Strangers to a Trust Cases

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Agip (Africa) v Jackson [1991] Ch. 547

Facts: Agip was an oil company. Agip’s accountant devised a scheme in which payee’s names were changed on invoices which enabled money to be put into a shell company and transferred offshore. Jackson had clearly assisted in the fraud by setting up the shell companies, transferring the money offshore and liquidating the company

Held: Fox LJ said Jackson was dishonest as honest people would have made inquiries of Agip → so Jackson was liable as a constructive trustee

Barnes v Addy (1874) LR 9 Ch App 244

Held: Strangers of a trust will not usually be liable, unless “those agents receive and become chargeable with some part of the trust property” (i.e. knowing receipt) or “unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees” (i.e. dishonest assistance)

Barlow Clowes International Ltd v Eurotrust [2005] UKPC 37

Facts: Barlow Clowes was a ponzi scheme. Eventually it collapsed owing £140m to people. Funds from Barlow Clowes were channelled through Eurotrust (the defendant) before the funds were moved offshore, making them untraceable. Henwood (one of the directors of Eurotrust) was sued by the liquidators of Barlow Clowes for dishonestly assisting the breach of trust

Held: The Privy Council reviewed and ‘explained’ Twinsectra v Yardley: they held Henwood knew or suspected money was being misappropriated and did not act as an honest man would have done: that is, to make further enquiries or refuse to act – this was sufficient to find that Henwood had dishonestly assisted in the breach of trust

  • The subjective view is completely immaterial i.e. it doesn't matter
  • Lord Hoffman held that neither he nor Lord Hutton, when both gave judgement in Twinsectra, had intended the test for dishonesty to be understood as having a subjective requirement (although it certainly looked like it!)

Bank of Credit and Commerce International v Akindele [2001] Ch. 437

Facts: Akindele entered into an agreement with BCCI (an international bank that was run basically as an international marketplace for fraud). BCCI needed an injection of cash without debt being incurred on the balance sheet, so the bank sold shares to Akindele with the promise to buy them back at a high interest rate. When BCCI collapsed the liquidators brought a claim in knowing receipt in order to recover the money paid to Akindele i.e. the money had been given to Akindele in breach of fiduciary duty and he knew that money had been given to him in breach of fiduciary duty

Held: The court said there has been a move away from the formal exercise of determining which level of Baden knowledge the recipient had to a broader test of conscionability

  • “All that is necessary is that the recipient's state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt.” ( Nourse LJ)
  • So the evolution of the doctrine of ‘knowing receipt’ into a doctrine predicated more generally on ‘unconscionability’ emeregd from the decision of the CA in this case

Eaves v Hickson (1861) L.R. 9 Ch.App. 244

Facts: In this case there was a trust set up for the benefit of a man's children, who could not benefit from the trust as they were illegitimate (i.e. born out of wedlock). He forged a marriage certificate so they could benefit from the trust.

Held: It was held that the father was to be personally liable for the loss occasion, so the children had to give the money back.

  • It is also clear from this case that dishonesty/fraudulence of the trustees was not necessary for this liability (despite what Lord Selbourne said in Barnes v Addy)

El Ajou v Dollar Land Holdings [1994] 2 All ER 685

Held: Hoffman LJ said if property is conveyed in breach of a fiduciary relationship and the recipient knows that the property is conveyed to him in breach of that fiducariy relationship, the recipient will be liable as a constructive trustee

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Mara v Brown [1896] 1 Ch. 199

Held: A trustee de son tort is a trustee in the eyes of the law

MCP Pension Trustees Limited v Aon Pension Trustees Limited [2009] EWHC 1351

Facts: The trustees of a large pension fund did not include 32 beneficiaries into it due to an administrative error. When it was wound up the defendants distributed the fund, but not to those 32 beneficiaries who were not included accidently. The 32 beneficiaries claimed the property was held on trust for them and it has been disposed of in breach of trust. However, the trustees argued that they were protected from liability by s.27(2) Trustees Act 1925, which provides that trustees are not liable for claims of which they have no notice, if they have advertised that the trust property is to be distributed

Held: The Court of Appeal held that notice and knowledge not the same thing: a person who forgot something that he formerly knew might not have knowledge, but they would still have notice

Re Montagu’s Settlement Trust [1987] Ch. 264

Facts: Chattels formed part of the trust in this case. The trustees never selected which chattels would become the 10th Duke’s absolutely, so all the chattels were held on trust for the 11th Duke. The 10th Duke nevertheless sold some chattels (although not dishonestly as he believed he was allowed to do so). The 11th Duke sued his father (the 10th Duke) for breach of trust.

Held: It was argued 10th Duke knew the existence of the trust at some stage, which amounted to notice. However, it was held the 10th Duke was not liable as a constructive trustee as he had no knowledge that the chattels formed part of the trust property

  • His Lordship held that liability should not be imposed unless the conscience of the recipient was affected; this required “want of probity”, which includes the actual knowledge grounds of the Baden categories (i)-(iii) and doubted that the accusations of (iv) and (v) is consistent with an accusation of ‘want of probity’

Royal Brunei Airlines v Tan [1987] Ch. 264

Facts: A travel agency sold flight tickets on behalf of Royal Brunei Airlines (the claimants). The agency agreed to hold proceeds of ticket sales on trust for Royal Brunei Airlines. The agency was in financial difficulty, so Tan (who owns the agency) took money from the trust account and used it to deal with the cash flow problems. The agency subsequently went into liquidation (so claiming against the agency would be a waste of time as it had no money), which meant Royal Brunei Airlines sued Tan as the owner of the agency. Tan was a stranger to the trust but he dishonestly assisted in taking money out the trust account.

Held: The Court of Appeal, in an odd decision, held there was no dishonesty, just incompetence. The case went to the Privy Council who held that Tan was personally liable for dishonestly assisting in breach of the trust and it was unnecessary for the trustee itself to have been dishonest.

Twinsectra v Yardley [2002] UKHL 12

Facts: In this case, money was held on trust be a solicitor. It was transferred to another solicitor’s client account. The solicitor that received this money wasn't in knowing receipt as he didn't receive the money beneficially, but then he transferred the money to a 3rd party in breach of trust. The question was whether or not this was dishonest

Held: The court found he wasn't dishonest and the court appeared to introduce a subjective test

  • The court said: “Dishonesty requires knowledge by the defendnt that what he was doing would be regarded as dishonest by honest people” (Lord Hutton)
  • This is a subjective-objective test: it requires objectively dishonest behaviour AND that the defendant understands most reasonable people would regard his conduct as dishonest
  • Note: the second limb of the test is whether or not the defendant realised that other people would have considered her actions to have been dishonest and not simply that the defendant herself thought that the action was dishonest

Williams v Central Bank of Nigeria [2014] UKSC 10

Facts: Williams paid $6m to a solicitor to hold on trust until funds were released in Nigeria. However, the solicitor released the $6m to the Central Bank of Nigeria (CBN) before the release of the funds. Willaims bought an action in knowing receipt and dishonest assistance against CBN

Held:

  • Under the Limitation Act 1980 there are limitations of actions against a trustee who was in breach of trust → but one exception to this limitation is where a trustee has acted fraudulently: if a trustee acts fraudulent there is no time limitation on bringing an action
  • The Supreme Court considered whether a knowing recipient or dishonest assister fell within exception
  • Trustees are defined in the Limitation Act 1980 by reference to the Trustee Act 1925, which includes constructive trustees
  • Not so clear, however, in the circumstances of a knowing recipient → it had always been thought they are a constructive trustee, and therefore covered by the exception
  • However, the Supreme Court held the bank could rely on the Act: it was not a constructive trustee within the meaning of the Limitation Act 1980/Trustee Act 1925

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