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Liability of Strangers to the Trust - Coggle Diagram
Liability of Strangers to the Trust
Accessory liability
Apply to:
Misapplication of trust property
Breach of FIDUCIARY duties
Requirements (Group Seven Ltd v Nasir):
The trustee committed a BREACH
The defendant ASSISTED the trustee to commit that breach
There was a TRUST in existence at the material time
The defendant’s assistance was DISHONEST
A FAULT-BASED claim
A defendant is only liable if their assistance was DISHONEST
Assistance
Sufficient defendant assists the trustee or fiduciary to plan, commit, or cover up the breach
Assistance must be more than minimal
Defendant must assist trustee or fiduciary in connection with the breach
Must make commission of breach (or concealment) easier than otherwise
Defendant CANNOT avoid liability by proving trustee would have committed breach anyway- defendant assists LIABLE
Sufficient if the defendant procures or instigates the breach
PERSONAL claim against a person who dishonestly ASSISTED or procured the breach of trust
Dishonesty
Process
The actual state of the individual’s knowledge or belief as to the facts (subjective)
Whether his conduct was honest or dishonest by the (objective) standard of ordinary decent people
Standard of ordinary decent people determined by judge
‘Acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances' (Royal Brunei Airlines Sdn Bhd v Tan
Remedies
Claimant does NOT have to show DIRECT LINK between assistance and loss
What must be shown is:
The conduct assisted the breach of trust
But for the breach of trust the loss would not have occurred
Dishonest assistant liable for loss occasioned by breach they assisted
Dishonest assistant potentially liable for PROFITS acquired
‘But for’ test is NOT appropriate
Demonstrate participation was the ‘real’ or ‘effective’ cause of the profits
NO automatic right to profits
Court discretion to grant or withhold remedy
Withholds remedy where it would be disproportionate to the form and extent of the assistant’s wrongdoing
Recipient liability
Apply to:
Trusts
Misapplication of property by a fiduciary
Requirements:
BENEFICIAL RECEIPT by defendant of misapplied trust property or traceable proceeds
KNOWLEDGE by defendant that property was misapplied trust property or traceable proceeds
A MISAPPLICATION of trust property (or property held in another fiduciary capacity)
FAULT BASED claim
Defendant is only liable if they had the requisite degree of KNOWLEDGE
Beneficial receipt
Receipt in a ‘ministerial’ capacity is INSUFFICIENT
Receipt of property by agent on behalf of principal- agent does NOT receive property in their own right: they receive and hold it for the principal
Bank credited to an account in credit- bank does not receive the money beneficially
Bank credited to an account overdrawn- bank receives money beneficially to the extent it reduces or discharges customer’s indebtedness to the bank
Receipt by the defendant should be:
For his own benefit
OR in his own right in the sense of setting up title of his own to property received
PERSONAL claim against a RECIPIENT of the misapplied trust property or its traceable proceeds
Fault requirement: knowledge
Apply to:
Recipient had the requisite knowledge on the DATE of receipt
Recipient acquired knowledge AFTER receipt but BEFORE disposed of or dissipated property
Bank of Credit and Commerce International (Overseas) Ltd v Akindele
Dishonesty is NOT a requirement
Recipient’s state of knowledge must be such to make it UNCONSCIONABLE for him to retain benefit of the receipt
As soon as the recipient ACQUIRES requisite knowledge they must RESTORE the property to the trust
If, instead, dispose or dissipate property, subject to a personal claim for the loss occasioned to the trust or for their own profits
Baden scale
Wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make
Knowledge of circumstances which would indicate the facts to an honest and reasonable man
Wilfully shutting one’s eyes to the obvious
Knowledge of circumstances which would put an honest and reasonable man on inquiry
Actual knowledge
Commercial context
Baden types (4) and (5) knowledge also render receipt “unconscionable” but only if, on the facts actually known to this defendant:
A reasonable person would either have appreciated the transfer was probably in breach of trust OR
Would have made inquiries or sought advice which would have revealed probability of the breach of trust
Baden types (1) to (3) knowledge render receipt of trust property “unconscionable”
NOT necessary to show defendant realised transaction was “obviously” or “probably” in breach of trust or fraudulent
Possibility of impropriety or the claimant’s interest is sufficient
Dispose or dissipate property BEFORE acquire such knowledge, they do NOT incur any personal liability