Introduction

• actions against strangers (not trustees or fiduciaries)
  accessories: assisted trustee or fiduciary in breach of trust
  recipients: wrongful transferee of trust property

Equitable personal actions: accessory liability

• in equity to obtain compensation from third party necessary impose constructive trusteeship on third party (accessory liability, recipient liability or intermeddling)
• accessory liability: if stranger dishonestly assists breach of trust or fiduciary duty (dishonest assistance)
• assistance has to be positive act

  Brinks v Abu-Saleh (No. 3), The Times, 23 October 1995

  Facts:

  • thieves broke into warehouse & stole £26 million gold bullion, they were assisted by security guard in breach of his fiduciary duty owed to employer (owner of the gold)
  • gold was melted & sold & C claimed D (wife accompanying husband on car journeys to deposit proceeds into Swiss bank accounts) was liable as accessory to breach of fiduciary duty

  Issue:

  • could accessory liability be imposed?

  Held:

  • D not liable for assisting breach as she did not play active role in couriering activities
• stranger must be dishonest

  Royal Brunei Airlines v Tan [1995] 3 All ER 97

  • stranger must be dishonest but breach of trust does not: stranger can be liable if participates or instigates breach of trust committed by honest trustee
  • dishonesty: not acting as an honest person would in the circumstances & involves conscious impropriety (advertent conduct)
  • insufficient for dishonesty: carelessness
  • standard of honesty is objective: personal moral code irrelevant
  • however some subjectivity: D's experience, intelligence & circumstances in which activities occur (placing hypothetical honest person in D's shoes)

  Barlow Clowes International v Eurotrust International [2006] 1 WLR 1476

  Facts:

  • Privy Council reaffirmed Royal Brunei Airlines v Tan objective test for dishonesty
  • in instant case, irrelevant D thought he was acting properly (believed his duty was to obey client's instructions & make enquiries into suspicious nature)
  • Court of Appeal followed objective in Starglade Properties v Nash [2010] EWCA Civ 1314
  • D does not need to know he was assisting in breach of trust or fiduciary duty sufficient to know assisting in some illegal scheme
• debate whether constructive trustee is appropriate term to describe third parties guilty of accessory liability as D not necessarily receive any trust property

  Paragon Finance v DB Thakerar & Co [1999] 1 All ER 400

  • accessories are in reality neither trustees nor fiduciaries, but merely wrongdoers

Equitable personal actions: recipient liability

• cause of action known as unconscionable receipt
• constructive trusteeship imposed on stranger on grounds of recipient liability if:
  trustee or fiduciary transferred property to stranger in breach of duty
  stranger received property for stranger's own benefit
  & stranger received property with requisite degree of knowledge that transfer was in breach of trust or later acquired knowledge & dealt with property in manner inconsistent with the trust
• beneficiary may bring personal claim for compensation equal to value for property misappropriated from trust
• stranger not liable if did not have requisite knowledge when dissipated property
• question: what level knowledge required?

  Baden v Société Générale [1993] 1 WLR 509

  • possibly beyond actual knowledge & including constructive knowledge (knowledge of facts which would have suggested breach of trust to a reasonable man or prompted him to make enquiries)

  BCCI v Akindele [2000] 4 All ER 221

  • recipient liability imposed if D's knowledge made it unconscionable for him to retain property
  • unconscionable: wider than dishonesty but still unclear
  • in instant case, D not constructive trustee after entering into loan agreement with BCCI trustees (in breach of their duties), despite high interest rates & 2 yrs after agreement made hearing rumours of BCCI improper dealings
    not unconscionable for D to retain money paid to him
• recipient liability often involves companies, question: if D is company whose state of mind relevant?

  El Ajou v Dollar Land Holdings [1994] 2 All ER 685

  • attributed to company: knowledge of person who is company's directing mind & will & who commits company to transaction

Equitable personal actions: intermeddling

• trustee de son tort (a trustee of his own wrong)

  Mara v Browne [1896] 1 Ch 199

  • intermeddling: where person not a trustee does act characteristic of trustee & therefore liable for misapplication of trust property or loss caused to the trust just as if he had been appointed an express trustee
• often D exercises trustee functions over trust property beyond the scope of his agency

  Lyell v Kennedy (1889) 14 App Cas 437

  • constructive trustee : agent of trustee continued to collect rent from tenants of trust properties after his instructions ceased on the death of trustee

Equitable proprietary claims

• if trustee or fiduciary transfers property to stranger in breach of duty, question: whether proprietary action can be brought against the stranger to recover property or its replacement?
• stranger may be bona fide purchaser, constructive trustee or innocent volunteer
• bona fide purchaser: purchaser for value without notice that property was transferred in breach of trust
  take free of beneficiaries' equitable interest
  no proprietary claim
• constructive trustee: knows or suspects getting property in breach of trust or fiduciary duty
  if conscience affected constructive trustee on grounds of recipient liability (BCCI v Akindele)
  proprietary claim possible (& tracing rules will apply as if trustee)
• innocent volunteer: no knowledge or notice of breach & provided no consideration for the transfer
  proprietary claim possible (& refined tracing rules will apply)

Equitable proprietary claims: innocent volunteers

• different tracing rules apply to innocent volunteer (than trustee or constructive trustee)
• clean substitution: straight exchange of money or property for another asset with no mixing, no isues regarding bringing claim for new asset
• purchase of an asset out of mixture of trust money & innocent volunteer's own funds: equity has to decide how to apportion loss between innocent beneficiary & innocent volunteer
  trust & innocent volunteer share asset rateably in proportion to their contributions to purchase price (if trust contributed 1/3 of purchase price, it can claim 1/3 of asset
• tracing rules relating to mixed assets differ for innocent volunteers compared to trustees as beneficiaries cannot claim a lien over the mixed asset instead of proportionate share (lien for loss to trust not confined to current value of asset)

  Foskett v McKeown [2001] 1 AC 102

  • Innocent contributors, however, must be treated equally inter se. Where the beneficiary's claim is in competition with the claims of other innocent contributors, there is no basis upon which any of the claims can be subordinated to any of the others. Where the fund is deficient, the beneficiary is not entitled to enforce a lien for his contributions; all must share rateably in the fund.
• withdrawals from mixed current bank account: mixture of money belonging to innocent volunteer & trust first in, first out rule applies

  Clayton's case (1816) 1 Mer 572

  • first payment into account is deemed to be first payment out
• Clayton's Case rule one of convenience & may not produce equitable result

  Barlow Clowes v Vaughan [1992] 4 All ER 22

  • rule may not be used if application would be impractical or lead to an unjust result
• defence only available to innocent volunteers

  Re Diplock [1948] Ch 465

  • equitable owners of the trust property must submit to equality of treatment with the innocent volunteer
  • if innocent volunteer shows tracing & resulting proprietary claim produces inequitable result
  • in instant case, innocent volunteer spent trust money on improvements to land
    tracing found not to produce equality of treatment (charge on land to force sale to give beneficiary money & innocent volunteer would be deprived on land)

Common law personal action: restitution

• if legal owner deprived of his property without his consent : bring legal claim against person now holding property on grounds of unjust enrichment
• C seek remedy of restitution: D have to pay sum equal to enrichment received
• restitution personal claim not proprietary (no priority on bankruptcy)
• C must be legal owner of property
• strict liability imposed: D's state of mind or honesty irrelevant (common law action for unjust enrichment & restitution may be easier to establish than equitable claim for recipient liability)
• C has to prove D received his property & can use common law tracing to do so (common law tracing cannot identify C's money if passes through mixed fund)
• change of position defence: if innocent D so changed his position that unjust to compel him to make restitution

  Lipkin Gorman v Karpnale [1992] 4 All ER 512

  • change of position defence may apply: if D spent money in an exceptional & irretrievable manner before discovering not entitled to it & D has nothing left to meet claim (court may find unjust to require D to restore money from own resources)
• D must have changed his position in good faith

  Abou-Rahmah v Abacha [2006] EWCA Civ 1492

  • bad faith: a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty
• bona fide purchaser who has provided full consideration: not possible to claim restitution as he not unjustly enriched