LIABILITY OF INTERMEDDLING STRANGERS

LIABILITY OF INTERMEDDLING STRANGERS

1. If trustee allows trust property to fall into the hands of someone else, trustee will be liable

   • If stranger knows they're receiving trust property, in breach of trust, stranger holds on CT for beneficiary
     • Must have actual or constructive knowledge
       • Which strangers will NOT be liable?
         • BFP - PILCHER v RAWLINS
           • Innocent Volunteer RE DIPLOCK
             • Agent of the Trustee - BARNES v ADDY
         • Which strangers WILL become liable?
           • Trustee de son Tort - MARA v BROWNE
             • A person who is not a trustee and has no authority from the trustee and becomes involved in the estate
           • Knowing/Dishonest Assistance
             • BARNES v ADDY - indicated that knowingly assisting in a fraudulent and dishonest disposition of the trust property is knowing assistance
               • Stranger does not have to be in receipt of trust property, liability can be imposed if they facilitate a fraudulent design - EAVES v HICKSON
             • Liability is personal not proprietary
               • 4 elements for liability
                 • Existence of a trust or other FR
                   • Existence of a dishonest or fraudulent design on part of trustee or other FID
                     • Although - ROYAL BRUNEI AIRLINES v TAN decided this is not essential
                       • Assistance by the stranger in the design
                         • Guilty knowledge on part of the stranger
                           • What constitutes knowledge? BADEN DELVAUS v SOCIETE GENERALE
                             • 5 BADEN criteria, widely accepted that stranger has guilty knowledge when:
                               • 1) Immediate knowledge of a trustees fraudulent breach of trust
                                 • 2) Willfully shuts his eyes to the obvious
                                   • 3) Willfully or recklessly failed to make such enquiries as a reasonable and honest person would make in the circumstances
                                     • Generally accepted that stranger has actual knowledge if the above 3 elements are present
                                       • Shown to have constructive knowledge when:
                                         • 4) has knowledge of circumstances that would indicate the facts to a reasonable and honest man OR
                                           • 5) has knowledge of circumstances that would put a reasonable and honest man on enquiry
                                             • Liability for dishonest assistance on basis of constructive knowledge can only be imposed in exceptional circumstances
                                               • SELANGOR UTD RUBBER ESTATES v CRADDOCK
                                                 • Other cases suggest dishonesty required BELMONT FINANCES V WILLIAMS FURNITURE
                                                   • BUT - preferable to consider the honesty/probity of def ROYAL BRUNEI case