EQUITY AND TRUSTS
Question no: 1
This question concern relations to the breach of trusts. The issue here defendant need to prove ‘knowing receipt’ and defendant accused of accessories liability.
The stimulus statement from Twinsectra captures the central tension in the area of liability of third parties in relation to breach of trust. The statement focuses on the issue of what degree of knowledge is required by the defendant to prove ‘knowing receipt’ and a defendant accused of accessorial liability.
Where a person receives property beneficially which belongs to another and receives it for his or her own benefit then there may be a cause of action in knowing receipt. This is a personal remedy and does not follow the property. Case law shows that in these cases there needs to be knowledge of the claimant’s interest. What the case law is unclear on is what degree of knowledge is required.
The law at present states that the defendant’s knowledge must be so that it would be unconscionable for the defendant to make it unconscionable to retain the benefit of what is received. There is no need to show dishonesty. The Privy Council has stated that more is needed than the knowledge requirement for identifying an equitable interest when assessing whether someone is a bona fide purchaser for value without notice. The courts have also stated that a defendant can be liable where he or she is put on notice of a set of circumstances so as to put the defendant on notice that further investigation was required and if he or she had done so they would have been armed with sufficient knowledge. Further, the courts have held that knowledge of one director in a company means knowledge from all directors is assumed.
It would be erroneous to suggest there are no guidelines as to the fault element required in knowing receipt. However, there has been little judicial consideration or clarification of the exact fault requirements required.
For example, in Madoff Securities International Limited (in Liquidation) v Raven the High Court indicated on the point of knowledge in knowing receipt that the defendant had ‘acted honestly in relation to them payments made in all material respects’. Given that the appeal courts have not considered the issue in much detail, this may point to the law working well at the lower levels, or could indicate uncertainty in the law resulting in practitioners dissuading clients from litigating where they cannot provide clear advice. This is not surprising. As with any area of law that is structured on the malleable concept of unconscionability, there is certainly a lack of certainty in this area. Further, as stated in the stimulus statement this remedy is restitutionary. As noted by Campbell ‘unjust enrichment is vulnerable to misinterpretation. To be useful, it must be applied accurately.
Dishonest assistance in breach of trust occurs when someone dishonestly assists another to act in breach of their fiduciary duty. However, this definition is somewhat lacking as other breaches such as breach of an agreement in a commercial contract have been shown to be enough for this cause of action.
Assistance will be dishonest where a person has knowledge of the facts of a situation which means that giving assistance would go against the ordinary standards of honest behaviour or they have a suspicion that providing this assistance would go against ordinary standards and they do not make enquiries to confirm or deny that suspicion. The claimant needs to show that the defendant’s breach was more than just deliberate; it needs to be shown that they acted with intentional or reckless disregard for the interests of beneficiaries under the trust. The test is subjective in that it is based on the facts known to the defendant but is also objective in that the defendant’s actions are judged by reference to the standards of ordinary honest behaviour. The defendant does not need to know that they are involved in a breach of trust, however, the defendant’s suspicion must be clear – it is not enough that the defendant suspects or knows that they are involved in some general wrongdoing. Interestingly, while the defendant in this action needs to be dishonest, the fiduciary who acted in breach of a trust, does not need to have been dishonest.
The stimulus statement captures the central tension in this area of law – the state of knowledge in relation to knowing receipt and dishonest assistance. The statement in isolation suggests a clear statement of law between both. The reality is different. Knowing receipt suffers from uncertainty regarding knowledge. Dishonest assistance is more certain.
The knowledge of state between both clear isolation suggests. The reality is different knowing receipt suffer from regarding uncertainty knowledge.
Dishonest assistance is more certain.