Remedies Against Strangers to the Trust
1. 2 Types of Claims:
a. Proprietary claims = liable for holding property which is still subject to a trust;
claims to recover the trust property where it can still be identified do not
require proof of any fault
b. Personal claims = liable for doing something which is considered to be so
wrong that equity requires the individual to pay compensation; where a
stranger has participated in the commission of a breach of trust, but has not
received any trust property, there is no property which the beneficiaries can
claim to recover
2. Terminology:
a. Constructive trustee = liability of a stranger to a trust has historically been
termed this
b. Criticisms:
i. Too artificial, e.g. Paragon Finance, Millett LJ: “misleading, for there is
not trust and usually no possibility of a proprietary remedy; they are
‘nothing more than a formula for equitable relief’”
ii. Might make more sense for the liability of strangers who have dealt
with the trust property as a trustee de son tort or who have
knowingly received and misapplied the trust property
iii. Rationale: in such cases, the stranger is liable to account because of
his direct relationship with the trust property Martin
iv. Dubai Aluminium, Lord Millett: suggested that the terminology
‘accountable in equity’ should replace the terminology ‘accountable
as a constructive trustee’
3. Parties:
a. Beneficiaries:
i. Can expect a trust/fiduciary duty to not be breached
ii. More vulnerable since a trustee/fiduciary has control over their
interest
iii. Can expect third parties to not make it so convenient for
trustees/fiduciaries to breach the trust/fiduciary duties
iv. Entitled to be compensated for the lost incurred
v. Can be said to take some risk knowingly by allowing another
individual to deal with their property/matters
b. Third parties:
i. Should not incur excessive costs
ii. Will not want to transact with trustees/fiduciaries if the rules are too
strict and onerous
iii. Should not be too susceptible to liability if their wrongdoing/fault is
not even clear
c. Creditors:
i. Personal claims do not take priority over unsecured creditors,
however, proprietary claims do take priority
ii. Trust would line up alongside a secured creditor’s (whom has
provided consideration) interest
1
, 4. Aims of third-party liability - Salmons:
a. The defining nature of equitable obligation is the control that T or fiduciary
has over the interest of another (Getzler, Ascribing and Limiting)
b. Element of control is important in determining the position of third parties
for 2 reasons (and the rationale behind the requirement of dishonesty):
i. B or principal is in a vulnerable position due to the delegation of
control given to the duty holder, and so, there is a need to prevent
third parties from taking advantage of these relationships even where
their actions assist, rather than cause, breached of equitable duties
(Carty, Joint Tortfeasance)
Due to this vulnerability, they need protection
ii. T of fiduciary’s ability to engage third parties, which is inherent in the
control afforded to those who hold such positions, would be
undermined if third parties were exposed to potential liability for
involvement in wrongdoing by others Barnes v Addy
Summary: those who owe equitable duties need to have the
power to engage with third parties
“in cases where gentleman act as trustees, they must, of
necessity, employ solicitors, receivers, bankers and agents of
various kinds” Lockwood v Abdy, Shadwell VC
The ability to engage third parties would be undermined if
equity imposed liability on third parties for mere knowing
involvement in a breach of equitable duty (i.e. focus on the
need to protect third parties)
“I know not how anyone could in transactions admitting of
doubt as to the view which a Court of Equity might take of
them, safely discharge the office of solicitor, of bank, or of
agent of any sort to trustees” Barnes v Addy, Selborne LC
c. Dishonest assistance:
i. Equity requires a high level of moral culpability (i.e. dishonesty, a
fault-based liabilities), which justifies liability even for ‘weaker’ causal
links
ii. Even in the absence of causal link between the assistance and the
primary wrong, liability is justified
iii. Moore: “we can relax our normal causation requirement only because
of the high level of culpability with which the aider acts” (n7)
iv. It was the ability of a T or fiduciary to engage others on behalf of C
which provided strong support for equity’s stringent mental element
v. It would be too burdensome to impose competing duties on the third
party unless it is evident that they are acting dishonestly (Mitchell,
Mitchell, Watterson, Goff & Jones)
vi. “it would be a most serious matter if bankers were to be allowed, on
light and trifling grounds – on grounds of mere suspicion or curiosity –
to refuse to honour a cheque drawn by their customer” Gray v
Johnston, Cairns LC
d. Knowing receipt:
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, i. Where stronger causal links can be found, these justifications for the
requirement of dishonesty no longer apply
ii. The claim for knowing receipt, provides a clear example where the
third party’s actions will have a clear causal connection with the loss
of trust property
iii. That causal connection will be much stronger than the connection
with one who assists in a breach, and as a result there is no
requirement of dishonesty
iv. When a bank receives trust property on behalf of T, the bank is not
subject to the test for knowing receipt
v. So long as the bank acts in accordance with T’s instructions, they are
subject to the test for dishonest assistance
vi. But where the bank would step outside of T’s instructions (e.g.
attempting to set-off the credit in the trust account with the debit in
T’s personal account), the bank would become liable to Bs so long as
they knew about the existence of the trust (Harpum, The Strangers as
CT)
5. 3 types of stranger liability Barnes v Addy:
a. Trustee de son tort:
i. Where a stranger who had not been appointed as a trustee takes it
upon himself to act as a trustee and deals with the trust property
accordingly, he will be held liable for any breach of trust that was
committed just as if he were in fact a properly appointed trustee
ii. A person who has not been appointed a trustee but intermeddles in
the administration of a trust by taking it upon himself to act as if he
were a trustee will be held liable as if he were in fact a properly
appointed trustee Mara v Browne
b. Dishonest assistance in breach of trust
i. 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
ii. Equity will hold liable a stranger who assists a trustee in committing a
breach of trust as secondary accessory/liability
iii. Rationale: this may be the only effective remedy for the beneficiaries
if primary liability (being subject to trust obligations) is not effective,
that is, the trustee is insolvent
iv. Rationale: “Beneficiaries… are entitled to expect that third parties will
refrain from intentionally intruding in the trustee-beneficiary
relationship” Royal Brunei Airlines, Lord Nicholls
c. Unconscionable receipt of trust property
i. Where a stranger receives trust property, knowing that it is trust
property, he will be liable to account as a constructive trustee to the
trust for the value of the property received
6. Trustee de son tort:
a. Cradock (No 3), Ungoed-Thomas J:
i. “Distinguishing features… are
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1. 2 Types of Claims:
a. Proprietary claims = liable for holding property which is still subject to a trust;
claims to recover the trust property where it can still be identified do not
require proof of any fault
b. Personal claims = liable for doing something which is considered to be so
wrong that equity requires the individual to pay compensation; where a
stranger has participated in the commission of a breach of trust, but has not
received any trust property, there is no property which the beneficiaries can
claim to recover
2. Terminology:
a. Constructive trustee = liability of a stranger to a trust has historically been
termed this
b. Criticisms:
i. Too artificial, e.g. Paragon Finance, Millett LJ: “misleading, for there is
not trust and usually no possibility of a proprietary remedy; they are
‘nothing more than a formula for equitable relief’”
ii. Might make more sense for the liability of strangers who have dealt
with the trust property as a trustee de son tort or who have
knowingly received and misapplied the trust property
iii. Rationale: in such cases, the stranger is liable to account because of
his direct relationship with the trust property Martin
iv. Dubai Aluminium, Lord Millett: suggested that the terminology
‘accountable in equity’ should replace the terminology ‘accountable
as a constructive trustee’
3. Parties:
a. Beneficiaries:
i. Can expect a trust/fiduciary duty to not be breached
ii. More vulnerable since a trustee/fiduciary has control over their
interest
iii. Can expect third parties to not make it so convenient for
trustees/fiduciaries to breach the trust/fiduciary duties
iv. Entitled to be compensated for the lost incurred
v. Can be said to take some risk knowingly by allowing another
individual to deal with their property/matters
b. Third parties:
i. Should not incur excessive costs
ii. Will not want to transact with trustees/fiduciaries if the rules are too
strict and onerous
iii. Should not be too susceptible to liability if their wrongdoing/fault is
not even clear
c. Creditors:
i. Personal claims do not take priority over unsecured creditors,
however, proprietary claims do take priority
ii. Trust would line up alongside a secured creditor’s (whom has
provided consideration) interest
1
, 4. Aims of third-party liability - Salmons:
a. The defining nature of equitable obligation is the control that T or fiduciary
has over the interest of another (Getzler, Ascribing and Limiting)
b. Element of control is important in determining the position of third parties
for 2 reasons (and the rationale behind the requirement of dishonesty):
i. B or principal is in a vulnerable position due to the delegation of
control given to the duty holder, and so, there is a need to prevent
third parties from taking advantage of these relationships even where
their actions assist, rather than cause, breached of equitable duties
(Carty, Joint Tortfeasance)
Due to this vulnerability, they need protection
ii. T of fiduciary’s ability to engage third parties, which is inherent in the
control afforded to those who hold such positions, would be
undermined if third parties were exposed to potential liability for
involvement in wrongdoing by others Barnes v Addy
Summary: those who owe equitable duties need to have the
power to engage with third parties
“in cases where gentleman act as trustees, they must, of
necessity, employ solicitors, receivers, bankers and agents of
various kinds” Lockwood v Abdy, Shadwell VC
The ability to engage third parties would be undermined if
equity imposed liability on third parties for mere knowing
involvement in a breach of equitable duty (i.e. focus on the
need to protect third parties)
“I know not how anyone could in transactions admitting of
doubt as to the view which a Court of Equity might take of
them, safely discharge the office of solicitor, of bank, or of
agent of any sort to trustees” Barnes v Addy, Selborne LC
c. Dishonest assistance:
i. Equity requires a high level of moral culpability (i.e. dishonesty, a
fault-based liabilities), which justifies liability even for ‘weaker’ causal
links
ii. Even in the absence of causal link between the assistance and the
primary wrong, liability is justified
iii. Moore: “we can relax our normal causation requirement only because
of the high level of culpability with which the aider acts” (n7)
iv. It was the ability of a T or fiduciary to engage others on behalf of C
which provided strong support for equity’s stringent mental element
v. It would be too burdensome to impose competing duties on the third
party unless it is evident that they are acting dishonestly (Mitchell,
Mitchell, Watterson, Goff & Jones)
vi. “it would be a most serious matter if bankers were to be allowed, on
light and trifling grounds – on grounds of mere suspicion or curiosity –
to refuse to honour a cheque drawn by their customer” Gray v
Johnston, Cairns LC
d. Knowing receipt:
2
, i. Where stronger causal links can be found, these justifications for the
requirement of dishonesty no longer apply
ii. The claim for knowing receipt, provides a clear example where the
third party’s actions will have a clear causal connection with the loss
of trust property
iii. That causal connection will be much stronger than the connection
with one who assists in a breach, and as a result there is no
requirement of dishonesty
iv. When a bank receives trust property on behalf of T, the bank is not
subject to the test for knowing receipt
v. So long as the bank acts in accordance with T’s instructions, they are
subject to the test for dishonest assistance
vi. But where the bank would step outside of T’s instructions (e.g.
attempting to set-off the credit in the trust account with the debit in
T’s personal account), the bank would become liable to Bs so long as
they knew about the existence of the trust (Harpum, The Strangers as
CT)
5. 3 types of stranger liability Barnes v Addy:
a. Trustee de son tort:
i. Where a stranger who had not been appointed as a trustee takes it
upon himself to act as a trustee and deals with the trust property
accordingly, he will be held liable for any breach of trust that was
committed just as if he were in fact a properly appointed trustee
ii. A person who has not been appointed a trustee but intermeddles in
the administration of a trust by taking it upon himself to act as if he
were a trustee will be held liable as if he were in fact a properly
appointed trustee Mara v Browne
b. Dishonest assistance in breach of trust
i. 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
ii. Equity will hold liable a stranger who assists a trustee in committing a
breach of trust as secondary accessory/liability
iii. Rationale: this may be the only effective remedy for the beneficiaries
if primary liability (being subject to trust obligations) is not effective,
that is, the trustee is insolvent
iv. Rationale: “Beneficiaries… are entitled to expect that third parties will
refrain from intentionally intruding in the trustee-beneficiary
relationship” Royal Brunei Airlines, Lord Nicholls
c. Unconscionable receipt of trust property
i. Where a stranger receives trust property, knowing that it is trust
property, he will be liable to account as a constructive trustee to the
trust for the value of the property received
6. Trustee de son tort:
a. Cradock (No 3), Ungoed-Thomas J:
i. “Distinguishing features… are
3
