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GDL Law Notes GDL Equity and Trusts Notes

Liability Of Strangers Notes

Updated Liability Of Strangers Notes

GDL Equity and Trusts Notes

GDL Equity and Trusts

Approximately 631 pages

A collection of the best GDL notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through many applications from mostly first class students and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor". In short these are what we believe to be the strongest set of GDL notes available in the UK this year. You'll notice that we include several different authors' worth of notes. The first is our 2017 author...

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  • Introduction

    - Stranger: someone not appointed a trustee.

    - 1. Trustee de son tort (constructive trustee).

    • Mara v Browne [1895]: [Smith LJ]: intermeddles with trust matters or does acts characteristic of trustee treated as expressly appointed trustee.

    • not breach of trust per se: does not purport to act on own behalf with trust property assumes office to act on behalf of beneficiaries.

    - 2. Stranger personally liable to account to beneficiary for breach of trust.

    • a. knowing receipt: knowingly receives or deals with property traceable to breach of trust.

      • personal claim needed: dissipation prevents tracing.

    • b. dishonest/knowing assistance: dishonestly assists or procures breach of trust. (‘accessory liability’Royal Brunei Airlines v Philip Tan Kok Ming [1995]: [Ld Nicholls]).

      • personal claim needed: no receipt – cannot trace.

    - Personal liability of recipients + accessories.

    • proprietary liability: recipient of property misappropriated from trust obliged to return property/proceeds (unless bona fine purchaser for value without notice) – but: liability ends when property/proceeds dissipated.

    • personal liability: recipient must account to bs. for loss to trust – even after property dissipated.

      • + dishonest assistance: personal liability even thought may never have received trust property.

    • ds. liable as ‘constructive trustees’: but N.B. not actually ts. – just treated as ts. liable for losses.

      • [Lionel Smith]: ‘liable as a constructive trustee = liable even though he is not actually a trustee’.

    - Background to classification of strangers’ liability: Barnes v Addy [1874]: [Ld Selborne LC]: 2 types of liability.

    • 1. d. receives + becomes chargeable with some part of trust property.

    • 2. d. assists with knowledge in a dishonest + fraudulent design of ts.

    • debate: level of ‘knowledge’ required + whether dishonestly necessary.

- Levels of knowledge: the Baden scale – Baden v Société Générale SA [1983]: [Peter Gibson J].

Level of knowledge (Baden) Classification (Baden + Agip (Africa) v Jackson [1990])
(i). actual knowledge. Actual knowledge.
(ii). wilfully shutting one’s eyes to the obvious.
(iii). recklessly failing to make inquiries honest + reasonable man would make.
(iv). knowledge of circs. indication facts to an honest + reasonable man.

Constructive notice only.

(Agip: [Millet J]: not dishonest).

(v). knowledge of circs. putting an honest + reasonable man on inquiry.
  • now less relevant: complicated + difficult to use.

Knowing Receipt

- 2 situations where recipient may be liable as constructive trustee – Agip (Africa) Ltd v Jackson [1990]: [Millet J]:

  • 1. d. receives trust property in breach of trust for own benefit – with actual or constructive notice.

  • 2. d. receives trust property lawfully + not for own benefit (e.g. agent of ts.), then misappropriates it.

  • - Elements of knowing receipt – El Ajou v Dollar Land Holdings [1993; CoA]: [Hoffman LJ]:

    • facts: investor’s property misappropriated fraudulently; some proceeds to d.; d. purchases property in Nine Elms; c. sues to recover property.

    • elements:

      • 1. disposal in breach of fiduciary duty.

      • 2. d. receives b’s traceable assets.

      • 3. d. has knowledge of breach: debate – level of knowledge required.

    - Level of knowledge/dishonesty required: conflicting case law.

    • Belmont v Williams (No. 2) [1980]: constructive knowledge sufficient (not dishonesty).

      • facts: company directors received property in breach of fiduciary duty; knew facts giving rise to trust but did not act fraudulently liable as constructive trustees.

    • Re Montagu’s Settlement [1987]: need actual knowledge – Baden (i), (ii) or (iii).

      • facts: 10th Duke disposed of some trust property in honest mistake; 11th Duke sued executors, claiming 10th Duke constructive trustee [Megarry VC]: not liable - no dishonesty.

      • [Megarry VC] obiter: basic question – whether the conscience of the recipient sufficiently affected to justify the imposition of a CT: require ‘lack of probity’ – NOT just carelessness.

    • BCCI Ltd v Akindele [2000; CoA]: [Nourse LJ]: does d’s knowledge make it ‘unconscionable’ for him to retain the benefit? – dishonestly NOT necessary.

      • facts: A. transferred $10m to BCCI (bank) for shares + option to sell back at higher price in 3 years; after 3 years paid $16.7m; BCCI then insolvent; creditors sued A. claiming loan ‘artificial’ + return ‘abnormally high’ not liable: unusual but no ev. that A. knew bank illegitimate at time of investment.

      • application problematic: unconscionability intended to be objective, but open to interpretation.

        • Pulvers v Chan [2007]: knowingly participating in a fraudulent scheme.

        • Starglade v Nash [2010; HC]: actual knowledge putting reasonable man on inquiry.

          • [N Strauss QC]: flexible test – lower standard than dishonest assistance.

        • Armstrong v WInnington [2012]: making enquiries + not following through.

    - Possible future reform: move away from fault-based liability?

    • fault-based liability criticised: resulting trust instead?

      • 1. [Ld Nicholls] (extra-judicial article): strict restitutionary liability – from fact of receipt, not fault.

        • available defence: change of position.

      • 2. [Birks]: resulting trust – presumption that property held by recipient (except bona fide purchaser for valuable consideration) on RT for transferor.

        • no need to prove fault: transferor’s intention key, not recipient’s state of mind.

        • but problematic: when purchaser for valuable consideration NOT bona fide state of mind of recipient considered again.

    • concurrent liability: both fault-based + restitutionary liability together (but no double recovery).

      • Dubai Aluminium Co Ltd v Salaam [2003]: [Ld Millett]: claim can be based on d’s dishonesty (based on d’s participation in breach of fiduciary duty) … but it can also be based simply on the receipt (restitutionary claim independent of any wrongdoing).

    - Ministerial receipt: agent receiving trust property in course of delegation not liable as constructive...

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