Notes Of Cases
| Published date | 01 March 1987 |
| Date | 01 March 1987 |
| DOI | http://doi.org/10.1111/j.1468-2230.1987.tb02573.x |
NOTES
OF
CASES
LIABILITY
FOR
INTERMEDDLING
WITH
TRUSTS
THERE
is little consensus as to when a person who intermeddles in
a trust should be liable as a constructive trustee. Academic writers
do not agree,’ and the cases reveal a remarkable degree
of
judicial
vacillation. Three recent cases2 reflect this uncertainty, but at the
same time consider the fundamental issues
of
principle that are the
cause
of
it. Each
of
the three cases is concerned to a greater or
lesser degree with two questions:
(1)
When will a person who assists a trustee
to
commit a breach
of
trust be liable
as
a
constructive trustee?
Ever since
Barnes
v.
Addy3
it has been accepted that a person will
be liable if he assisted with knowledge in a dishonest and fraudulent
design on the part
of
the tru~tee,~ though the precise meanings
of
“knowledge” and “dishonest and fraudulent design” have been
controversial. It is now settled that “dishonest and fraudulent”
means just that, and not merely “morally reprehensible.”’ If that is
so,
it is difficult
to
see how the knowledge required can be
anything less than actual knowledge
or
something closely akin to it.
A
person cannot be implicated in fraud without intention and
intention requires knowledge
of
the design. Constructive notice
will not suffice.6 Despite recent authority to the contrary,’ each of
the three cases under consideration supports the view that
constructive notice will not be sufficient for the imposition
of
liability for knowing assistance. The foundation
of
knowing
assistance must therefore be fraud.
For
recent academic comment, see R. P. Austin,
Essays in Equify
(edited by P.
D.
Finn),
p.196;
D.
J. Hayton,
(1985) 27
Malaya L.R.
313;
and C. Harpum,
(1986) 102
L.Q.R.
114
and
267.
Re
Monfagu’s
Sefflements,
December
21, 1983,
and March
29, 1985,
Megarry V.-C.
(a report is promised);
Lipkin Gorman
v.
Karpnale Ltd.
partially reported
(1986) 136
N.L.J.
659,
Alliott
J.;
and
Westpac Banking Corporation
v.
Savin
[1985] 2
N.Z.L.R.
41,
N.Z.C.A., Richardson and McMullin
JJ.
and Sir Clifford Richmond.
’
(1874)
L.R.
9
Ch.A p.
244.
‘
cf.
Attorney-Generarv.
The
Corporafion
of
Leicester
(1844) 7
Beav.
176, 179,
where
Lord Langdale M.R. said, “If the agent
of
a trustee
.
.
.
knowing that a breach
of
trust is
being committed, interferes and assists in that breach
of
trust, he
is
personally answerable
...
Belmont
Finance Corporation Ltd.
v.
Williams Furnifure Ltd.
[1979]
Ch.
250.
Wilde
v.
Gibson
(1848)
1
H.L.Cas.
605
(a case on the setting aside
of
a conveyance
on grounds
of
fraudulent concealment).
’
Baden,
Delvaux
and Lecuif
v. SocitW
General
I19831
B.C.L.C.
325,
Peter Gibson J.
217
218
THE
MODERN
LAW
REVIEW
[Vol.
50
(2)
When will a recipient of trust property transferred
in
breach
of
trust be liable
as
a constructive trustee?
At least two possible types
of
claim may lie against such a
recipient.8 If the property is still in the recipient’s hands in a
traceable form, the claimant may bring an
in
rem
tracing claim
enforceable by means of a lien. Such a claim will fail if the
recipient was a bona fide purchaser without notice, or
if
the
property has become untraceable. Whether or not such a claim will
lie, the recipient may be liable in the alternative to an
in
personam
claim as a constructive trustee on the grounds
of
knowing re~eipt.~
The point
of
contention is whether constructive notice or actual
knowledge on the part
of
the recipient is necessary before liability
will be imposed.’O On this point, the three cases are not unanimous.
Re Montagu’s Settlements
In 1923, Viscount Mandeville, who was entitled in remainder to a
large collection
of
chattels (in which his father, the 9th Duke
of
Manchester, had a
life
interest), assigned his interest to two
trustees. Under the terms
of
the trust, the trustees were, on the
death
of
the 9th Duke, to select such
of
the chattels
as
they in
their absolute discretion thought fit, for inclusion in a settlement.
Those chattels would be held on the same trusts as the lands to
which Viscount Mandeville would become entitled on the death
of
his father. Any chattels not
so
selected were to be held for
Viscount Mandeville absolutely. The 9th Duke died in 1947 and
Viscount Mandeville succeeded to the Dukedom. By then both the
trustees and the 10th Duke’s solicitor had forgotten the precise
terms
of
the 1923 settlement.
No
selection of chattels was ever
made, and all parties assumed in good faith that the 10th Duke
was entitled to them absolutely. Many were sold by him in 1949,
and the rest shipped to Kenya where the Duke had taken up
~~~ ~~
*
There is a third possibility. Should a personal representative pay money from the
estate to someone not entitled to it. any next
of
kin, legatee
or
creditor
of
the estate may
bring an
in personam
claim to recover that payment from the recipient:
Ministry
of
Health
v.
Simpson
(19511
A.C.
251.
A
claim
of
this kind was pleaded both in
Re
Montagu
and in
Lipkin Gorman.
In each case, it was doubted whether such a claim lay
in respect
of
dispositions made by a trustee of an
inter viwos
trust. In the former, the
claim was stood over, and in the latter dismissed, because the plaintiff had not pursued
his claim against the defaulting trustee first.
’
Tracing and knowing receipt were pleaded in the alternative in both
Re
Montagu
and
Li kin Gorman.
e,
In
Baden
Delvaux
I19831
B.C.L.C.
325,
407,
Peter Gibson
J.
classified the different
degrees
of
knowledge as: “(i) actual knowledge; (ii) wilfully shutting one’s eyes to the
obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and
reasonable man would make; (iv) knowledge
of
circumstances which would indicate the
facts to an honest and reasonable man; (v) knowledge
of
circumstances which would put
an honest and reasonable man on inquiry.” It is questionable whether (ii) and (iii) differ
from each other; and category (iv) might be more accurately rendered as “a failure to
draw legal
or
factual inferences from known facts.” In
Re
Monragu,
Megarry
V.-C.
regarded Peter Gibson
J.’s
analysis as no more than a useful guide. In this note, the term
“actual knowledge” is used to connote actual knowledge and wilful shutting
of
eyes, and
“constructive notice” a failure to inquire or to infer.
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