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Liability of Strangers and Tracing

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LLB Trusts and Equity (10. Liability of Strangers and Tracing ) Note on Liability of Strangers and Tracing, created by cadhla_corrigan on 05/06/2014.
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Note by cadhla_corrigan, updated more than 1 year ago
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Liability of Strangers:Barnes v Addy: trustee decided to hand over duties to another upon the advice of his solicitor. The new trustee took the money for himself. Generally, strangers to the trust are not liable as constructive trustees unless they receive the trust property or have assisted dishonestly.  Dishonest Assistance:Baden v Societe Generale: it is a question of fact as to whether there has been dishonest assistance Brinks v Abu-Saleh: gold and valuables was stolen by a number of people acting together. The defendant had driven with her husband in the car to where he was to deposit the stolen goods. As she was unaware of the goods she was not liable as she did not further the breach of trust.  Subjective Test for dishonesty= defendant's own standards of honesty; did they think they were acting dishonestly? Objective Test for dishonesty= ordinary standards of honesty Combined Test for dishonesty= did the defendant realise they contravened ordinary standards of honesty? Royal Brunei Airlines v Tan: Royal Brunei appointed another agent to act on their behalf in a sale. Proceeds were to be held on trust for the airlines but the company used it themselves with the assistance of Tan (managing director). Held, the objective test would be applied although there was a subjective element (an entirely subjective approach was declined). Twinsectra v Yardley: Solicitor kept beneficiary's money on a Quistclose trust but paid the money out contrary to the trust's purpose. A subjective standard towards his dishonesty was rejected and a combined approach was accepted. It would be unfair to apply the objective test if he did not realise what he was doing was ordinarily dishonest.  Barlow Clowes International v Eurotrust: Defendant was involved in a fraudulent investment scam. The defendant was found to be dishonest and upon appeal it was held that the defendant's knowledge had to be as such to render his participation contrary to normally acceptable standards. Abou Rahmah v Abacha: solicitor claimant was asked to help a country through payments in return for money of a trust fund. He paid the money and the bank manager had suspicions. Held, the bank was not dishonest based upon the objective test in Barlow. Barlow was not departing from Twinsectra, it was merely a "guidance as to the proper interpretation".  Starglade Properties v Nash: Lawsuit was bought against a company by two claimants who agreed the damages would be held on trust by one to the other whom instead used the money for themselves. Held, it is for the court to decide what the ordinary standard of honest behaviour is and how to apply it.Dubai Aluminium v Salaam: company was defrauded of money by their partner's firm employee. The Partner firm was held to liable for the wrong. As this is a fault-based wrong it can be bought in action in both common law and equity.Williams v Central Bank of Nigeria: Claimant paid money on trust to solicitor over an investment, solicitor paid money to bank and kept some for himself. Williams bought a claim 24 years later against the bank for dishonest assistance. Under S21 Limitations Act 1980, the limitation does not apply for claims of dishonest assistance but only if the trustee himself has been dishonest, not the third party as although equity can treat them as a trustee they are not. Knowing Reciept (receiving the trust property): Eagle Trust Plc: company agreed to underwrite claimant company's shares. The defendant company had underwritten their company by the claimant's employer. "It is only necessary to know the money was trust money" for knowing receipt to be found. El Ajou v Dollar Land Holdings: Did they know the money was trust money? Disposal of assets in breach of fiduciary duty/ trust The beneficial receipt by the defendant's assets Knowledge on part of the defendant Criterion Properties v Stratford UK Properties: Claimant company was to be taken over by another company who the defendants would not want to work with and so the claimants could be bought out of the joint venture. The claimant bought a claim for knowing receipt as this money would then not be received via the claimant's assets. Contractual rights created by contract do not equal knowing receipt. Belmont Finance v Williams Furniture (no2): Overpaying for a company by claimant at an inflated price was held to be "suspicious" and therefore the claimants must have realised the situation. Baden Societe Generale: Baden Scale of Knowledge of Receipt: Actual Knowledge Wilfully shutting one's eyes to the obvious Wilfully and recklessly failing to make enquiries as an honest and reasonable man would Knowledge of circumstances which would indicate the facts Knowledge of circumstances which would put a man of inquiry Re Montagu's Settlement Trusts: duke was assigned father's property upon the father's death. He forgot this and when given money by the trustee spent it all. Held, when forgetting the facts of the circumstance there may not be actual knowledge. BCCI v Akindele: BCCI was involved in fraud, Akindele agreed to lend bank money to cover up the fraud. This would be returned with interest. The interest was so large that it raised the question of whether knowledge of suspicious actions were going on. Baden's scale was rejected and a single test of unconscionability was formed. "Was the recipient's state of knowledge as such to make it unconscionable for him to retain the benefit?" City Index Ltd v Gawler: Treasury manager of company was addicted to gambling and stole from emploter to pay losses. City Index agreed to settle the claim of receipt but bought a claim against the company's employer for failing to notice. Can receipt amount to damage by another person? Armstrong v Winnington: fraudsters stole credits from company. Although the Baden scale was overruled it could still help in determining whether the defendant's receipt was unconscionable. Authur v Attornery General of the Turks: there is a duty to restore trust property in equity. 

Tracing:Tracing= tracing the interest the beneficiary has in the property often through a new asset bought in replacement of the old one.Foskett v McKeown: The process of ascertaining what happened to the plaintiff's money involves following and tracing. Tracing at Common Law: Within Common Law there is not straight proprietary claim, the claim is made through tort, contract etc.  It is more restrictive than equity as it will not recognise mixed funds.  Jones v DeMarchant: DeMarchant bought mistress a fur coat he made out of skins, some of which belonged to his wife. The wife was able to trace her proprietary right. Taylor v Plumer: Taylor took money and was caught after he had bought stocks. The principle was allowed to trace their interest into the purchase. Lipkin Gorman: solicitor had a gambling addiction and withdrew money from his firm. The firm could claim from the club the solicitor gambled at FC Jones v Jones: Jones gave wife money out of his firm to invest in potato farming. She consequently made a large profit; FC could not claim the money given to her and the money made. Agip v Jackson: Forged cheques were mixed together through a variety of transactions. Held, under common law one cannot trace mixed money which has entered numerous accounts and banks. There is not identifiable quantifiable money. Tracing in Equity: Agip v Jackson: There must be an equitable proprietary interest and a fiduciary relationship to trace in equityFoskett v McKeown: A man worked for an investment scheme and misappropriated money from the fund, using it to pay premiums on his insurance policy. He committed suicide and the policy paid out to his family. If there is a change of form between transfer or charge can still be traced, it does not matter if the money was mixed or not. Equitable property rights are not discretionary as long as the money is used, whether the policy would still have paid out or not, means the company could still claim a right to their money. Pennel v Deffell: If the money is authorised by the beneficiary, there is only a proportionate share of the money in a mixed fund. Frith v Cartland: There is an assumption of the trustee's own money was spent first as opposed to the trust money in a mixed fund of the trustee's own money and the trust money. Re Oatway: Trustee misappropriated trust money and spent it as well as his own money. The assets bought with this is traced to the trust property. James Roscoe v Winder: Fiduciary pays money from company into his own account and spent most of it before topping up his account again. Held, the company cannot claim for the money which has topped-up the account as it is not the original trust money in a new form. The original trust money is traced to it's disappearance or spending. Clayton's Case: the first money paid in to a mixed fun its the first money paid out if there are multiple claimants ie. "first in, first out" rule. Barlow Clowes v Vaughan: the "first in, first out" rule is only applied where it is convenient and gives broad justice to all. If there is a "collective investment"  Re Diplock: Diplock left money for charitable and benevolent causes, the family challenged this as the money must be exclusively "charitable", not benevolent. Held, where the money had been paid to an innocent volunteer and has mixed with his money, they court does not assume that his own money was spent first but rather the trust money was. If the money is in the account it can be paid back.Boscawen v Bajwa: Building society advanced money to purchaser solicitors who sent it to vendor's solicitors who paid the mortgage. The sale later fell through. Held the building society was to subrogate as the mortgagee (stand in the shoes of another) and claim for the mortgage money. Loss of Right to Trace and Defences: Disappitation, consumption or destruction- if the property is gone, spent or destroyed, there is nothing to make the claim upon.  Overdrawn account- if money is paid into an overdrawn account the money disappears and there is not right to trace (Shalson v Russo) Backwards tracing (not a defence)Foskett v McKeown: When using trust money to pay off credit used to buy an asset which would otherwise be bought with the trust money, it cannot be traced as the credit belongs to the bank.  Bonafide Purchaser for value without notice- Noble Ltd & Morris: Man stole money from pension funds and did not use money to settle divorce payment with wife. She realised he was living on more money and claimed for a higher maintenance sum. Held, if she had settled she would have been a Bonafide purchaser, however, by pressuring for more money she was no longer bonafide as she was aware of the extra money.   Unification:Birks: a fusion or union of common law and equity in tracing should occur; there should be no difference in keeping track of property. Lord Millett agrees, there is no justification between a difference in common law and equity. 

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