16) Liability of Strangers

Question 1

When might it not be possible to fully recover or make a claim?

Answer 1

• Financial difficulties
• Bankrupt
• Do not have professional indemniy insurance to satisfy the claim against them

Question 2

Liability of strangers

Answer 2

• A claim for accessory liability (“dishonest assistance”)
• A claim against the recipient of the traceable proceeds of a breach of trust (“knowing recpient”)

Question 3

In practice who are claims for accessory liability made against

Answer 3

• Professional advisers to the trustee or fiduciary
• Or if a breach by a company, against employees or directors of that company.

Question 4

Accessory liability

Answer 4

• Form of secondary liability
• Gives a claimant the right to sue a third party for the loss caused by trustee or fiduciary.
• Must show that the third party assisted the beach (by helping to plan it, carry it out or cover it up) and acted objectively dishonestly in doing so

Question 5

What is needed to estabilsih dishonest assistance?

Answer 5

Must show that the third party assisted the beach (by helping to plan it, carry it out or cover it up) and acted objectively dishonestly in doing so.

Question 6

Recipient Liability

Answer 6

Stranger can be liable is receipt-based and allows the claimant to recover the amount of money beneficially received bya third-party

Knowing receipt is available in cases where the third party has knowledge making it uncoscionable for them to retain the funds

Question 7

When is Recipient Liability available?

Answer 7

In cases where the third party has knowledge making it uncoscionable for them to retain the funds.

• Requires assessment of the circumstances and their level of knowledge.
• It is important to note that if the recipient still has proeprty (or traceable records) - may choose to make a prorpietary claim against the asset itself.

Question 8

When is knowing receipt more appropriate than a proprietary claim

Answer 8

When property (or traceable proceeds) have been dissipated by the recepient.

Question 9

Dual claims

Answer 9

• Accessory liability and recepient liability will be brought in the alternative against the same defendant.
• One claim may succeed while the other fails

Question 10

Remedies for dishonest assistance?

Answer 10

• Claim for dishonest assistance may result in a greater remedy because the assistant will be liable for the loss caused.
• Whether or not they personally benefitted.

Question 11

Remedies for a knowing receipt claim.

Answer 11

More limited to the value of what has been beneficially received by the third party.

Question 12

Claims when trustee misapplies trust proeprty

Answer 12

• Personal claim against person who dishonestly assisted or procured the breach of trust.
• A Fault based claim, only liable if their assistance was dishonest.

Question 13

Where do dishonest assistance claims apply?

Answer 13

• Not limited to the misapplication of trust property.
• Apply to breaches of fiduciary duties by a trustee.
• Not just limited to trusts.

Question 14

Requirements for accessory liability

Group Seven Ltd v Nasir

Answer 14

Establish that:
1) There was a trust in existence at the material time;
2) The trustee committed a breach of that trust
3) The D assisted the trustee to commit that breach of trust;
4) The D’s assistance was dishonest.

Group Seven Ltd v Nasir

Question 15

Assistance

Requirements for accessory liability

Answer 15

• Must assist trusstee or fiduciary to plan, commit or cover up the breach.
• Must be more than minimal
• Must make the comission of the breach easier than it otherwise would have been
• Cannot avoid liability by proving the trustee or fiduciary would have committed breach anyway.
• Sufficient if D procures or instigates the breach

Ultrafame; Group Seven

Question 16

Eaves v Hickson

Answer 16

Sufficient if the D procures or instigates the breach of duty

Question 17

Dishonesty

Requirements for accessory liability

Answer 17

• Only liable if they act dishonestly
• Not acting as an honest person would in the circumstances
• Subjective - knowledge or belief as to the fact.
• Standard of ordinary decent people determined by the judge

Royal Brunei; Ivey v Genting Casinos

Question 18

Royal Brunei Airlines Sdn Bhd v Tan

Requirements for accessory liability - HONESTY

Answer 18

• Claimant airline appointed a company to sell tickets for flights.
• Proceeds to be held on trust for claimant.
• Company appled proceeds for own purpose and went insolvent
• Was liable - knew proceeds were held ont trust. Caused company to apply them for own purpose.
• Honest people do not misapporpriate or misapply other people’s property

Question 19

Starglade Properties Ltd v Nash

Requirements for accessory liability - HONESTY

Answer 19

• Larkstore Ltd held money on trust for the claimant as part of a broader commercial arrangement. Nash was sole director. L was unable to pay debts - caused L to pay trust to unsecured crditors.
• To “frustrate” claimant as believed S had acted unfairly.
• N did not know there was a trust
• N was liable as caused company to misapply trust property dishonestly

Question 20

Starglade Properties on removal of assets

Answer 20

Deliberat removal of assets of an insolvent company to defeat the just claim of a creditor is inconsistent with ordinary standards of honest commercial behaviour.

Question 21

Remedies

Answer 21

• Dishonest assistant is liable for loss occassioned by the breach that they assisted.
• Also potentially liable for profits they acquire by reason of thier participation in the breach.

Group Seven; Novoship (UK)Ltd

Question 22

What must be shown to be liable for profits

Answer 22

Claimant must demonstrate that D’s participation was the “real” or “effective” cause of the profits. The simple “but for” test is not sufficient.
* No automatic right to assistant’s profits.
* Court has discretion to grant or withold the remedy.
* Court witholds remedy where it would be disproportionate in relation to the form and extent of the assistant’s wrongdoing/

Novoship (UK) Ltd v Mikhaylyuk

Question 23

Novoship (UK) Ltd v Mikhaylyuk

RE-READ THIS

Answer 23

• D negotiated with C’s agent to charter ships.
• During the negotiations - agent was paid secret commiissions, Agent was diverting part of those commmission to D.
• Agent’s negotiations with D were a breach of his fiduciary duty to the claimant
• Agent was conflicted
• D assisted by participating in negotations
• D’s assistance was dishonest becauuse he was aware of secret commissions and being paid to agent.
  D made a profit of $150 mill
  *Court found that was not the real or effective ccause and it would have been disproportionate to deprive him of profit.

Question 24

Recipient Liability

Answer 24

• Personal claim against recipient of misapplied trust property or its traceable proceeds.
• Claim is generally described as a “knowing receipt or “unconsconable receipt”
• Unlike proprietary claims against third parties, knowing receipt is a fault-based claim
• D is only liable if they had requisite degree of knowledge
• Not limited by trusts, can extend to misapplication of a company’s assets.

Question 25

Requirements for a knowing receipt claim ## Footnote El Ajou v Dollar Land Holdings

Answer 25

a) A misapplication of trust property / fiducuary b) Beneficial receipt by the defendant of the **misapplied** trust property or its traceable proceeds; c) **Persistance** of the claimant's equitable proprietary interest in the property received by the D; and d) **Knowledge of the circumstances** on the part of the D which makes it **unconscionable** to retain benefit of the receopt

Question 26

Beneficial Receipt ## Footnote Requirements for a knowing receipt claim:

Answer 26

* Receipt to be for D's own benefit. * Receipt in a **"ministerial" capactiy is insufficient** | Trustor AB v Smallbone (No2)

Question 27

Can the bank be a beneficial recepient? ## Footnote Requirements for a knowing receipt claim:

Answer 27

* Credited bank does not receive money beneficially if account is in credit. * Position is different if the account to be credited is overdrawn. Bank receives the money beneficially to the extent that the payment reduces indebtedness ## Footnote Agip *versus* Uzinterimpex