Why would a beneficiary want to sue someone other than the trustee
the claim against the trustee may not be worthwhile because the trustee is bankrupt or has fled the country. Then the beneficiary can seek to sue against strangers
When would stranger be liable for a breach of trust?
When they are found to be accessories or recipients, strangers are liable to account as though they are trustees but they are not actual or constructive trustees.
6 years rule don’t apply (William v Central Bank of Nigeria)
Define accessory liability
Accessory liability is defined as a breach of trust or fiduciary duty assisted by a stranger where the stranger is dishonest.
Dishonest test for stranger’s liability in breach of trust
Objective test: not acting as an honest person would in the circumstances : more than carelessness (Royal Brunei Airlines v Tan)
Element of subjectivity: take in account circumstances and the defendant’s experience and intelligence.
Not necessary for the defendant to know he was being dishonest (Royal Brunei)
Not necessary for the defendant to know exact details of breach, but must know he was participating in some illegal scheme (Barlow Clowes)
When will liability arise where there is active intermedding by a stranger
Where someone, who is not a trustee, acts:
as though he were a trustee; or beyond the scope of his authority as an agent;
He will be liable for loss just as if he’d been appointed as an express trustee (Mara v Browne)
For example, the agent of trustee continuing to collect rent from tenants after death of trustee is liable as a trustee de son tort (Lyell v Kennedy). This is strict liability
Define Recipient Liability
Recipient liability arises when the following three criteria are satisfied:
Trustee/fiduciary transferred trust property to stranger in breach of trust (or fiduciary duty);
The stranger received trust property for own benefit; and
the stranger received trust property with requisite degree of knowledge that the transfer was in breach of trust, or later acquired that knowledge then dealt with the property in a manner inconsistent with trust. Excuses may be accepted if D used to receiving similar gifts/sums of money.
Meaning of unconscionable for the purposes of recipient liability
D’s knowledge must have made it unconscionable for him to retain the property (as per BCCI v Akindele). unconsionably is not definitely defined in case law but it is deemed to encompass more than dishonesty test in Royal Brunei
Unconscionability unlikely to encompass constructive notice but may encompass constructive knowledge
Definition of a innocent volunteer
A stranger will be an innocent volunteer where the stranger has received the trust property for own benefit from a trustee and the transfer is in breach of trust but lacks the requisite degree of knowledge. This means that their retention of the trust property is not unconscionable.
Three kind of actions that can be brought against strangers
Personal equitable action
Common law action for restitution
Comment on Proprietary claim
Proprietary claim can be bought against intermeddlers, those recipient liability and innocent volunteers
Proprietary claim differs from personal claim since the claimant is not asking for the D to take out his own money but to return the property unjust retained by them, or if the personal claim is impractical (the stranger is bankrupt) or less advantageous (the trust property has gone up in value)
Limitation of personal claim
No personal claim can be brought against an innocent volunteer
Potential defendant for common law action for restitution
comment on the criteria to hold someone liable to common law action for restitution
Can be brought against: intermeddlers, recipients and innocent volunteers
Under Lipkin Gorman v Karpnale Ltd, a personal common law action can be sought where:
The claimant is the legal owner, e.g. where a director has breached his fiduciary duty, company is legal owner of property;
The defendant has been unjustly enriched (company’s consent is vitiated if director misappropriated money because of fraud)
There is no mixing prior to receipt by the defendant. Any mixing or dissipation of funds after receipt will not defeat the action
The liability is strict.
Defenses available in response to common law action for restitution
D is a bona fide purchaser who has provided full consideration, meaning he has not been unjustly enriched.
That D acted in good faith, and D either spent all the cash in an irretrievable manner and made exceptional expenditures that he wouldn’t otherwise have made BEFORE he knew he wasn’t entitled to the money.
Review remedial action for clean substitution in a proprietary claim
Clean substitution means the replacement of trust property with a new asset.
Claimant can claim ownership of new asset; or
Claim an equitable lien (a charge over the asset to secure the amount)
Review remedial action for withdrawal from mixed bank account in a proprietary claim
against trustees (de facto trustees) and innocent volunteers
Against de facto trustees
take the position that will satisfy the beneficiary’s claim the most, the first withdrawal can be either Trustee’s own funds (first assumption (Re Hallett) or trust money (Re Oatway)
Against innocent volunteer:
if unjust, instead court will share funds out in appropriate portions (Barlow Clowes) if FIFO produces an inequitable result.
Beneficiaries cannot claim any balance left in the account since they will be assumed trustees’ terms