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Liability Of Strangers Notes

GDL Law Notes > GDL Equity and Trusts Notes

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A more recent version of these Liability Of Strangers notes – written by Cambridge/Bpp/College Of Law students – is available here.

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Revision: Equity

[TRACING - LIABILITY OF STRANGERS]
A stranger is someone who was NOT appointed trustee

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Stranger de son tort - referred to as a stranger but may be treated as though he was an expressly appointed trustee

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Distinct from the de son tort strangers are strangers made personally liable to account to the beneficiary for a breach of trust because of some fault on their part

Can become liable to account in 2 ways:

1. May knowingly receive/deal with the trust property in breach of trust; "knowing receipt" - but better described as dishonest or unconscionable dealing with received trust property in nor returning it to its rightful owner; or

2. May dishonestly assist or procure a breach of trust; this is traditionally referred to as 'knowing assistance' - but following PC decision in Royal Brunei Airlines v Philip Tan Kok Ming - more accurately described as 'dishonest assistance' - (Lord Nicholls - 'accessory liability'Extends to property where nay fiduciary duty exists - e.g. company directors' dutiesDishonesty extends beyond subjective dishonesty (criminal law) - to cover warped sense of morality

Trustee de son tort Mara v Browne - 'intermeddle with trust matters or to do acts characteristic of the office of trustee he may thereby make himself a trustee of his own wrong, ie a trustee de son tort ... a constructive trustee'
- per Smith LJ

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Assumption of the office of trustee

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Intermeddling itself doesn't amount to a breach - but will be personally liable for any subsequent breach in the same way as an expressly appointed trustee

"Knowing receipt" and "Dishonest assistance" Personal liability of recipients and accessories

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Recipient of misappropriated funds (unless bona fide purchaser for value without notice) will be obliged to return property as soon as he becomes aware of the position

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Liability to proprietary claim arises even if there is no notice - innocent volunteer

1 Revision: Equity

[TRACING - LIABILITY OF STRANGERS]

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Doctrine of notice - for proprietary claims - binds everyone apart from bona fide purchaser of a legal interest - must return the property

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IF however - you are going to be made personally liable in equity to pay compensation - your conscience must be at fault - you must have some knowledge of the C's equitable interest

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If the recipient dissipates the property (or it proceeds) where he lacks the prerequisite knowledge - his proprietary liability ceases - Indpendent Trustee Services Ltd v GP Noble Trustees Ltd - he cannot be made personally liable for his innocent actions

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But will be personally liable if he dissipates the trust property after becoming aware that it was trust property - AND - a person who is liable for dishonestly assisting a breach of trust will be under a personal liability to account for losses

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Defendants here are NOT trustees - (sometimes described as constructive trustee) - but should be treated as though they are - i.e. liable to make good any losses to the beneficiaries resulting from the trustee's breach of trust

Lionel Smith 'to say that a defendant is 'liable as a constructive trustee' is just to say that he is liable even though he is not actually a trustee' Background Barnes v Addy - Lord Selborne LC - 'Strangers are not to be made constructive trustees...unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest or fraudulent design on the part of the trustee' Levels of 'knowledge'

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Peter Gibson J in Baden, Delvaux and Lecuit v Societe Generale - 5 types of knowledge

(i)

Actual knowledge

(ii)

Wilfully shutting one's eyes to the obvious

(iii)

Wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make;

(iv)

Knowledge of circumstances which would indicate the facts to an honest and reasonable man (but not a morally obtuse man); and

(v)

Knowledge of circumstances which would put an honest and reasonable man on inquiry

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