Strangers Flashcards
(44 cards)
3 situations where a 3rd party will be personally liable
- Intermeddling
- Accessory liability
- Recipient liability
All categories apart from intermeddling are fault-based - the stranger is held liable to the trust for acting wrongfully.
What does the term ‘stranger to the trust’ mean?
the 3rd party wasn’t a trustee when the breach was committed and therefore wasn’t subject to any obligations prior to his involvement in the breach.
benefits of beneficiaries seeking remedies against a stranger to the trust
- trustee in breach may be insolvent
- there may be other remedies against a 3rd party e.g. the trustees may have an action for breach of contract or in tort against an adviser who has given negligent advice
What are the TWO general reasons for a stranger to the trust being liable?
A stranger can be liable either -
- because the stranger holds property which is still subject to a trust (proprietary remedies); or
- for doing something which is considered to be so wrong that equity requires the individual to pay compensation –> focus on these ones as they’re personal remedies
when are beneficiaries confined to personal claims for equitable compensation brought against a 3rd party?
where a stranger has participated in the commission of a breach of trust, but has not received any trust property i.e. there is no trust property which beneficiaries can claim to recover
OR
where the stranger did receive trust property but it has been dissipated so that no traceable proceeds remain –> so cannot pursue a proprietary claim
UNLESS - they can rely on common law breach of contract or tort.
What is the terminology for a 3rd party personally liable?
The stranger has liability as constructive trustee / liability to account as a constructive trustee
- this doesn’t mean a proprietary remedy like a constructive trust - here we’re primarily concerned with personal liability to account
in this context it means “as if he were a trustee”
Individual/case which pointed out the misleading and artificial nature of the terminology - “liability as a constructive trustee” when considering personal liability to account
Paragon Finance plc v D B Thackerar & Co [1999] per Millett LJ
- The 3rd party isn’t a trustee, there’s no trust, no proprietary remedies, is just a formula for giving a remedy in equity.
What is the starting point when considering the potential liability of 3rd parties?
A person who simply acts honestly in the capacity of agent to trustees will not be liable.
- won’t hold them liable if they’re simply following instructions
Example of the rule “a person who simply acts honestly in the capacity of agent to trustees will not be liable” in action
Barnes v Addy (1874)
FACTS - Trust funds were misapplied by a sole trustee. The defendant, a solicitor, had advised against the appointment of the sole trustee but had prepared the necessary documents.
- Solicitor wasn’t liable because he had simply done what he was told and had advised against that trustee
What does it mean for a 3rd party to be personally liable for intermeddling (aka trustee de son tort)?
A person who intermeddles in the administration of a trust or does acts characteristic of the office of trustee will be personally liable AS IF HE WERE a properly appointed trustee.
i.e. anyone who acts as an executor or as an agent for another will be held liable to account for his principal just as if he had been properly appointed.
Authority for 3rd party personal liability for intermeddling (trustee de son tort)
Blyth v Fladgate [1981]
FACTS - T gave trust property to a firm of solicitors. After T’s deaths the solicitors took it upon themselves to change the investments.
HELD - Since the trustees were already dead, the solicitors couldn’t be acting as agents, they had assumed responsibility as trustees and were liable for the inadequacy of the investment
Is the honesty or intentions of the 3rd party relevant when bringing a personal action for equitable compensation against a 3rd party for intermeddling?
NO -
Irrelevant whether they were honest or had good intentions, just matters if they acted as if they were a trustee
What does it mean for a 3rd party to be personally liable for accessory liability (aka dishonest assistance in a breach of trust) ?
Where a stranger dishonestly participates in a breach of trust committed by the trustees, he will be liable to account personally as a constructive trustee for any loss suffered by the trust.
- The accessory doesn’t have to have benefitted
TWO leading authorities on accessory liability
- Royal Brunei Airlines v Tan [1995]
2. Twinsectra Ltd v Yardley [2002]
What is the relationship between the liability of the accessory in accessory liability and the liability of the trustee in breach?
Accessory is jointly and severably liable with trustees
- Beneficiaries could sue the trustee or the accessory for the full loss
Authority which held that an accessory is jointly and severably liable with trustees
Ultraframe (UK) Ltd v Fielding [2007]
Authority for the rule that an accessory can be liable not only for any loss caused but also for any profits that they make
Novoship (UK) Ltd v Nikitin [2014]
- BUT… liability for profits is at the discretion of the courts.
Case which established the law in the area of imposing liability on an accessory
Royal Brunei Airlines v Tan [1995] per Lord Nicholls (gave judgment)
TWO reasons for giving a remedy against a 3rd party for accessory liability
- To ensure beneficiaries receive compensation for the loss if a trustee doesn’t have the funds available - insolvent
- To deter deliberate interference in the trustee/beneficiary relationship
What are the facts of the case - Royal Brunei Airlines v Tan [1995] - Privy Council
Royal Brunei Airlines had appointed a travel company as its agent for the sale of flights. The defendant was the managing director and principal shareholder of the company. A term of the agreement was that any money received was to be held on trust by the company for the airline. The money was paid into a current bank account and used by the company for its own business purposes. This was clearly a breach of trust by the company. The company became insolvent, and the airline brought proceedings against the defendant.
HELD - the defendant was liable – he had caused or permitted the company to use the money in a way he knew wasn’t authorised and this was dishonest
- It was irrelevant that he hoped to repay the airline
FOUR requirements for accessory liability
(1) The existence of a trust
(2) A breach of trust
(3) The assistance of the stranger (3rd party) in the breach of trust
(4) Dishonesty by the stranger –> this is where problems come about
Case which got rid of categories of knowledge to fulfil the requirement of dishonesty for accessory liability and instead look at a sole requirement of dishonesty
Royal Brunei Airlines v Tan [1995] - Privy Council
- Defined an objective standard of what is dishonest
- Question of FACT whether a particular defendant has acted dishonestly BUT…need to apply the criteria
Lord Nicholls - “dishonesty is to be equated with conscious impropriety”
What is the objective standard of dishonesty in Royal Brunei Airlines v Tan [1995]
Looking at the particular defendant and what they actually knew, and then assessing if he was dishonest in the light of what he actually knew
- Lord Nicholls notes that there are subjective elements to honesty but held it is an objective standard so that …
“if a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.”
Are the personal attributes of the defendant relevant to the issue of dishonesty?
YES -
Lord Nicholls -
“The court will also have regard to personal attributes of the party, such as his experience and intelligence, and the reason why he acted as he did.”
