Law of Equity and Trusts - Exam Revision Notes (Part 7)

Law of Equity and Trusts - Exam Revision Notes (Part 7)

Trusts lecture week 9 term 2.

Listen to this properly – not typed properly.

Sandwich – breach of trust and liability for breach of trust. That means bringing action against trustee personally. This is the slice of bread. Meaning – not really what you want. Don’t just want to sue the trustee, because the trustee may not have all of the money. He may have misapplied it.. this is teh problem with personal liability.  in theory, can go to the front of queue but not good if have not money.

You want the meat in the middle. Could bring an action against trustee for doing something wrong but much better to be able to pinpoint it.

Last week – even if trustee has misapplied property, you can trace it and bring proprietary claims.

Meat is to get the property. Last week we saw this is excellent where the house has doubled in value.

Final slice of bread? Today’s topic

First slice – trustee= naughty, he is personally liable. Better than that, gonna go for property.

If trustee doesn’t have property, and tracing attempts failed.. then another sliced of bread – look around for other people who have done wrong and bring personal claims against him. Example – could be a banker; solicitor..

Today – looking at opportunities to bring actions against strangers – not trustees or beneficiaries – bankers or solicitors – they have got themselves involved in my trust so you're personally liable.

Online the handout is supplemented. The hard copy is not finished.

First point – BARNS CASE – Victorian style saying – we don’t want to make people liable, we have to let commerce do its thing. The Victorian laissez faire ..wheels of commerce move smoothly. Saying – we will not make strangers liable. ‘the need to protect ‘... we don’t want bankers, sol to be liable. That means strangers are forever looking behind their back.. not consistent with Victorian philosophy.

Drugs and money laundering – another reason  - terrorism. Perceived threat of money being moved about to facilitate terrorism. Some banks too cautious of this,

We don’t live in vicotrian world of lets let commerce do their thing.

Barns – could extent to trustees.. see handout on website. Victorian reserve – strangers are not to be made constructive trustees .. don’t make strangers liable unless those agents RECEIVE trust property. This is naughty.. not always though. If it is bad they are liable. Knowing it is misspalied and for your own benefit. Or unless they ASSIST with knowledge.

Don’t make people liable if they are strangers, starts with this.. UNLESS they receive or they assist.

Understand what kind of receipt will make a stranger liable and what kind of assistance.. that is what this lecture is about.

Starting point – useful where tracing fails. ‘the equitable doctrine of tracing’ .. last week –tracing. This week  - imposing a constructive trust.


Trustee of an express trust – what if the trustee of the express trust gives the trust property to a stranger by a mistake. We used to say constructive trustee – construct them as a trustee.. now we don’t do this. Now – you are liable in equity.

Not any more – not true trustees anymore.

Saying they did smthing wrong- they knowingly received.

See handout.

Defendant – i traced my stuff into your hands, listen.

Sol and accountants – don’t go insolvent and mainly they are insured. This is why they are the defendants most of the time.. these people not actually doing something wrong, they are richer..


Trusteeship de son tort – sometimes you becomes a trustee by your wrongdoing.. ‘if one...’ . meaning – just a solicitor – sign a cheque. Convenience – commit a trust to a contract/investment –can say – youre not a trustee. This is for people who pretend they are express trustees. Then they are treated as trustees. Everything else is personal trustee..

Receipt and assistance are the two biggies in lecurre:

Receipt –page two handout.

Hoffman – first ingrnrdient – i am a be, my trustee misapplied my prooerty. Second – you have beneficially received the misapplied wealth and  i can trace it.

What does this mean? = did u receive it for your own benefit. Example – bank received money, but not for own money. There is a difference between administrative receipt, acting as a conduit and beneficial receipt. If a bank receives money into an overdrawn account, this can be beneficial.. listen.

Eg – solicitor who received misapplied money in fees, this is wrong. This is beneficial. Problem – beneficial receipt.

Crucial- number 3 – there must be knowledge..see handout.

So 1 – im a ben, my asset has been misapplied

2- received for your benefit

3 – u knew this was traceable to a breach of trust

All these, it’s a wrong. You're personally liable.

‘there is an ongoing debate’..

Unconscionable to retain the trust assets he had received. Chief akindele – big bank – leant them 10million dollars on the understanding he;d get 6mill profit back.. turned out to be very dodgy. He decided to withdraw. The bank, bcci went bust. The administrators went looking for the money.. chief akin – wants to recover his moment.

Was is unconsc to receive and keep? Listen.

Akin – atm received 6mil. Was it unconscionable? Gamble –

Courtds said not unconsicnable – there is a contract here.

Another basis – not uncon at receipt but uncon to keep it. When he received, contract.. now, pensioners don’t have money..

Entitlement to keep hold of money – he risked 10mil..

This is the law right now. But it is deeply unsatisfactory – what does uncon mean in this context?

Uncon is about looking at the context. What mght generally be the rule, might have to be adapted..

It is your behavior and conduct that makes it uncon...not about saying you've still got the property.. so event if they pass it on – uncon.

Some people say that when a stranger received misapplied money, should only have to show the bare fact of receipt.

At common law its strict liability – no fault. Some people say –debate –

Example – chief akindale – went to touble to see if he was at fault. We could forget all of this, say – chief tihs was not your money to receive. He would still have a defense to moent had and received – he paid with his risk, with contract.

If all you have to prove is receipt, easier.

This is the debate – professor burkes – said wealth is wealth is wealth..

If someone receives your wealth, its not theirs, unjustly enriched..wehn a stranger receives trust property its not theirs..listen

Lord nicholls agrees with him.

Important to distiniguish between trust proeporyt..

He wrote article on the structre..

Gary sees it as running risks.. against prof burkes and nicholls.

A ben of a trust, their property is not as good as an absolute owner. Better because a ben under a trust has to trust someone – element of risk. Owner – no additional risk

There is trust risk in a trust but ben has additional risk. This can produce consequence  - ansolute owner can drop wallet.. trustee may misapply and this is the risk for ben

Should the stranger run the risk of trustees breach or should ben?

The question is – who should it fall on?


Risk should fall with those in the better position to.. prevent

One type of case where ben in much better position. This is teh bare trust. Here you have a competent adult ben who has a trustee and can bring it to an end. Takethe cash,

In the case of a  bare trust, the adult ben is running the risk. In bare trusts it follows that the risk should fall on ben before third parties/ strangers.

Comes down to onus on... to prove the stranger did something wrong.

See handout on WEBSITE FOR QUOTE –‘a good case’..

This is an area of law which changes rapidly.

Second half of lecture.

2 things, have receipe for receipt.

Inconsistent dealing under heading of knowing receipt.

‘knowing’ – if youve forgotten smthing you don’t know montgaus –

Knowledge acquired after receipt – still subsequently liable.. even if found out after.

Rumour – knowledge of a mere claim/ mere rumour is not enough.

Carl zeiss case – 1969 – height of cold war. Dispute west and east germnay – carls zeiss were a leading manufacturer of lenses. East and west branches of the company. West was doing well..m making a lot of money.

Herbert smith.. court-  just because there is a claim in litigation , not knowingly receiving

Court refused to give them advanced license – if they went on to take risk.. account frozen as it may be subject of ..

More serious case – frozen account.

Tayeb case – bank – said – we don’t think we can accept this money. A Libyan businessman – turned out nothing wrong with that.

Degrees of knowledge – highly artificial. If you actually know there has been a breach of trust – this is naughty. Listen. Actual knowledge of breach of trust.

Another variation – nelsonian blindness. When you did or ought to have known. See on website.

Fine line between two – in second- making pretence of knowledge.

D and e not as bad.

5 levels of knowledge, badem levels.

Polly peck in notes – were you suspicious? This is the test. Ought you to have been suspicious

Akindele – were you unconscionable.

Dishonest assistance –

Not about receipt –see handout.

Baden – wont be liable unless assist in fraud. TAN CASE – AIRLINES  - travel agent who sells tickets to fly with royal airlines.. so travel agent holds money on trust.. customer gives money and he holds it on trust for airline

Mr tan used money for himself. Question was this – who committed the breach of trust in this case?

According to barnes, you will be liable if you knowingly assist in a dishonest breach. But potential problem when heist he director of travel agent company.. he could say he didn’t assist.. he was assisting the company. . .

Court said – company can be dishonest . clear that they think the issue is were as an assistant and accessory dishonest?

Changed the barnes and ade formulation – you will be liable if you assist in the fraud.

Tan –breach of trust doesn’t need to be fraudulent, was the assistance fraudulent

CHANGED. Listen.

Victorian times – liable if you assited in..

In tan.. liable if you dishonestly assist in any kind of breach

Is this not jsust a tort? Treated like a tort

See case of Abraham – it is a tort – just isn’t called a tort

4 things ---- listen

Back to start

Gary is the ben, drags the trustee first. Meat is the property –bring a proprietary claim..trace like last week. In reality all of these claims at once.

Last slice of bread – stranger – prove – there was a trust; it has been breached; this person assited in teh rbeach and they were dishonest.

2 tricky ones are last one.

Assistance is a quwation of fact –brinnks case – after robberey, one of the robbers ..wifde was assisting. She helped, actually helped.

The issue of dishonesty – she was not.


Tan –tells us what dishonesty means. – says the test of dishesnty is objective, would a reasonable onlooker say thats dishonest? Its not subjective at all.

BUT although it’s entirely objective, lower standard for trainee. Objective but in a way that takes into account your subjective characteristics.. your age, your expertise. Not subjective thoughts.

Twinsectra v Yardley see website handout.

In this case it was a solicitor and hl looked at sol and said..said – the test of dishonesty is a mix of obj and subj.. criminal test of dishonesty..

Hl – generous test – always been hybrid – objective but takes into account your pov.. if you didn’t realise.. 4 member said this. Millet said NO –read tan – not HYPBRID.. its about certainty, its objective. Tan is objective but if you don’t want to call sol dishonest, go back to barns. Youre liable if you knwogly assist. Lord millet said lets make it like the tort – make it like – liable if you go against trust.

Badddddd! What the law ought to be, it is not THIS.

Hl – 4 members – tan was about subj and obj. IT WAS NOT. Cant read it like this. ARTIFICAL.

IGNORE twin sectre and go back to tan. Barlow case –

Tan – privy council

Twinsectree – hl

Privy council – barlow correct.

Law – twin sect = law.

End passage – after ‘either way...’ read.