing receipt claim?

1. Misapplication of trust property.

2. Beneficial receipt by the defendant of the property or its proceeds

3. Persistence of the claimant's equitable proprietary interest in the property received

4. Knowledge of circumstances making retention unconscionable.

What does 'beneficial receipt' mean (for knowing receipt)?

- The receipt by the defendant should be for their own benefit or in their own right

- not merely in a ministerial capacity (e.g. not holding as agent)

- a bank will receive money beneficially if it is paying off an overdraft, but not if it is being deposited normally

What happens to a knowing receipt claim if the claimant's equitable proprietary interest is extinguished?

- A knowing receipt claim will no longer be possible

- e.g., if trustees of land sell to a purchaser - sale would overreach the beneficiaries' equitable interest in the land - interest then lies with the sale proceeds

What is the fault requirement for a knowing receipt claim?

- The recipient must have the requisite knowledge of the misapplication to incur personal liability

- knowledge must be held when the receive the asset, or while holding it

- but if they dispose of the property before knowledge is acquired - no liability

What makes knowledge of the circumstances "unconscionable"?

The Baden scale of 5 levels of knowledge which are treated differently to discern unconscionable knowledge

What are the five types of knowledge in the Baden scale?

1. Actual knowledge - automatically unconscionable

2. Wilfully shutting one's eyes to the obvious - automatically unconscionable

3. Wilfully and recklessly failing to inquire as an honest and reasonable man would - automatically unconscionable

4. Knowledge of circumstances indicating facts to an honest and reasonable man

5. Knowledge of circumstances which would put an honest man on inquiry

What is required with knowledge levels 4 and 5 of the Baden scale to render them unconscionable?

- only if, on the facts actually known to this defendant, a reasonable person would either have appreciated that the transfer was probably in breach of trust

- or would have made inquiries or sought advice which would have revealed the probability of the breach of trust