Equity: Third Party Liability

Front 1

Accessory liability: Royal Brunei v Tan (1995) - Trust is breached by the assistance of the defendant who acts as an accessory and has knowledge of the breach and is dishonest.

Knowing receipt: Dollar Land Holdings (1994) - Lord Hoffmann defined: trust property or its proceeds transferred to the defendant who receives it for their benefit. They know that it has been transferred in breach or learns later and retains the property.

Back 1

Mara v Browne (1896) - trustee de son tort: Lord Smith stated they are not trustees but they intermeddle with the trust and are trustees of their own wrong/constructive trustee. Has "characteristics of a trustee but outside the duties of an agent".

Followed in Goddard v New Zealand (1991).

Front 2

Barnes v Addy (1874) Lord Selborne: trustees responsibility extended in Equity to trustees de son tort. Not to strangers or mere agents unless agents receive trust property or "assist with knowledge in a dishonest and fraudulent design".

Doubtful trusts or equity not sufficient for accessory liability: Carl Zeiss (1969). Company trusts and misuse of company assets can be accessory liability: Cradock (1968). Quistclose trusts included: Twinsectra (2002).

Back 2

Constructive knowledge should put a reasonable man on enquiry. Wilful blindness to the truth is the same as actual knowledge: Karak Rubber v Burden (1972) and Baden (1992).

Front 3

Lord Gibsons five criteria of actual knowledge in Badan Delavaux (1983). Badan (1992) followed and defined: actual knowledge, willfully shutting one's eyes, wilfully and recklessly failing to make enquiries, knowledge of circumstances to indicate facts and put an honest and reasonable person on inquiry.

Back 3

Royal Brunei v Tan (1995) - Lord Nicholls stated that dishonesty is a necessary and sufficient ingredient for accessory liability. Honesty is an objective standard.

Yet, included subjective elements to consider the defendant's specific characteristics (e.g age, experience).

Front 4

Twinsectra v Yardley (2002) - Lord Hutton: explained possible standards of dishonesty such as the objective standard and the subjective 'Robinhood test' based on the person's personal standards and a combined test which criminal judges seem to prefer.

Objective test gradually influenced by criminal law and combined objective and subjective limbs as seen in Ghosh (1982).

Lord Millet: dissented and argued for simply an objective test. However, Lord Hoffmann, Steyn, Hutton argued for a combined test.

Barlow Clowes (2005) - Lord Hoffmann and Lady Hale agreed that Lord Hutton didn't intend to depart from the law and clarified the test is purely objective with subjective elements. Irrelevant if the defendant judges by different standards.

Back 4

- Abou-Rahmah (2006): bank cases prefer the objective test.

- Belmont Finance (1980): actual knowledge of breach of trust is necessary for knowing assistance.

- Re Montagu (1987) argued that the test should be based on actual knowledge.

- Agip (1992) - Lord Millet: liable if they receive property with notice or subsequently discover afterwards. Argued for a lower threshold (constructive knowledge) to be sufficient.

- Ivey v Genting Casinos (2017) - Lord Hughes: subjective test benefits warped defendants, rule isn't necessary, it's difficult to apply, leads to divergence of criminal and civil law and the departure of the law. Thus, the Ghost test "doesn't correctly represent the law". Reasonableness is a matter of evidence. "Objective standards of ordinary decent people".

Front 5

Knowing receipt: Dollar Land Holdings (1994). Strict liability can be altered by the defence of change of position.

Relfo (2014): enrichment at the claimants expense propriety. Proprietary claim failed as money was dissipated however, succeeded with knowing receipt because money had originated from Relfo and proceeds were traceable.

Re Montagu's Settlement (1987): for constructive trusts the conscience of the recipitant is necessary.

Akindele (2001) - Lord Norse: rejected actual and constructive knowledge. Recipients state of knowledge must show it is unconscionable for him to retain the benefits of the receipt. Since there's a single test for dishonesty for knowing assistance in Tan, there "ought to be a single test" of unconscionability for knowing receipt.

Back 5

Lord Nicholls in his book Restitution argues for strict liability as it's a "better-tailored response". Argues it should be triggered by the mere act of receipt and unjust enrichment.

Professor Birks in his book Law of Restitution argues when someone is unjustly enriched, the trust property should be returned.

However, Lord Norse in Akindele (2001) argues strict liability would be "commercially unworkable" and may deter bank transactions.

Lipkin Gorman (1987): Court of Appeal allowed the casino to be sued for knowing receipt and the bank for knowing assistance as full consideration was not given to the innocent recipient of stolen money thus, an equivalent sum must be returned to the true owner.

Claimant may elect between remedies (equitable account or compensation) - Templeman (2000).