Beruflich Dokumente
Kultur Dokumente
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Express Trusts
Once constituted, (i) cant be revoked unless S reserves such power [even before
constitution if B provided consideration for declaration of trust, (ii) enforceable only
by B against T, (iii) S no longer owns any interest (iv) trust property would be
segregated from Ts general assets
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o Note possible issues of evidentiary proof for making of the
declaration
o If testamentary, in writing, signed by testator in presence of 2
witnesses WO s.5
Substantive validity
Not a sham e.g. for tax evasion; For the benefit of human beneficiaries,
or for charitable purposes but not private purpose; Must not infringe rules of
perpetuities (fixed period of 80 years in Hong Kong)
S must have legal capacity and is of sound mind
Trust free from vitiating factors e.g. illegality, fraud, public policy, set
up to defraud creditors
Three certainties
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May involve after-acquired property as trust property Tailby v
Official Receiver (equitable assignment by way of security of all present
and future book debts)
Issue e.g. shares sold before segregation inc those which would
be subject to trust?
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Pearson v Lehman Brothers Finance SA (UK) (found securities
acquired for LBFs account, though mixed with others, held on trust by
LBIE, which is at liberty to deal)
Found co-ownership with T; immaterial that segregated fund is a
constantly changing fund beneficially co-owned by a constantly
changing class of clients as in CA Pacific
Trust of part of a fungible mass w/o appropriation is valid if the mass
itself is sufficiently identified + Bs proportionate share is not of itself
uncertain H v M
o Affirms its the reasoning but not conclusion in Hunter
thats challenged
o Adopting White trust works by creating beneficial co-
ownership share in the identified fund; not the more diff notion
of identifying a particular part subject to trust - UK law hence
open to another construction of Hv M
Considered scope of rights covered a matter of intention instead
Tweaked the in/tangible property distinction by setting the dividing line
as non/ fungible property
Parkinson
Distinction in that there is a fluctuating mass
Should suffice if the source of trust fund is ascertained and trustees
obligations are sufficiently clear
B. Vesting of title
1. Trust by declaration property already with T
Need only to affirm intention to make himself trustee
Middleton v Pollock
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2. Trust by transfer
Formalities in transferring title
Conveyance by deed for land CPO s.4
Transfer of shares require (i) Execution of share transfer form, attachment
to share certificates, (ii) delivery of both documents to the company and
(iii) registration of transfer in the company
Chose in action statutory assignment for legal CIA pursuant to LARCO
s.9, or equitable assignment for equitable CIA e.g. interest under another
trust
Would generally require some acts by the assignor
showing that he is passing the chose in action tot eh supposed
assignee Tjio/ Yeo citing
Mere taking of (constructive) possession for money and ordinary chattels
delivery
The fact of legal title vesting in T is sufficient regardless of the reason for
transfer Re Rallis Will Trusts (T is trustee for both marriage settlement
and subsequent testators will; found constitution of former when property
passed to T in his latter capacity)
C.f. Re Brooks ST in which court held that there is
no constitution of earlier trust as it would only be a voluntary
covenant to transfer after-acquired property not supported by
consideration and no obligation/ duty for S to transfer property
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Saving Failed transfers
a. General rule
Court will not give effect to Ts intention relating to one
mode of disposal by applying a different mode Milroy v Lord
o Modes of (i) absolute transfer of property
wont be perfected for Equity will not assist a volunteer/ perfect
an imperfect gift unless consideration is given (ii)(iii) (self
declaration) of trust
o Not to perfect an imperfect gift Jones v
Lock
o Will not compel Ss personal rep to complete
the act (Re Rose)
o Clear distinction between donor and trustee
in Jones v Lock
Transfer of shares require (i) execution, (ii) delivery, (iii) registration [which
may not be mere technicality; construed as form of consent to novation
Tjio/Yeo], (iv) possible additional requirements under cos M&A
Milroy v Lord requiring (i) (iii)
Re Rose requiring (i) (ii) [nothing more needs to be done
by donor to perfect title] which is not applicable if theres decisive
intervening factor e.g. Treasurys consent
Pennington v Waine requiring only (i)
Neither execution nor delivery where B provides
consideration
N.B. in none of the above did the donor intend to resile from the gift
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o Remains a constructive trust until actual
transfer of legal title but it cannot be revoked or withdrawn
o N.B. the consequent imposition on FD and
e.g. trust over prop derived
For equity treats as done what ought to be done
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o Must not merely leave matters In the hands
of his agent can easily revoke instructions noted in
Penington
Pennington v Waine (D told nephew she would give him 400 shares and
wanted him to become director, for which he needed >1 share; both
signed share transfer form delivered to cos auditor but donor died before
auditor delivered to co)
Issue whether equitable interest in the shares had passed to the nephew
(not whether they are held on trust for aunt intended transfer by way of
gift)
1. (i) Execution of share transfer form, (ii) reg, (iii) delivery to transfer
legal title here incomplete; equity not to perfect an imperfect gift
2. But recognized exceptions of (i) Re Rose, (ii) CT under Choithram
doesnt fall foul of Milroy v Lord as not finding express trust, and (iii)
benevolent interpretation
3. Transfer contravenes the articles, which provide for pre-emption
rights c.f. pre-emption rights contractual and do not bind TP hence
effective despite breach of the articles; unless it has matured into
option/ TP has notice Arden LJ
(i) Re Rose not directly applicable for it requires delivery but it affirms
existence of exceptions to Milroy v Lord
Auditor an agent and failed to do everything in his
power to effect transfer; D could demand return of form anytime
before delivery to co
(ii) Notwithstanding failure to deliver, found here delivery dispensed
with as a requirement because it is unconscionable for S to deny
upon execution of share transfers where N was informed of Ds
instructions and told he neednt do anything
Here nephew already told of the gift and already made
director
No comprehensive list of factors but included intention
to make an immediate gift voluntarily, informing donee of the
gift, A telling donee that he need not do anything and donee
agreeing to become director
(iii) Alternatively benevolent construction such that words used by
donor and agent mean that they become donees agents for
submitting transfer to company to satisfy Re Rose
Reading Choithram as indicating that a court may
benevolently construe a trust if it is permissible as a matter of
construction c.f. strict app of Milroy v Lord (Tjio/ Yeo)
(iv) CT (primarily) which is more in line with the principle of
unconscionability
2. Reliance on Choithram
a. Whether its right to rely on Choithram for reference to
unconscionability
Choithram because S declared express trust, duty on
S to transfer shares and failure to do so would be
unconscionable c.f. Pennington because it is unconscionable to
recall the gift, theres a trust
o i.e. used to justify perfection of trust after
finding one in C v P
o Here used to convert a donor into T
contrary to Ds wishes (Jones v Lock on gift/ trust, donor/
trustee distinction)
o In fact in Choithram construed the
apparent intent to make gift
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Better interpreted as estoppel making revocation
unconscionableVi, Tjio
Generally conscience affected because of an equitable
assignment but not merely by virtue of resiling from incomplete
gift Tjio
c. Finding of unconscionability
No actual detriment (c.f. Briggs J in Curtis by agreeing
to become director) and only indication of reliance is in
accepting office Virgo
Giving court unfettered discretion Moffatt
May undermine policy of safeguarding Ds interests
and allowing D to resile from voluntary acts Arden LJ
Choithram should arguably be narrowly applied as
there the court wanted to encourage transfers for charitable
purposes
Note that at least theres signature on execution docs
is satisfied here which is a very low threshold
3. Unconscionability as a test
Vague (c.f. list of factors) factors do not clearly point to
unconscionability; no requirement on detrimental reliance which is
absent unless here nephew incurred detriment from becoming
director or he was looking for other alternative sources for
qualification shares
o (i) look at factors considered by court (ii) how
unconscionability can be found, and (iii) how it can be applied
in arguing vagueness
In fact list of factors only indicate that donor had made a
representation to the nephew on which he relied, albeit not to his
detriment Virgo
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Arden LJ
b. (i) Re Rose as applying when S has done everything
necessary for him to transfer the absolute title, hence (ii) issue was
whether assignment of beneficial interest arose out of an incomplete
transfer of absolute interest in shares (iii) Re Rose envisaged delivery
of the relevant documents to done
c. (i) there should be clear ascertainable point in time on
completion of the gift in the interests of legal certainty (ii) not limited to
delivery but rather if it is unconscionable for the donor to withdraw
from the gift
Cited Choithram but unconscionability there
arose from donors declaration of trust whereas Arden LJ used it as
the reason for equitable assignment even though it is generally
not unconscionable merely to resile from an incomplete gift but only
bound because of an equitable assignment - perhaps better
explained using estoppel principles further gives rise to
uncertainty
d. Alternatively found Ss agent as Bs agent for submitting the
share transfer forms to satisfy the delivery requirement which
appears to go further from Lord BWs view that equity will not strive
officiously to defeat a gift
Arden LJ construed Choithrams construction of
words of gift tot the foundation to mean gift on trust for it being the
only possible meaningful construction in the context, as a sign that
a court can benevolently construe trust if it is permissible as a
matter of construction but she did not then find declaration of
trust but used it to make finding of fact
Clarke LJ
a. It is almost always possible to argue that the donor could have done
more
b. Agreed there was unconsiconability but didnt go as far as to agree
with it as a test
c. (i) Saw it as a perfected equitable assignment of beneficial interest
c.f. failed transfer of absolute interest which has to be saved at equity
(ii) strong indications in Re Rose that delivery is not required and that
the critical moment is the execution of the instrument of transfers
bypassing all diff with failed transfers of absolute interest
d. Problem with (i) shouldnt be separation of equitable interest
without prior declaration of trust and (ii) Milroy would not recognize
latter without clear evidence it was the intended mode of transfer (iii)
otherwise all failed absolute gifts can be re-characterised as perfect
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gift of beneficial interest (iv) mere execution of doc cannot allow done
to secure interest
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(iii) no act or omission in reliance of the transfer, let alone detrimental
reliance
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received if assignee gives valuable consideration (same position for
purported trust Williams v CIR)
o Would automatically become constituted and
giving beneficiary an equitable interest upon acquisition of the
property
o Even in the absence of transfer so long as
consideration is provided for equity treats as done that which
ought to be done Pullan v Koe
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Alternative solutions
1. Construction of the covenant as a declaration of trust
which would be fully constituted upon subsequent transfer of property
automatic if self declared
o E.g. Re Rallis Will Trust where the property
came to the covenantor in a different capacity uncertainty for
depending on wholly fortuitous situation
2. Covenant contained in deed with B but would only give
rise to damages
3. Action for damages brought by Ts at law damages only to
compensate Ts loss, unless covenant is for a stated sum
o T would hold covenant on trust for B for
either his own benefit or on resulting trust for S due to absence
of intention to benefit him
o Ts may be under duty to do so c.f. court
unwilling to direct Ts to sue under covenant for e.g. it would
bypass the rule that equity will not assist volunteers - Re Pryce,
Re Kays Settlement, Re Cooks Settlement Trust
o Arguably should only be enforceable by
volunteers where S has irrevocable intention to create promises
Moffat
4. Action for SP by covenantee would require consideration
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Re Cooks Settlement Trusts (covenanted to settle future proceeds from
sale of assets; all Bs were mere volunteers)
Classified as an executor contract to settle a particular fund which did
not exist at the date of covenant and which might not come into
existence i.e. analogous to covenant to settle after-acquired property
Distinguished from Fletcher for here the covenant did not create an
enforceable debt (albeit bearing fruit only in the future and upon
contingency in Fletcher)
Distinguished also from Re Cavendish for the property was not belonging
to S
Unclear whether rejected for lack of intention to create a trust for the
benefit of the covenant or covenant couldnt be subject matter for being
a mere expectancy; appears to be based on a likelihood of acquisition
Virgo
Seems to have based judgment on absence of debt but should be
sufficient if theres any enforceable promise which is a chose in action
not limited to debt
C.f. flawed reasoning as the subject matter is the existing covenant not
underlying asset
o C.f. RL artificial to say S intends to set up a trust of a
covenant though Re Cook is decided on the wrong ground
The Rule in Saunders v Vautier (S declared shares on trust for B until he reached
25 when accumulated dividends would be given; he claimed fund when he reached
majority)
i.e. An adult beneficiary of sound mind, and entitled to the whole beneficial interest
(absolute indefeasible interest in the trust), can direct Ts to transfer trust property to
him
Extra notes
May involve protector commonly one who gives permission to Ts before new Ts
can be appointed though it cannot be taken up by the settlor himself for his
administration of the trust may result in court holding the trust as a sham
o Appointment and distinction from trustees discussed in Review of
the Trustee Ordinance and Related Matters Consultation Paper/
Consultation Conclusions (June 09/ Feb 10)
Note one cannot declare himself as T for his own benefit responsibility and
benefit vested in the same person
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Nature of duties
Inc strict liability for duty to abide by terms of the trust, exercise discretion
properly and in good faith, keep account and be ready with them, of impartiality,
to act personally subject to powers to delegate etc
Note statutory rules beneficial in providing concise, concrete and easily
accessible statement of laws as guidance c.f. need for case-to-case analysis,
potential conflict with CL and further complication of resolution of disputes
N.b. S may still influence execution of trust by (i) LoW, (ii) protector, and (iii) trust
deed (revocation of trust or reservation of powers)
General views (n.b. docs marked with tick now only prima facie
discloseable)
Suggestions circulated among trustees and enquiries made in
writing as to the circumstances of a member of the class RL
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Correspondence on admin of trust property between Ts/
appointers, TA/ Bs RL
Docs relating to business of underlying companies even if wholly
owned by T Re Rabaiotti (New Jersey)
Aide-memoire on state of fund, past distributions and future
possibilities RL
Correspondence between Ts solicitors and Ts Re Londonderry
Title deeds Snells; Statements on state,past distributions,
future possibilities
Trust Accounts Duty to keep proper accounts and produce on demand
along with supporting oral or documentary information
Generally entitled for trust docs showing financial position of the
trust, assets included and how they have been dealt with Rabaiotti;
but not an absolute right
Not excluded from courts discretion under Schmidt
Except (i) When T himself gives reasons, in which case court can consider
soundness (ii) Case concerns lack of bona fide or with improper motive RL
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Enables discreet but thorough inquiries on Bs competing claims,
reduces scope of litigation on rationality of Ts discretion, encourage
suitable Ts to accept office
o Considered justifications still apply to avoid
deterring family trustees from accepting an arduous unpaid office
which can be argued against
Accountability issues (editors of Underhill) c.f. recognition and
protection from the recognition of fiduciary duties owed by Ts Briggs J
Not an undue burden imposed, and prevalence of use of
professional trustees
General approach
1. Basis for ordering disclosure proprietary or otherwise
2. Jurisdictional issue i.e. grounds for courts intervention (i) identify context
(ii) grounds for alleging unfairness/ mala fide Breakspear v Ackland
Not if its within range of reasonable+ rational decisions which T
might make
3. Disclosure issue
a. Generally (i) nature of doc (ii) whether it falls within Re
Londonderry confidentiality rule (and whether it stands) RL c.f.
Hartigan c.f. Schmidt)
b. Exercise of overriding discretion (i) nature of applicants
interest in the trust [remote/ theoretical/ defeasible?] (ii) Balance
competing interests of diff Bs, Ts, and TPs esp. personal (e.g. Bs needs
as drug addict) or commercial (e.g. if rival purchases interest under a
trust to discover more about the trust properties) confidentiality
4. Disclosure of documents in full or redacted form, and other safeguards
limiting use should assess objective effect instead of subjective purpose
for disclosure
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Acknowledge the remaining issue of what constitutes trust docs, and disclosure
may cause trouble in the family out of all proportion only Salmon J adopted the
proprietary basis and attempted at defining the term
Maloney J.A. held not discloseable for confidential and within Re Londonderry
scope
a. LoW is not trust property
b. Inferred that the LOW was given on a confidential basis and wrong to breach that
c. LoW is a doc relating to reasons for exercise of Ts discretion approved Re Lond.
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Re Rabaiottis Settlement [2000, Jersey] (i) basis for disclosure (ii) letter of
wishes
Disclosure to Bs of accounting docs and LoW in relation to discretionary settlement
Strong presumption in favour for accounting docs but against for LoWs
Approach of (ii) applicant, (ii) type of document, (iii) nature
a. Held that the court has discretion to refuse disclosure if it would be prejudicial to
the interests of Bs as a whole for court to balance competing interests
Only strong presumption in favour of ordering disclosure for Bs
(inc. contingent Bs and objects of discretionary trust) but overriding
discretion on the part of court
Rejecting the proprietary basis for involving the difficult issue
of classification, offering too much protection for non-trust docs but too
little for trust docs
b. On disclosing LoW strong presumption that its within Londonderry and
confidential anyways; it is for B to show good reason not to respect it
Affirmed rationale for Re Londonderry and found LoW within its scope
for being closely related to the decision-making process and reasons though
not binding on Ts; likely to be material upon which reasons were/ might have
been based
o Though not ancillary to trust deed informal doc which
may be ignored by Ts and only an expression of S preferences
o Should generally cover materials on which reasons may
have been based rejecting Sheller J.A.s proposition
o Basically held (i) covered by Londonderry wording, and in
any case (ii) would undermine the principle in Re Londonderry if
disclosed
Also endorsed Hartigan that it need not be disclosed on ground of
confidentiality
Should ordinarily respect confidentiality either where strongly
implied or expressly stipulated unless there are good reasons not to
respect that
Nonetheless ordered disclosure for being in the interests of Bs as a
whole and that of applicant here relating to separate divorce proceedings
and ascertainment of applicants interest is needed for assessing financial
provision
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Schmidt v Rosewood Trust Ltd [2003] Privy Council cited in Tam Mei Kam but
not on LoW
Son of mere object of power seeking disclosure of trust documents [adopting Sheller
Js in H v R]
a. Found to be as a matter of construction (c.f. rectification) that the court could
conjecture that the gap in distribution for such purposes as are acc to the laws
be filled with charitable especially in view of a contemporaneous and
simultaneous trust deed executed
b. Presumption that beneficiary is entitled to see trust documents but court has an
overriding discretion to withhold if satisfied that this is in the best interest of Bs
c. Disclosure of trust docs an aspect of the courts inherent jurisdiction to supervise,
and if necessary, to intervene in the administration of trusts
Rejected the proprietary basis not an issue in ORourke v Darbshire
and not explicitly adopted except by Salmon J in Re Londonderry
o Virtually incomprehensive distinctions, casting doubt on
rights of Bs with no equitable proprietary interest, protection not where
its needed citing H v R
No distinction between objects of mere power/ DT, or those with fixed
interest though generally not ordered for those with no more than theoretical
possibility of benefit
o Proprietary interest neither sufficient nor necessary c.f.
Kirby P: sufficient
More flexibility c.f. greater uncertainty; basis of holding Ts accountable
d. Determinations on (i) nature of beneficial interest e.g. whether discretionary
object should be granted relief (ii) classes of docs falling within rule on disclosure
(iii) safeguards to limit use
Factor (i) may be important; Competing interests to be balanced esp
where there are issues as to personal/ commercial confidentiality
Safeguards inc. only showing it to professional, redacted etc
LOW can be revealed though weight given to confidentiality and
possible prejudice
Granted for personal rep which has strong claim on disclosure
standalone and as relevant to whether more funds would be available but for
breach; and possible object
N.B. change of approach from considering whether its a trust doc and if so, whether
it falls within an exception, to whether it should be disclosed in the courts inherent
jurisdiction
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o For (ii) Ts need not disclose unless it is int heir view in the
interests of sound administration fo the trust and discharge of powers and
discretions
(dicta) Subsequent giving/ withholding of consent on disclosure by S not material
given to Ts for use on fid basis and in accordance with Ts best judgment and as
to interests of B/ sound administration of trust a matter of discretion for T and
court but not S
o (dicta) Neither appropriate nor legitimate for S to fetter
discretion by including special terms on confidentiality in the wish letter or
subsequently (c.f. Hartigan) e.g. where LoW asserts a fact that can only be
checked by inquiry of B
Generally (i) whether a discretionary object should be granted relief, (ii) classes of
documents, and (iii) safeguards to be imposed for both invoking jurisdiction and
challenging negative exercise
N.B. a discretionary approach though giving rise to uncertainty and recipe for
litigation
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pending claim to avoid an appointment of B on grounds fo alleged
breach of self-dealing rule administration of the trust not affected
by order for/against disclosure
(iii) Here (i) on negative exercise right to treat it as prima facie
confidential, did give reasons but nth to suggest its otherwise than
honest, fair or rational (ii) invoking original jurisdiction, nth to suggest
court should intervene
e. Nonetheless ordered disclosure on the basis that Ts will likely return in reasonably
near future for sanction of a proposed distribution of the entirety of trust fund
Which would then require full disclosure inc. explanation for reasons
and LoW as a key document that trustees must take into account and to
which As likely a party
Would be a waste of time and money if re-litigated in the absence of
adverse consequences for Bs or admin of trust if the matter is decided at
present proceedings
Acknowledging the displacement of Re Londonderry in that context
f. May consider private reading of the doc
Comment Fox
May be explained by the content of non-reducible duties on the trustee
obligated to comply with terms of trust hence access to trust docs is necessary
for enforcement c.f. free to exercise discretion with no further duty as long as
they do so in good faith, for proper purpose and not taking into account
irrelevant matters hence nth else accountable for
Alternative grounds for Re Londonderry principle relevance of the private
donative trust where Ts own the assets managed, and Bs are mere donees
receiving gratuitous benefits
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Tam Mei Kam v HSBC International Trust Ltd (2011, CFA)
Beneficiary challenges validity of the trust; trust deed providing that the trustee
shall not be obliged to make known to beneficiaries existence of the trust
(i) confidentiality found S aware of LoWs non-binding nature and concern on
confidentiality suggested as reason for engaging pro T to ensure upholding of
her wishes
(ii) obligation to inform B of interest here only arising when a B becomes
absolutely and indefeasibly entitled to trust fund and construed provision on
confidentiality accordingly
o Provision not saying that T owes no obligations at all/ duty to
account to Bs here given wide discretionary powers which they may/not
exercise in favour of any B
o In any case the trust deed not necessarily rendered void by
invalidity of that clause
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Fiduciary duty of loyalty consider common law principles first before statute
A. No unauthorised remuneration except with prior authorisation or subsequent
ratification
B. No conflict rule Tito v Waddell (No 2) [real danger of conflict between P/Bs
interests]
Liability depends on whether B has given fully informed consent
Conaglen
Starting to shift away from the traditional concept of disabling rules but
rather interpreting e.g. liability to account for unauthorised profits as wrong-
based
Holder v Holder (testators son appointed as executor for estate which was
to be divided equally between wife and kids; D sought to renounce
executorship to purchase farms)
Restates the rule as that purchase of trust property is voidable within
reasonable time at the instance of any B subject to courts discretion but
not that T may not purchase trust property
Held D (i) never assumed duties of executor/acquired knowledge on the deal,
everyone concerned knew of his interest; purchased BF at public auction
at good prices hence no actual conflict of duties (ii) if he had resigned,
he did no act that constitutes intermeddling with the estate, and (iii) in
any case, the issue is not one of resignation by T to avoid conflict but
whether B acquiesced (Danckwerts LJ)
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C. No unauthorised profits
D. No competition with B
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Speight v Gaunt (1883) instructed broker, appointed at Bs request, to invest in
corporation securities, who in fact bought debenture stock issued ultra vires by
company
Standard of an ordinary prudent man of business in conducting his own
business and not what people accustomed to deal in the subject matter would
do
o Issue here of (i) whether OPM would hire broker to purchase
security, (ii) whether he would be put on inquiry by the irregularities (iii)
would he have paid
o T not obliged to go further in seeing to the application of money
himself if its ordinary course of business to rely on agent
o To determine from circumstances and construction of doc on
whether he would be put on further inquiry (esp. where it concerns a
large amount)
On construction (i) whether theres irregularity
(ii) whether it would point to anything irregular in the deal for an
ordinary prudent man
o No distinction between claim for (gross) negligence
Not to delegate trust (i.e. where he is employed to do it himself Bowen LJ) but
entitled to employ anyone as an ordinary man of business would employ an
agent to do not much of an issue that D appointed family broker
o Sufficient for proper selection of broker and paying over money
for the invest-ment provided that the brokers in good standing and nth to
raise suspicion
Further considered that the loss would still have occurred had he inquired hence
no but for Lindley LJ
Should give trustee the benefit of doubt or ambiguity in construing docs or
otherwise for it would otherwise discourage T since trusteeship is an unpaid
office Jessel M.R.
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Relief from liability prima facie by (i) express provision in trust deed, (ii)
statutory relief under TO s.60 (iii) Bs prior consent or subsequent acquiescence/
release
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Generally upheld for freedom of contract c.f. limiting liability to
Bs disadvantage
Alternatively indemnity insurance i.e. S paying premiums using
trust assets
Armitage v Nurse [1997], Millett J, CA (then) found not void for being too wide
No trustee shall be liable for any loss or damageunlesscaused by his own
actual fraud
A. Construction
1. The reference to actual fraud excludes constructive or equitable
fraud (which refers to unconscionable use of power) e.g. undue influence
2. Fraud is defined in the Derry v Peek sense i.e. nothing short of
fraudulent intention and requires proof of dishonesty; but must be more
than gross and culpable negligence (gross neg c.f. reckless indifference)
3. Actual fraud is found if T (i) knows that action pursued is contrary to
Bs interests or (ii) being recklessly indifferent whether its contrary to their
interests
o Regardless of whether he stands to gain personally
o So long as he doesnt have honest belief in promotion
of Bs interests
o Noting that a deliberate breach of trust is not
necessarily fraudulent may be in good faith and honest belief
though could be reckless in taking the risk nonetheless (classified as
fraudulent Lord Nicholls in Royal Brunei v Tan)
o In determining whether T is recklessly indifferent or
negligent, court has to consider whether T has in mind and
intentionally disregards Bs interests
o The definition is a subjective one looking at what T
subjectively believes is in Bs best interest
4. Hence the exemption clause is intended to exempt liability for, inter
alia, (i) wilful default and (ii) negligence
B. Whether the exclusion is void for being repugnant to the trust or contrary to
public policy
1. There is an irreducible core of obligations inc. duty to perform trust
honestly, in good faith for the benefit of Bs which cannot be exempted
2. Such irreducible core does not include duties of skill, care, prudence
and diligence
3. Negligence, or gross negligence (the distinction is only a matter of
degree) is not equated with mala fide hence possible to be exempted
4. Wilful default is defined as a deliberate breach of trust, nothing
short of conscious and wilful misconduct i..e that he is conscious or
recklessly careless that he is committing a breach of duty (Re Vickery) and
in doing so he consciously takes the risk of loss resulting from breach or is
recklessly indifferent to the outcome
But nonetheless may be done in good faith, with best
intentions and honest belief that the risk ought to be taken in Bs
interests in which case he can be protected
5. Not material as to whether the clause can exempt equitable fraud
because a claim alleging such is usually for setting aside contract which
does not relate to/ depend on loss or damage (dicta)
6. It is for the legislature to decide on applicability of exclusion clauses
for professional Ts
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Criticism by H/M
There should be different standards for professional Ts
Criticised the exemption of liabiltiyw here the breach is deliberate but honest
(see also Walker v Stones disctum)
Walker v Stones [2001] not liable for loss or damage other than for wilful
fraud or dishonesty
CA found dishonesty in Ts deliberate act that no reasonable solicitor trustee
would consider to be in Bs interests i.e. an objective test
Confined judgment to solicitor trustees unclear on applicability
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(iii) still has duty of good faith hence not undermining the irreducible core
obligations
Comments Trukhtanov
Evinces liberal approach for being commercial arrangements between
sophisticated parties of comparable bargaining power, entered into in
sophisticated environment
Reduced the irreducible core of obligations in duty to act in Bs interests
duties liable to circumvention by MBIAs instructions and effectively removing
T altogether
MBIAs similar to protector case of treating it as fid depends on scope of
powers
Had in fact made Citibank its agent here and making it immune
Prompted Arden LJ to state that the court will interpret against construction
that would reduce Ts powers to an extent that it would cease being T not
reached here as T continues to have duty of good faith and retains certain
unfettered discretions
C.f. implicitly recognizing Ts not acting as T for some powers; good faith not
a standalone duty but referring to the exercise of duties which are absent
here
TO s.60
The court may wholly or partly relieve T from personal liability for breach of trust
committed despite T having acted (i) honestly and (ii) reasonably, and (iii) ought
fairly be excused for the breach of trust and for omitting to apply to court for
directions
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Recurring theme of what T, as a reasonable T, should/ wouldve considered/
intendedPH
The principle of re Hastings Bass is not actually derived from this decision P/H,
Futter
o Decision was on (i) validity of a severed part of disposition (the
other void for perpetuity), (ii) excessive execution (c.f. inadequate
deliberation) didnt consider subj state of mind; requiring proof of
invalidity and not mere voidable nature
Sieff v Fox [2005], per Lloyd LJ (T relied on incorrect legal advice to exercise
discretion on appointment of property, which turned out to give rise to substantial
capital tax implications)
1. Restated the HB rule Where a trustee acts under a discretion..., but the effect
of the exercise is different from that which he intended, the court will interfere
with his action if it is clear that he would not have acted as he did had he not
failed to take into account considerations which he ought to have taken into
account or taken into account considerations which he ought not to have taken
into consideration
Rejected Buckley LJs summary as the true ratio CA had already
decided the case on grounds that the advancement must stand unless it
could not reasonably be regarded as beneficial to the advance, so far as not
struck down by the rule against perpetuities
o Buckley LJ saw it as a wholly objective matter (i) whether
what was done is capable of being regarded as beneficial to the
intended object, and (ii) if not, it would be outside the scope of that
power, not an exercise of it at all and cant take effect
o i.e. limb (i) of Buckley LJs judgment says it all
2. Does not require breach of fiduciary duty though did not delineate limits of
application
Court to take a critical and not over-exigent approach to limit the
breadth but substantial delay in raising the point with knowledge of the
problem might be relevant
3. Fiscal consequences may be relevant considerations
May be irrelevant for mistakes distinguished for Ts are not dealing
with assets of their own, owe duties to B, and fiscal treatment of trust
property being more complex
4. Questioned Abacus v Barri which held the transaction voidable because its
being set aside resulted from breach by trustees but questionable whether the
doctrine is based on breach of duty with same consequences; did find it
attractive though
Does not however go so far as to say it should have been void - need
not decide on the point; found appointment here ineffective
5. On standard of proof, suggested that
The might test should only be applicable where B is entitled to
require trustee to act since B can still require T to start again on the correct
basis e.g. Vestey allocating income for minor Bs for a trust for applying
income to support Bs
Would where Ts are not under a duty to exercise the power but do so
voluntarily i.e. they cannot be compelled to act again
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Pitt v Holt; Futter v Futter [2013] UKSC
Futter distributing capital to Bs in the exercise of power of enlargement, and
advancement while overlooking amendment in law giving rise to large capital gains
tax liability for Bs; Pitt creation of discretionary settlement for deceaseds accident
damages imposed inheritance tax
1. Upheld distinction on (i) excessive execution i.e. Ts going beyond the scope of
power (void), and (ii) inadequate deliberation i.e. failing to give proper
consideration (voidable under HB)
2. Failure to give proper consideration to relevant matters/ taking into acc irrelevant
matter
Does not require fundamental mistake (such that it wouldve made
fundamental diff to the facts perceived) but merely that it would/ might have
affected Ts decisions
o Declines to resolve the would or might debate to allow
flexibility in dealing with the specific circumstances though
recognizing that the might test may be more applicable for pension
trust cases for Bs would have contractual rights c.f. family trusts where
Bs are often volunteers
May cover fiscal consequence for private trusts if theres material
diff; may depend on subtlety/ foreseeability; unlikely app if the law is
changed by subsequent decision (Sieff)
Incorporating public law concepts of Wednesbury unreasonableness
but in line with traditional view that its for T to exercise discretion, and
frauds on power cases Sieff
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advice albeit wrong
4. T would/ might not have acted the way he did had he considered those matters
higher likelihood of setting aside for the former
Considered a high degree of flexibility is warranted for the rule is
centered on the failure of Ts to perform their decision-making function which
founds the courts jurisdiction to intervene if it thinks it is just to do so
Acknowledged the suggestion hat the would test is appropriate for
family trusts c.f. pension trusts which members are not volunteers but with
contractual rights
Rescission by mistake
Distinguished HB restricted to decisions by Ts and fids and not necessarily
require positive misapprehension (absence of thought may suffice) c.f. generally
requires operative mistake and applicable to wider range of situations
Managing a trust
T may be appointed by (i) S on creation of trust, (ii) persons given express power
by the trust instrument either in circumstances contemplated by the trust deed,
or under TO s.37, (iii) surviving or continuing trustees under s.37(i) to replace Ts
or existing trustees under s.37(6) to add new Ts, or (iv) court under TO s.42 or in
its inherent jurisdiction
Appointee may at any time disclaim office provided that he has not accepted it
by words/ conduct, upon which he can only retire (i) acc to express terms of trust,
(ii) if he has appointed replacement under TO s. 37 or 42, or (iii) TO s.40/ courts
inherent jurisdiction
B may remove Ts by (i) express terms of trust, (ii) terminating the trust and re-
settling the assets if all Bs are of full age and legal capacity, and are absolutely
entitled ot the trust property, or (iii) by courts inherent jurisdiction or power
under TO s.42
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a. Duty of reasonable prudence Speight, Learoyd, Bartlett (if
professional), TO s.3A
Causation required Nestle v National Westminster Bank
plc
b. No conflict rule
3. Exclusion of liability
a. Construction of the clause (fraud and wilful default Armitage; nb
dissent. In Spread)
b. Whether the court would give effect to it, which depends on whether
the clause is repugnant to the trust consider (i) irreducible core obligations
Armitage v Nurse, (ii) policy reasons; may draw analogy from Armitage if
theres ref to actual
c. Statutory restrictions TO s.41W
d. Whether D falls within the exclusion clause (i) definition (ii) subjective
test of Armitage v Nurse c.f. objective test in Walker v Stones (iii) should
not be able to rely on it as a matter of policy for professional trustees
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Duties of fiduciaries
N.B. liability of F widened to cover all gains earned from the breach of duty (c.f. only
loss)
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Not liable to profits derived/ act for Ps sole interest outside scope of Ps
business; may be in fid position quoad part of activities but not other parts
Breach by fiduciary =/= breach of fid duty e.g. Reasonable prudence
arising from assumption of responsibility rather than position; equitable
compensation granted for breach = damages Bristol v Mothew
Stringent duty premised on the essence of fiduciary relationship in that
one pledges himself to act in the others best interests i.e. trust, not self
interest at its core; Fs duty diminished by nature of obligation undertaken
Canson Enterprise Ltd v Broughton
Fid has opportunity to exercise power to Bs detriment
which is vulnerable Hospital Products v United States Surgical Corp
Involving an inequality of bargaining power Cook v Evatt
(No 2)
Would survive resignation if its prompted/ influenced by desire to take
advantage of opportunity sought by co, or if its his position rather than fresh
initiative that led him to the opp Canadian Aero v OMalley
C.f. Cooley non-disclosure of misconduct during office
hence the duty should survive resignation i.e. liability found on the
basis of non-disclosure
Generally proscriptive c.f. Item Software which interpreted failure to
disclose wrongdoing as a breach of prescriptive duty (which requires positive
act) rather than proscriptive duty in avoiding conflict of interests
Virgo better to understand this duty not as fiduciary duty
but only non-fid duty as part of Fs duty to act in the best interests of P
Bristol and West Building Society v Mothew (acted for purchasers and
lender; No breach of fid duty (i) no actual conflict (ii) no breach of duty of
good faith omission had nth to indicate inhibition; but he had fully informed
consent [misrep only going to subsequent act)] and at most in breach of
duty of care and skill)
For actual conflicts i.e. Where he cannot fulfil obligations to one w/o failing for
another should cease acting for at least one and preferably two
May test by considering Ds position if he had acted only for one client
Clear breach if he knowingly prefers interests of one to another; or if F
undertakes to advice one on merits of deal while acting for both Nocton
v Lord Ashburton
No actual conflict found in Bristol on the same side and in any case no
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allegation of bad faith or deliberate withholding of information for the
interests of purchasers
No secret bribes or commission A-G for Hong Kong v Reid [1994] Privy
Council
No unauthorised profits
Strictly applied regardless of whether F has acted in good faith,
whether it has resulted in loss or even if it has left principal better off
o Justified (i) incentive for F to resist misconduct (ii)
evidential diff to prove bad faith c.f. incorporating public principle of
deterrence, not effective in deterring by only taking away profits
Lionel Smith, may be over-detrerrent, evidential argument not as
strong now John Langbein
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o C.f. suggestion against a harsh application Murad
v Al-Saraj (CA)
Mitigated by providing allowances for honest F who have
contributed time skill and effort for the gains Phipps v Boardman
o Only if it wouldnt encourage F from breaching rule -
Guiness v Saunders
1. Breach
Derived from the strict rule of Keech v Sanford
wherever a lease is renewed by T it is for the benefit of the cestui que
use despite express proof that TP would refuse to renew (T renewing
lease for himself; B wouldnt have got it)
Applicable whether T obtains renewal by virtue of
provision in the lease or from position as sitting tenant; nb
distinction between renewal/ reversion (Protheroe)
N.B. case affirms that liability does not depend on actual conflict
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Consent insufficient for risk of undue influence on
board
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Peso Silver Mines v Cropper (1966] Can did not have opportunity to
read Boardman
Director decided in the BOD not to go ahead with the mine investment for
financial and risk reasons; later set up own company and took it up no
breach
a. When the fiduciary as directors in BOD decided not to go ahead, they
acted bona fide
C.f. Phipps irrelevant so long as theres possibility of
risk/undue influence on BOD
b. After the company decided not ot go ahead, the directors acted in the
personal capacity as the person of public to be approached and did not
use any personal information to their advantage as it was publicly
accessible
C.f. they were approached because they were directors and
had the knowledge
Kao, Lee & Yip v Koo Hoi Yan & Others [2003] Hong Kong
Breached no conflict and no profit rules for advising the establishment of
law centre by BOC though only giving rise to nominal damages,
failing to inform firm of the business opportunities and even diverted it
to himself; however no duty for other partners to inform P on D1s acts
unless stipulated in contract
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3. Defence
a. Authorisation expressly or by necessary implication by
contract
b. Informed consent of al Bs being of full capacity and
between them absolutely entitled to the trust property Phipps v
Boardman
Or of independent Ts for if F is someone
employed by Ts or B acquiring special information while
purportedly representing trust Regal
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Item Software (UK) Ltd v Fassihi and others (director helped co
negotiate a contract, encouraged a hard line approach while secretly
approaching TP and offered similar terms)
Applied but for test would have still taken hard line approach if
not so advised i.e. no causation between the loss from diversion of
opportunity and the duty
As a fall-back position where the action on maturing business
opp fails due to lack of causation ought to have disclosed that he is
engaging in a conflict of interests
The single overriding touchstone is the fundamental duty to act
in good faith and in the best interests of B; found breach and Bd have
taken another approach hence awarded claim for compensation of loss
suffered (cf account of profits)
This is not a distinct duty but only a part of that fundamental
duty though in proscriptive formulation but considered that FD is not
limited to proscriptive or prescriptive duty; disclosure here confined to
ones misconduct
No issue on causation, no defence (reasonable belief that it is
not in the interests of the company to know of his breach)
Appreciating Equitys dynamic app c.f. couldnt work in GF cases
doubtful authority
Policy argument economic efficiency concern for company to
investigate conduct of employees which is difficult to detect; possibly
erroneous business decisions
By reason of position
Regal Ps ability to obtain is irrelevant
Boardman possibility of conflict suffices and satisfied by use of info/
opportunity
Bhullar capacity irrelevant; need no pre-existing proprietary right in the matter
Setting up business
Shepherds irrevocable intention; Kao
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Basic principles
Generally, personal remedy against T may be available where the trustee commits
(a) Breach of duty of care resulting in losses
(b) Breach of duty of loyalty/ fiduciary duty (c.f. breach of duty by trustee) resulting
in gains or losses (which is less often)
(c) Breach of term of the trust/ contract i.e. any act or neglect on part of a trustee
which is contrary to the duties imposed, and which is not excused by law, or
terms of the trust instrument resulting mostly in losses
N.B. it often does not matter which duty has been breached for most remedies do
not require proof of wrongdoing; note possible liability also for standing by with
knowledge of breach or taking no steps to redress, or resigning to assist with other
Ts breach
Further that express trustees are always under personal liability c.f. CT which
depends on whether his conscience is affected
Personal vs. proprietary right determine the preferred remedy in each case
N.B. to say something is exigible against A, it is against A whom one can enforce the
right
In personam right only exigible against the person who owes a duty towards
you
C.f. proprietary right i.e. can be enforced against anyone who happens to be
holding that particular piece of property subject to priority contest
Preferred Situations
Proprietar a. If the value of the property has gone up
y b. If original wrongdoer who took the property is not worth pursuing e.g.
T has stolen the trust fund and passed it on to a mistress who then
purchases a ring, or where T has absconded and left the jurisdiction
c. Whoever is holding the property himself has gone bankrupt only
assets which are beneficially owned by the bankrupt or insolvent
party will be shared by creditors i.e. property held on trust for
another would not fall within the bankrupts estate so such
beneficiarys claim is even stronger than SC
Personal a. Destruction of the piece of property i.e. damaged, extinguished, or
b. The value of the property has gone down and the incumbent/
relevant wrongdoer is not insolvent
Monetary
A. Disgorgement/ Account of profits
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Not dependent on allegations of misconduct, ID of breach or
quantification of loss D deemed to have implicitly undertaken to account for
gains received under the fictional concept that F never does anything wrong
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II. Equitable compensation for fiduciaries, and trustees if taking of
accounts is not appropriate (McLachlin J, Canson Enterprises; endorsed by
Libertarian v Hall)
First recognized in Nocton v Lord Ashburton in the context of
breach of FD as an order for D to make restitution, or to compensate the
plaintiff by putting him in as good a position pecuniary as that in which he
was before that injury
Distinguished from equitable damages under HCO s.17 which
provides for statutory discretionary jurisdiction to grant damages in lieu of
injunction or sp
o Traditionally to fill in the gaps of the lack of
compensatory awards at c/l but considered redundant now in light of
the development LH
Arising from Fs duty who has misappropriated assets or caused
loss or damage in breach of duty to restore the lost property Libertarian,
per Ribeiro J
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Trustee Fiduciary
Taking common
accounts
Taking accounts on
the basis of wilful
default
Equitable When taking accounts becomes unfruitful as a
compensation result of uncooperative attitude Libertarian;
questionable whether one can directly claim
equitable compensation
Tang Man Sit v Capacious Investments (1996, PC) (vendor/ CT rented property
out in breach of trust after signing S&P [giving rise to the CT] but before the actual
conveyancing i.e. misapp)
Issue of whether claimant is confined to one/ any of the remedies Landlord
made a profit and the purchaser suffered loss of rent i.e. the same misconduct
giving rise to two effects which are the flipside of each other
Held C cant claim equitable compensation for loss of rent + additionally account
of profits
Would have been different if the flat is rented out and e.g. there is some tear and
wear in the property leading to further losses, in which case one can claim
compensation for such losses in addition to claim for account of profits, for
consequential loss is not merely flipside of the misconduct here
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Account for profits necessarily involves breach of fiduciary duty
Applicable for unauthorised profits, remuneration, secret commission and bribes
Theoretical basis that equity in fact considers that a trustee can never commit a
breach, hence any gain made is on behalf of the principle (Boardman) Lord
Millett
o Hence liability to account as a constructive trustee i.e. as if he is
an express trustee
o Basis being that D owes you a debt
To account for profits from taking advantage of the opportunity or knowledge
given by Ds office so long as causal link between opportunity and profits found
Kao, Lee & Yip
o Irrespective of loss i.e. Not based on unjust enrichment where
Ds gain = Ps loss
Everything treated as being derived form the breach if T cannot distinguish
between profits made in breach of duties and otherwise Murad
Phipps v Boardman (1965, HL) (using info acquired as trustee to purchase shares;
found real sensible possibility of conflict of interests)
A. Granted personal liability to account for profits
B. Declaration of constructive trust which is applicable where a gift emanates
from property entrusted to the fiduciary
o Dissenting 3 held that info obtained qua fiduciaries is not trust
property hence shares obtained using those info arent under CT; 2 relied
on the (further) contention that there is no real sensible possibility of
conflict
o C.f. majority CT applicable for D had acquired the knowledge
and opportunity to purchase the shares while purporting to represent the
trust
Under strict application of fiduciary duties
o Suggesting that the use of position as opposed to use of trust
property is equally capable of generating proprietary constructive trust
c.f. Lister v Stubbs (1890, CA) (bribe obtained from abuse of position),
overruled in Reid
Arguably easier to justify CT over bribe for
incontrovertible assumption that the victim ahs lost property at the
value of bribe and unjust enrichment for F if allowed to retain it c.f.
profit in Boardman not made at the expense of B (except from risk
of harm where F cannot give disinterested advice) + in GF
Limitation of disgorgement
a. But-for causation need not be established Arden LJ, Murad v Al Saraj
Need only show that the breach was a cause of the gain controversial
reasoning (LH)
b. Equitable allowance taking into account Ds care and skill Boardman v Phipps
Careful in not encouraging F to place themselves in conflicts Lord
Goff, Guinness
c. Extent of accounting Warman International v Dwyer, Kao, Lee & Yip (for
business opp)
Only accountable for profits properly and reasonably attributable
Kao, Lee
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Warman International (Aus HC) (no prior understanding; diverted business
opp)
Will not be required to account for all profits made where the breach results in
profits not in the form of specific assets but operation of business
Kao, Lee & Yip applying Warman and limited accounting to 1 year
Implicit but for reasoning for reference to had he not committed breach
and resigned properly, it would have taken them [period] before they could
take the business away;
Causation wordings not explicitly used but requires proximity
with gain
1. Establish link liable for whole of profits arising from breach regardless of
whether he chooses to share them with another by transferring to a jointly-
owned company
Delay in seeking relief mitigates against the granting of relief
2. If a cap is needed (where profits made are so remotely linked with the opp)
3. E.g. how long would P have retained the opp, headstart
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Re Dawson (misappropriated NZD when it was on parity with AUSD i.e. 1:1 EX rate;
B falsified acc and requested reconstitution when AUSD had appreciated i.e. more
AUSD for the same NZD)
Note context of traditional family trusts traditional principle applicable to all
cases
Duty of reconstitution to original position arises from the date of breach i.e. D
owes an immediate duty to restore the trust fund and which continues up to the
date of judgment
o Remedy is to take common accounts and falsify the
disbursement of NZD, such that T has to reconstitute trust fund in NZD as
quantified at the date of judgment c.f. of breach; if in specie is not
possible, substitutive payment on same basis
o To put Bs in a situation where they would have been in had there
not been breach
o Irrespective of whether the currency depreciated/ appreciated
o Basically stopped the clock at date of breach for quantifying
liability
NAI (referred to as causation in the judgment), remoteness and foreseeability
irrelevant which by extension would rule out contributory negligence and
mitigation LH
Misapp of trust fund requires only performance of primary obligation i.e. to make
good the disbursed amount, as opposed to secondary/remedial obligation arising
from breach
Arguments
a. (i) Once there is misapplication, duty to reconstitute the trust fund arises
immediately applying Re Dawson (ii) As duty arises immediately, one does not
take into account subsequent events; causation and remoteness being irrelevant
under Re Dawson
b. (i) The same debit would have been made had there been no breach i.e. same
shortfall would have been suffered even if $ released after mortgage (ii)
Imposition of liability on the trustee would give beneficiary something that he
would not have obtained anyways
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principles
C. For bare commercial trusts
1. Loss arises at breach and immediate liability to restore, but quantified
at date of judgment but taking into account all subsequent events running up
till then
In fact in line with Re Dawson only that this doesnt require
reconstitution
2. D ought to be liable for loss which, with the benefit of hindsight and
common sense, can be seen to flow from the breach
Endorsing McLachlin J in Canson Enterprise (on breach of
fiduciary duty)
Essentially incorporating a modified but-for test for misapp of
trust fund in bare commercial trust not satisfied as lender suffered loss
from insufficient security not solicitors breach; subsequent event of
completion of transaction taken into account
Hindsight referring to taking into account subsequent events
showing that the event did not actually result from the breach whether
subsequent events would have caused the loss without the breach (here
would have resulted in loss anyways)
o Noting that but for practically means the breach is a
necessary cause
N.B. bare commercial trusts seem only applicable for falsification for breach of
trust by trustee
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B. Causation is irrelevant under the traditional approach of falsification which is only
admin and enforcement of primary obligation
CF. Lord Milletts LQR article same conclusion (in line with intuitive judgment that
the solicitor should not be liable to give P windfall) but different reasoning
Criticised the distinction between bare commercial trusts and traditional family
trusts
1. Primary duty to account for trust property hence misapplication of trust fund
gives rise to primary duty to reconstitute (in specie, or in a substitutive manner if
impossible) hence common law rules of causation and remoteness have no place
ie no Q of stopping the clock
2. Ts obligation to restore the property is not an obligation to restore it in the very
form but any form authorised by the trust achieved here by subsequent
execution of mortgage hence breach effectively remedied and no unauthorised
application by date of judgement
Breach not in parting with the money but in not obtaining title
deeds in return unauthorised disbursement when paid out money hence
duty to reconstitute and trust money notionally restored; subsequent
authorised application when mortgage was acquired hence discharged
primary duty; no need to quantify loss
Adopted by academic authorities e.g. Mitchells article (2013)
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Causation But for Dawson (only implicit by ref on duty to reconstitute the fund
to the position it would have been had there been no breach), by
reason Youyang
Remotenes Irrelevant Dawson, Target, Millett LQR (principles have no place
s/ given that you only perform your primary duty to account for trust
foreseeabil property)
ity
NAI Irrelevant Dawson
Con neg Irrelevant by extension of logic in Dawson
Mitigation Irrelevant by extension of logic in Dawson
Approach
1. Establish trustee relationship (n.b. all cases referring to breach of trust)
2. Falsification not dependent on breach or wrongdoing as an admin procedure for
enforcement of primary obligation
3. But for causation Re Dawson, Target
4. Re Dawson imposing duty to reconstitute on date of breach which continues to
the date of judgment but disregarding remoteness, causation etc c.f. Target
quantifying liability as for loss, which with the benefit of common sense and
hindsight, flows from the breach, thereby covering subsequent events
5. Discussion Target distinction between forms of trust, which may confine the
case to that particular context (link with present cases facts); may be further
confined by Youyang dictum on whether the transaction has in fact been
completed; other Target controversies
6. Conclusion on preferred approach (+ why) Target remains good authority so
unless c.f.
Surcharging
a. Surcharging within common accounts e.g. where fund is received but not entered
into account no proof of misconduct required
b. Surcharging for loss on the basis of wilful default i.e. T shouldve received the
fund
By ref to loss suffered, inc. loss of chance to avoid detriment/ make
gain Bank of NZ
Requires proof of WD defined only as passive breach of trust,
omission to do something he ought to have done (Bartlett); lack of
prudence/due diligence (Millett); doing what he ought not do or omitting to
do what its his duty to do Re Owen
Applicable e.g. for breach of duty in negligently making authorised
investment which subsequently declines in value, Ts failure to do positive act
etc
May take the highest intermediate value rather than as at the date
when it ought to have bene acquired/ when account is taken if D is T with
power to sell the property or if he is fiduciary who ought to have kept P
informed and sought instructions(Lib, M)
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But for generally required for FD Bartlett (loss in deprivation in
shares market $); mitigation relevant - Canson
Relevant Not settled though more likely in the context of duty of care
Surcharging is different quantification on what B wouldve made had T
not been in breach (cf falsification only treating as though no disbursement;
common law rules of causation and remoteness should apply Lord Milletts
LQR article (1998)
Substance of claim analogous to c/l duty of care claim for
loss occasioned by want of skill and care; duty of care is not FD despite
him being a F
Which is in line with principles not every duty of a
fiduciary is fid duty
Only refers to the need to quantify but no discussion on
e.g. test of causation
Endorsed in Bristol v Mothew (1998, per Lord Millett) but in the
context of fiduciarys breach of duty of care and skill (itself applying its
reasoning to fid+T [obiter]) applied in Bank of NZ (Canadian) [see
Libertarian quote] though proof of factual but for is still required regardless of
nature of breach, and Libertarian (obiter); other Ca authorities finding NAI
and mitigation also relevant
Bristol citing duty of care arising from assumption of
responsibility for affairs/ property for others; not description of the
trade/ position they hold
Libertarian cited Bristol for trustees breach of duty of
care as well
C.f. Duty of care being a common law concept and should not apply in
trust where Ts are held to higher standards; essence of fid relationship being
that F pledged to act in the interests of B Youyang (obiter, citing Canson
Enterprise) [nb didnt discuss nai]
Should set a different standard of care at equity esp. when
most trustees are remunerated these days Getzler
But unnecessary to refer to the higher moral duty if
breach is one of duty of care
C.f. may depend on type of trust e.g. management less complex for
Target type of trust
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behaviour by P if he fails to take the most obvious steps to alleviate losses
and failures so egregious (Canson)
Stringent duty analogous to that of deceit rather than
neg to encourage observance of full duties; had assumed responsibility
(Canson)
b. Breach of FD requires that breach is material to loss (onus
on D); foreseeability and remoteness inapplicable (both following BNZ v
NZ)
Narrow escape route warranted by policy reasons
c. Breach of duty of reasonable prudence (obiter) common law
rules of causation, foreseeability and remoteness generally apply (i.e.
adopting Mothew and BNZ)
2. A case on equitable compensation (from election) and misapp
required to restore the trust to position had there been no breach
3. Distinction on deliberate and non-deliberate breach of FD Here
involving actual WD, intentional, deliberate, actual wrongdoing which justified
equitable compensation on the basis of wilful default: strict measure
liability i.e. X remoteness/ foreseeability
i.e. liable for loss that, with the benefit of hindsight and
common sense, flows from the breach Applying Target and Canson
Enterprise
To apply common law rules on causation if not deliberate
(Millett)
Took into account the possibility of bundling the shares and
reselling at higher price
Noting that F is estopped from pleading a case inconsistent
with his fiduciary duties i.e. assessed on the basis that he would have
purchased the said shares and put up the whole bundle for sale when
potential buyers show interest
Unclear whether this is applicable to breaches other than
breach of trust, and in any case still begs Q on when he would have
purchased the shares exactly
4. Assessed quantum on which hypothetical remainder of shares
could've been sold Rejected the higher figure (proposed during fruitless
negotiations) but still evidential gap in valuation on what hypothetical
purchaser wouldve paid for them since co had gone listed etc resolved
against D for created by his wrongdoing ie presumed unless proven contrary
hence and took the figure of trading price at the date of trial judgment
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Summary on surcharging on the basis of wilful default (usually not for breach of
trust)
Causation But for Libertarian (obiter for DOC); But for Bartlett c.f. only to
show material: for D to disprove if its breach of FD; or Canson test if
deliberate Libertarian
Remotenes Relevant Millett LQR (noting diff from falsification)
s/ For breach of duty of care and skill yes - Bristol, Bank of NZ
foreseeabil (Canadian), Liberatarian (obiter) c.f. Irrelevant Youyang (obiter,
ity citing Canson Enterprise) c.f. criticism on it;
For misapplication irrelevant Libertarian (obiter, citing Target,
BNZ)
Fiduciary duty Irrelevant if its deliberate wilful default
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Libertarian
NAI For breach of duty of care may be relevant by extension of
reasoning in Millett LQR, Libertarian (obiter)
For breach of FD relevant if Ts breach didnt permit wrongful./
negligent act of TP Canson and cited in Libertarian (obiter for not at
issue and note)
For misapplication irrelevant (Libertarian obiter, citing Target, BNZ)
Con neg Should not be required to look after own interests (implicitly in
Youyang); for breach of duty of care Common law principles
(Bristol) may be by extension of reasoning in Millett LQR
Mitigation Relevant if B acted clearly unreasonably Canson (but on Fs breach
of fid duty) cited obiter in Libertarian; for breach of duty of care
may be by extension of reasoning in Millett LQR
Approach
1. Establish trusteeship, nature of breach, and claim in surcharging on the basis of
WD
2. To quantify the quantum of equitable compensation generally
a. Breach of trust but for causation test required but remoteness
and foreseeability irrelevant because analogous to claim in deceit
(Libertarian, Ribeiro J);
b. Breach of duty of loyalty only that breach is material and then
for D to disprove causation i.e. foreseeability and remonteness not relevant
(Libertarian)
c. Breach of duty of care common law principles should apply
given the analogy with common law claim (Millett in LQR, Bristol v
Mothew, BNZ, Libertarian [dicta]) and remoteness, foreseeability etc
relevant c.f. not appropriate for Ts moral duty (Youyang dictum)
3. But if it involves deliberate and actual wrongdoing in breach of fiduciary duty
strict principles should apply i.e. Target test of loss which with the benefit of
common sense and hindsight, flows from the breach Liberatarian, Ribeiro
Controversial for the novel distinction on forms of breach, and adoption
of Target without discussion on the controversy and difference in nature of
case etc
The outcome may be alternatively deduced by resolving evidential gap
against T provided that he caused the evidentiary gap Milletts judgment
in Libertarian
4. Conclusion on preferred approach (+ why)
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b. Modern approach ie liability for loss which, with the benefit of hindsight
and common sense, flows from the breach (modified but for test) McLachlin J
For the fiduciary to disprove causal link Libertarian (obiter),
Canson
NAI but for test proved but real loss attributable to neg of TP in Canson
Enterprises
Swindle v Harrison (UK) (old lady who had signed S&P for a hotel was unable
to obtain sufficient fund for the transaction and obtained loan from solicitor who
was making a secret profit)
Mummery LJ held that the solicitor was not liable (i) P was too happy to
take it, (ii) would still have suffered loss even if there was no breach
applying McLachlins test i.e. yes on breach but no liability for she wouldve
taken it
(i)scope of duty breached (ii) nexis with loss (iii) Target and Canson
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Contributory negligence irrelevant in Pilmer v Duke as Bs not supposed to
look after own interests; same for mitigation LH: no authority but same logic
should apply
Punitive damages rejected in Harris v Digital Pulse Pty Ltd (NSW CA)
Approach
1. Establish fiduciary relationship and nature of breach
2. For breach of fiduciary duty
a. Causation test loss, with the benefit of hindsight and common sense,
flowing from the breach (Canson Enterprise, adopted in BNZ)
b. But liability limited to the extent to which TP is liable under NAI
Canson (majority)
c. In any case mitigation and con neg shouldnt be irrelevant as Bs are
not required to look after own interests McLachlin J (minority in dictum)
3. For breach of duty of care analogous to common law claim so same principles
should apply (Bristol v Mothew, BNZ, Libertarian [obiter]) c.f. Youyang on
impropriety
Falsification
1. Re Dawson duty to reconstitute upon breach and to be assessed at the date of
judgment for substitutive performance claim
2. Target bare commercial trusts; applied Canson Enterprise i.e. to have it
assessed at the date of judgment taking into account subsequent events
3. Limitation on Target (i) whether facts concern a B/C/T and how it should be
defined (ii) or limiting it to the situation where the transaction is ultimately
completed (Youyang) (iii) shouldnt be followed
Surcharging
1. Traditional debate Millett LQR; Bristol v Mothew (cited by Libertarian); BNZ v NZ
Guardian (cases on duty of care)
2. Youyang dictum
3. Libertarian v Hall deliberate wrongdoing allowing equitable compensation on
the basis of wilful default
4. Limiting Libertarian (i) whether it involves here deliberate wrongdoing (ii)
whether it is confined to the award of equitable compensation on WD basis
(RL/LH c.f. only awarded E/C for unfruitful accounting) (iii) only where there is
deliberate wrongdoing and evidential gap (iv) only for surcharging on the basis of
wD for breach of fiduciary duties
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Resulting trust and Constructive trust in Land Law (the matrimonial home context)
If failed to express an intention in writing (requirement in s.3 CPO) that
both man and woman were to share the beneficial ownership in the property,
and the property was conveyed to the mans name only, the woman can rely on
(i) resulting trust or (ii) constructive trust
o Can invoke RT if she has contributed to the purchase price
o Can invoke CT if there was common intention and that she had
acted detrimentally in reliance upon the intention
More recently in Stack v Dowden the CT solution is to be preferred
General principles
Requires always an effective disposition of interest Re Vandervells Trust (No 2)
There must be some expression of an intention on the part of owner mere
existence of some unexpressed intention is not sufficient Re Vandervells
Resulting trusts
Arising where there is (i) transfer of property, and (ii) a recognized trigger for trust
occurs, as a result of which beneficial interest results back to the transferor
Can occur at the time of transfer or subsequently
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Orthodox types of resulting trust
1. (i) voluntary payment or transfer, (ii) purchase in the name of another, [together
as apparent gifts] and (iii) incomplete disposal of beneficial interest [failing
trusts] Lord Millett extrajudicially
2. (i) Automatic resulting trust, and (ii) presumed resulting trust Re
Vandervells Trusts, per Megarry J
Automatic resulting trust for incomplete disposal of beneficial interest or failing
trusts automatic consequence and does not depend on any intention/
presumption
(i) Initial failure i.e. where S transfers property upon trust but fails to
effectively declare a trust e.g. lack of certainty, informality etc (intention
to create trust )
Requires purported express trust
Affirmed in Hodgson v Marks (express trust to lodger of
house which was then sold and mortgaged; didnt comply with
statutory formalities)
(ii) Subsequent failure i.e. where some/all beneficial interest has not been
exhausted, such that there is failure to dispose of the whole beneficial
interest in the property (intention to create trust may/ not have to be
presumed)
o Surplus would automatically result back to S as RT; unless S
has abandoned the property (Westdeutsche)
o Interest would be rateably in proportion to amounts they
subscribed Re British Red Cross Balkan Fund
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o Automatic RT when trust didnt exhaust interest; Presumed
RT arising where A makes voluntary payment and did not intend to
make such a gift
o Both involve (i) transferor getting nth in return for transfer,
(ii) creation of a new equitable property right rather than inertia of pre-
existing beneficial interest Chambers, and (iii) RT wont arise if theres
proof of contrary intention of benefit
o And presumption of RT is rebutted by evidence of any
intention inconsistent with such a trust, and not only evidence of an
intention to make a gift
Specifically rejecting Megarrys argument that ART does not depend on
intention and operate automatically
C.f. cant account for cases where RT has been imposed though there is
clearly no intention on the part of transferor for transferee to be trustee
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in order to give effect to the common intention of the parties
Lord B-W c.f. confusion with common intention constructive trusts and
contrary to imposition of RT where transferors has no intention of
becoming Ts HM
Doesnt account for the situations where S has no intention for
T to hold as trustee e.g. Vandervell v IRC (did not want interest to result
back for tax avoidance), Re Vinogradoff (transferee being a minor), El Ajou
v Dollar Land Holdings Plc (unaware that the property was taken from him
in the first place)
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Birks and Chambers supported by Millett but not Browne Wilkinson
RT is not imposed in response to transfers (actual/presumed intention to create
a trust/ retain beneficial interest, but in response to the fact that he
(actually/presumably) did not intend to make a gift to trasferee i.e. absence of
intention to benefit
(i) gratuitous transfers w/o consideration are apparent gifts (ii) equity tends to be
suspicious of gifts (iii) hence presumption of non-beneficial transfer (iv) which
triggers a trust in favour of transferor (v) which requires positive evidence of
intention to rebut e.g. presumption of advancement
On presumption Swadling
Classified as (i) voluntary conveyance RT (ii) purchase money RT (iii) failed trust
RT
o Noting that the (i)/(ii) do not arise when presumption of
advancement applies, in a will context, wehre right transferred is an
interest under trust, and additionally for (i) where the interest conveyed is
sth diff from that held
Referring to proof of one fact giving benefit of secondary fact unless rebutted
Presumption is depositive of result in the absence of contrary evidence Fowkes
v Pascoe, evidence that investment was not for purpose of trust e.g. that it was a
gift can rebut presumption Mellish, not relevant if theres no gap in the
evidence Goodman v Gallant
o Presumption rebutted by evidence of any intention inconsistent
with such a trust and not only evidence of intention to make a gift West.
C.f. mere indication of burden of proof, irrebutable presumptions of law, ones
which dont compel tribunals to find in favour of any party in the absence of
contrary evidence, those which are a matter of statutory construction
Re Abbott fund subscribed for the maintenance and support of 2 deaf women
Held that the surplus was held on resulting trust for subscribers
C.f. Re Andrews Trust fund subscribed solely for the education of a clergymans
children
Held the children were entitled to balance equally upon completion of formal
education
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Where a special purpose be assigned for the gift this court [rebuttably]
regards the gift as absolute and the purpose merely be the motive of the gift
o If he has given the whole of the fund, he is regarded in the
absence of contrary indication as having manifested intention to benefit the
person to the full extent of SM
o Construed education in the broadest sense and found ref only
a motive
Followed in Re Osoba by CA (bequest to wife upon trust for the
maintenance and training of daughter for up to university and maintenance of
aged mother) held to be a trust for the 3 women absolutely as joint tenants
hence no interest to result back
N.B. distinction from Quistclose intention on finding of explicit
intention on exclusivity
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RR then went into liquidation before payment of dividends i.e. purpose of loan
frustrated
Issue of whether BB could set off the monies with the amount owed by RR to it
which depends on whether Q retained proprietary interest in the loan money
o (i) Whether as between Q and RR, the terms upon which the
loan was made were such as to impress upon the sum a trust in Qs favour
in the event that the dividend was not paid and (ii) if Q did have
equitable proprietary interest, did BB have notice of it so as to be bound
by the trust
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1. Both express trusts Lord Wilberforce in Quistclose ;
problem of classifying
Trust for persons (assuming satisfaction of certainty of object)
(i) shareholders of RR c.f. Bs should be able to act collectively to compel
transfer of asset (Saunders) but clearly not intended by Quistclose hence
didnt meet commercial reality of the deal (ii) Quistclose c.f. would be able to
revoke the trust (Saunders) but not contemplated by the commercial
transaction that the lender could recall the loan at any time (iii) no one as
suggested by Lord Millet extra-judicially c.f. not in line with traditional
trust law which embodies a check and balance mechanism
Trust for purpose c.f. private purpose trust would be void for not
enforceable by anyone and only recognized in traditional law for charitable
public cause
Lord Millett
Referred to QT as illusory trust in extrajudicial article because
the beneficial interest remained in S and revocable at any time though taking
form of an express trust
Modified his analysis later in Twinsectra in that the trust did
not take the form of an express trust but rather resulting trust though still
illusory in that the recipient was not intended to receive full interest i.e.
beneficial title still remains in the lender/ settlor when the purpose fails and
thus arises by operation of law
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separate, explanation on conjuring proprietary rights out of contractual
relationship
Commentaries
Virgo
Lord Hoffmans express trust for lender approach is inconsistent with the
orthodox approach that the beneficiary can revoke the trust anytime or compel
exercise of powers
Lord Milletts approach is consistent with his idea that RT responds to transferors
absence of intention to pass the entire beneficial interest
C.f. he appears to be considering this a case of ART from holding retention of
equitable interest but that only arises where the property has been transferred
on an express trust which has failed inconsistent with judgment as (i) Millett did
not try establish such at all and merely based it on the absence of intention to
transfer beneficial interest (ii) fact of insolvency means the reason for lending
money has failed and enables lender to revoke mandate held by the borrower
even though there is no failure of trust as in Quistclose under Milletts approach
as title is always with L
o Virgos interpretation ART problematic because it is only
possible if theres failed express trust c.f. PRT for absence of intention to
benefit
Reinterpreted as an express trust form the start, with intention inferred from
arrangements, but if its for an abstract purpose where there is no identifiable Bs,
then it would fail initially and give rise to RT for the lender while trustee
continues to have power to use the fund until it is exhausted
o If its purpose trust with identified Bs, it would be valid until
borrower goes into insolvency in which case the purpose can no longer be
performed; RT then arises
o In which case Bs cannot terminate trust at any time
JA Glister
Questioned the extent of equitable right to see funds applied for the primary
designated purpose e.g. where A sets up a trust and gives property to B on trust
in favour of C by instalments and C seeks to invoke Saunders
Issue on proprietary interest where part of the trust is delivered such that C has
gained beneficiary interest in some property, and then becomes impossible
Chambers view cannot assist settlors in compelling performance of positive
obligations imposed on the trustee to do something and; would also not have
proprietary basis to get the money but only injunction to prevent misuse
Trustees of RT generally not subject to fiduciary duties unlike ET hence
separation of legal and equitable ownership while creating a trust does not
necessarily create fiduciary relationship but in QT trustee would be sufficiently
aware of transferors intention and motiviation so as to make him subject to
fiduciary duties
o Moreover RT and ET are different in the beneficiarys control over
T (Saunders)
o Does recognize that RT is more readily available in non-
contractual transfers for being based on absence of intention to pass full
beneficial ownership
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TM Yeo and H Tjio, Case Comment The Quistclose Trust, LQR 2003 on
Twinsectra
QT may not be distinct, analysis applicable to other deals and full range of
obligations and remedies likely available; implicit even in Milletts
Theoretical difference between Hoffman and Millett on nature of QT but not
inconsistent; merely that no need to resort to RT if ET found noting Hoffmans
simplistic and in line with contractual understanding
Milletts actually adds to the controversy on Birks/ Chambers debate though
case here relates to failure to exhaust entire beneficial interest hence RT used as
a gap filling mechanism [easy since Sims was never intended to retain beneficial
interest] but taking it further, he views that QT is applicable whenever lender
does not part with the entire beneficial interest in the money; in which case
debate on intention to retain/ lack of intention to pass becomes illusory
Noted difference in significance of mutual intention but practically absence of
intention is difficult to prove so L likely to give evidence on actual intention
Milletts analysis offers a lower threshold for proving trust further extension of
benevolent construction in finding a trust in what would have been an ordinary
loan
Following which, the lender who specifies purpose for a loan theoretically has at
least three strings to his bow (a) express trust with L as B (b) intended express
trust but failure of certainty of object hence money on RT for L (c) no express
trust but nonetheless RT from lack of intention to benefit borrower
Possible social value in justifying preference for lenders c.f. too easy to bypass
1. Generally, only requires that S intends to enter into arrangements that have
effect of creating trust i.e. S possess the necessary intention as objectively
assessed to create trust Twinsectra c.f. mutual intention of the parties in
Barclays v Quistclose
2. Will be impressed with QT if the transfer must be for an exclusive specific
purpose test of whether the payors objective intention is for the asset to be at
recipients free disposal Tw, affirmed in Re Goldcorp (* note sequence)
a. Requires more than just specific purpose; must be an exclusive
purpose such that the recipient cannot mix the assets with general funds or
dispose of them freely
Requires a legal duty/ undertaking of segregation from
general assets
Factual physical segregation neither sufficient nor
necessary though it can be strong evidence that the money is not at
recipients free disposal
o In line with requirements for express trust for
which there is only a duty to keep separate account for trust assets
o Would however require strong evidence to
show that the asset is not at the borrowers free disposal if the
assets are not segregated
o N.B. Would require separate accounts to
identify trust $ (nb tracing)
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Generally not satisfied for normal loan where B only owes
contractual duty to return an equivalent amount, deposit/ earnest money
(to show sincerity in performing contract), or payments in advance for
goods or services
o Normally intended for the transfer to be
absolute and at the free disposal of the recipient as part of its
general cashflow
b. In order to ascertain parties intention look at terms of the
arrangement and circumstances TW; eg loan used only and exclusively
for payment of dividends in Quistclose; indication of one specific purpose only
in Tw
Ls s intention is paramount mutual intention for (i)
showing Ls intention and Ts consent Hoffman, and (ii) only for
scope/nature of duties Millett
Ultimately the same as obj assessment of Ss intention
requires drawing inferences as a reasonable person would from the
circumstances and the agreement
3. This would give rise to a Quistclose trust, which is a resulting trust in favour of S,
at the time of payment and subject to borrowers duty/ right (depending on
terms) to apply it for specific purpose Twinsectra, Lord Millett c.f.
Quistclose
RT for the absence of intention to transfer beneficial interest
Beneficial interest remains with L until and unless applied in acc with
directions
B only with a mere power to apply money not a purpose trust
o Requires only that the power is stated with sufficient
clarity to enable enforcement B loses authority to use the money at
all if uncertain
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Analysis on the basis of resulting trust Lord Millett **, adopted in Hong
Kong
Requirements
1. Generally does requires necessary intention on the part of transferor to
create a trust but subj. intention is not relevant; merely requires that he
intends to enter into a particular arrangement with the effect of creating a trust
The fact that T relied for its security exclusively on Sims personal
liability is merely subjective and therefore irrelevant, but in any case not
inconsistent with QT since QT arrangements are not intended to provide
security for repayment of loan but rather to prevent money from
misapplication otherwise than in acc with Ls wishes
Mutual intention only relevant as to nature and scope of borrowers
undertaking but the incidence of trust arises purely from lenders lack of
intention
o But here must consider borrowers undertaking to
ascertain gap in the beneficial ownership since its a case on failure to
exhaust beneficial in.
2. Not only that money is paid for a particular purpose, but whether the
transferor, objectively assessed, intended the money to be at the free disposal of
the recipient
Necessarily excluded by arrangements that money is to be exclusively
used for specified purpose here found in Sims undertaking
3. It is unconscionable to obtain money on terms as to app and then
disregard them (Gibert v Gonard, North J) therefore Sims breach is beyond mere
breach of contract
Undertaking that the money is used solely for acquisition of property
and not simply to the order of Yardley release for any other purpose is
breach of trust
A fiduciary duty (instead of contractual) to apply property on stipulated
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purpose and not for any other purpose undertaking giving rise to fid duty for
the lender places his trust and confidence in the recipient to ensure that it is
properly applied
o A classic situation in which a fiduciary relationship
arises, and since it arises in respect of a specific fund, it gives rise to a
trust
Hence may exist despite absence of contractual relationship as
in Rose v Rose, and binds third parties as in Quistclose *not the other way
round
Nature of the Quistclose trust - Money held on RT for the lender from the start (i.e.
retains beneficial interest), subject only to the borrowers right to apply it for the
specific purpose
In response to arguments that (i) there lacks certainty of object, and
(ii) no trust in favour of T could arise prior to the failure of stated purpose
Rejecting all alternative analysis [held to be] an entirely orthodox
example ofRT
o Doubting the two successive trust analysis by Lord
Wilberforce problematic where the specific purpose is abstract with no
identifiable Bs
Beneficial interest remains with L pending application/ failure of
purpose, rejecting
a. Borrower
Would defeat the whole purpose of QT in preventing the money
from passing to borrowers trustee in bankruptcy in the event of his
insolvency
B only with minimal interest pending application of the money
e.g. must keep the money separated, not to apply it except for stated
purpose, not to refuse to return to lender if the purpose fails
b. Contemplated beneficiary of the loan rej.
re Northern Development (Holdings Ltd) $ was advanced for
express purpose of payment to unsecured creditors by co which was in
financial difficulties; found purpose trust enforceable by creditors as
whom trust was created for
o Doubted for there the loan was intended to keep
company trading by providing working capital with which to incur
fresh liabilities (c.f. to avoid bankruptcy by paying off existing
creditors) should not have been held a Quistclose trust at all;
moreover case there only concerned with negative injunction to
restrain improper application of the money rather than a mandatory
order to compel specific performance
o Only benefiting creditors indirectly; if its for
purpose, should be void
Hence problem and potential distinction where the intended
beneficiary is unspecified or if the transfer is for abstract purpose
Questioned Wilberforce in Quistclose nature of primary trust
was not at issue
c. In suspense with entire ownership passed to B subject only to Ls
contractual right enforceable by injunction to prevent misapplication until and
unless that purpose fails, in which case RT springs into being CA, Chambers
for latter; rejected by Millet
No scope for RT to arise if absolute title was intended and did
pass at outset
Difficulty to reconcile with CAs grant of proprietary remedy, non-
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contractual payment cases, fiduciary nature of borrowers obligations as
held by Wilberforce in Quistclose which necessitates status as B for
otherwise cant enforce contract as TP even at equity, the evidential
significance of having to keep the money in a separate account, priority
over SCs (citing Ho and Smart)
In fact sit comfortably with Chambers theory that RT responds
to lack of intention to benefit RT fills the gap when beneficial interest is
not exhausted and leaves no room for suspense
Issues remain on (i) allowing lender to enforce not as B since there wont be
secondary trust if there is primary one, and not as S who does not retain beneficial
interest (ii) explaining failure of primary trust a trust would only fail if it becomes
illegal or impossible to perform, which may not be the case even if Ss purpose is
frustrated (i.e. distinction Ss motives/ purpose of trust)
Milletts approach that beneficial interest remains with the lender from the start
(i) circumvented and (ii) Allowing S to revoke mandate and demand
return of money which is his so long as his object in advancing the loan is
frustrated
Considered the only analysis consistent with orthodox trust law and
commercial liability simple commercial arrangement akin to retention of title
clause enabling the borrower to have recourse to lenders money for particular
purpose
In line with his view that RT responds to an absence of intention to
benefit recipient
Most importantly evaded the difficulty in reconciling Quistclose with
the principle that a primary trust for private purpose is unenforceable R
Chambers, Swadling
Best in (i) no party can claim absolute interest to enable Saunders rule
(ii) just the right amount of legal principles all parties want is security for L
which only needs contract principles to enforce; the legal characterisation
corresponds with the deal intended (iii) would require segregation of funds upon
transfer as intended and enforcement of the term on exclusive use by contract
LH
o Minor problem: fits neither in automatic/presumed
purchase money RT (better as latter) but already least infringement with
existing principles
Unjust enrichment (i) mistaken payment (ii) void payment (iii) voidable payment
e..g undue influence or fraudulent misrepresentation
Basis for invoking trust principles is always to get equitable proprietary
right in the property which will bind TPs except Equitys Darling and allow the
asset to be taken out of the assets available for distribution for unsecured
creditors pari passu
Can be recovered under c/l claim in money had and received gives
personal rights
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C.f. (LH) taking of insolvency risks is a matter of fact and should
be examined individually; tort claimants cannot be said to have taken
insolvency risks either
B. A has swollen Bs assets such that B appears to
have more assets and Bs creditors would be unjustly enriched
C.f. (LH) argument that the property still belongs to A begs the
question; and transfers are often intended as outright absolute transfers
3 schools of thought
A. Swadlings view of no proprietary interest (minority)
Undue influence and mistake only affect the motive but intention
remains valid
B. Birks/ Chambers view that an immediate RT arises (extreme view)
Might make sense to say that the trusts imposed to reverse UE
are always RT given that RT are always restitutionary in pattern c.f. CT
Hayton & Mitchell
RT should arise when money is paid under a mistake for it
vitiates the actual intention or where money is paid on a condition which is
not subsequently satisfied e.g. total failure of consideration Birks
Criticised for (i) eliding rights in property into rights in the
value transferred by applying restitution principles contrary to the principle
that there has to be defined trust property (ii) presuming that trusts arise
upon receipt irrespective of legal title holders knowledge even when his
conscience is not affected(iii) arbitrary distinction between failure to
perform contract and total failure of consid. (iv) injustice to third parties
esp. creditors in insolvency Lord B-W
RT to arise for there is no intention to benefit recipient (here
intention is defective) hence legal title is passed but the recipient holds it on
RT upon payment Chambers
Remedy only withheld for policy reasons
C. Lord B-W in Westdeutsche preference for remedial CT (halfway
house)
RT is not justified on the basis of unjust enrichment which would
otherwise lead to unjust results
No immediate beneficial interest but should only give rise to
power to revest property e.g. rescinding contract or making a claim upon
which the trust arises
Remedial CT to protect innocent third parties
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Unconscionability recognized as the underpinning principle in Westdeutsche (B-
W)
Not possible to prescribe exhaustively the circumstances under which CT will be
created (Cobbe v Yeomans) broadly requires wrongs for being a means to
capture profits from breach of confidence and crime proceeds, detrimental
reliance
o To prefect/ give effect to original intention that beneficial
ownership of property should pass c.f. arising not because of intention
Virgo
Sinclair v Brougham [1914] UKHL (took in deposits under ultra vires banking
services and hence debts owed to depositors were also void for ultra vires; on
issue of priorities)
Criticised in Westdeutsche for the absence of ratio decidendi,
objectionable reasoning, intended to deal with cases with no trade creditors in
competition
Majority judgment (3:2) (i) C had personal claim to recover in a common law
action but (ii) there is no proprietary equitable right
Problems that (i) recipient may be personally liable for disbursement despite
being ignorant of existence of trust (ii) equitable proprietary right would bind
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TPs in tracing other than Equitys darling
Concerns over proprietary overkill (i) lack of moral/ legal justification for giving
priority to transferors right to obtain restitution over TPs e.g. general
creditors who have themselves not been enriched at formers expense or
dealt with him, and (ii) commercial uncertainty from wholesale importation
into the commercial law of equitable principles inconsistent with certainty and
speed
Here D had clear conscience; innocent third parties would be
affected; strong reasons are needed to justify the proprietary overkill
Issue of whether the recipient of money under contract subsequently found to be
void for mistake or ultra vires hold the money on trust even when he had no
knowledge at any relevant time that the contract was void
General principles A person would only be bound as trustee if (i) his conscience
is affected at the time when property remains identifiable
1. Equity operates at the conscience of the owner of the legal interest upon
acceptance of office for express trusts, and unconscionable act for CT
2. Holder of legal interest cant be T as long as he is ignorant of facts alleged to
affect his conscience/ until he is aware that he is intended to hold property for
others benefit
RT only arising upon discovery of circumstances giving rise to
a resulting trust i.e. when the party brings an action against legal title
holder where he gets title w/o his knowledge or intention to give as gift by
transferor
3. There must be an identifiable trust property with only exception being DA
4. Interest would be binding on TP except Equitys Darling from the moment of
establishment of proprietary interest
Application there was no identifiable trust property when the bank acquired
knowledge of the invalidity of contract because the account the money was paid
into was overdrawn and went into overdraft i.e. no longer traceable (since its
with negative balance and hence anything paid into it would be gone)
(Bishopsgate Investment Management v Homan)
N.B. no issue with identifiability so long as the account is not overdrawn [see
tracing]
Step 3 rejected argument that the trust must exist on title split
Overruled Sinclair
Possible to have equitable rights in B but legal title in A e.g.
mortgage where borrower has equity of redemption and legal title whereas
lender has equitable title
Step 4 rejected argument that RT arises for recipient was not intended to be
benefited
Adopted Swadling approach that RT gives effect to common
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intention doubting Re Vandervell in which it was held RT arises
automatically irrespective of Ss intention
RT arises in two circumstances and both of which give effect to
common intention (a) PRT where A makes voluntary payment to B but does
not intend to make such a gift (b) ART where A transfers property on express
trust which does not exhaust the interest neither are applicable here (i) no
PRT for the parties had paid/received payment intending for it to become the
absolute property of the recipient despite labouring under a misapprehension
on validity of the contract (ii) no transfer under express trusts i.e. no ART
o Given that presumption of RT can be rebutted by
evidence of any intention inconsistent with such a trust (William
Swadling)
Remedy granted personal liability for payment under a void and ultra vires
contract for total failure of consideration (in counter payments) but no
proprietary right
Overruled Sinclair v Brougham (where court found that claim for
money paid under void contracts at common law is one in quasi-contract and
rejected the c/l claim for an implied contract with the same effect would
equally be ultra vires) held that the proper basis is in unjust enrichment for
recovery under total failure of consideration but no proprietary interest
Commentary on Westdeutsche
Ken Lee not universally accepted; on constructive trust and knowledge
Not necessarily require conscience to be affected for express trusts and
even if conscience is affected, it doesnt necessarily give rise to a trust
Absence of knowledge of mistake may be a defence for a claim of
proprietary relief (bona fide purchaser for value w/o notice of equitable
interest of spouse in property will not be bound) but the converse is not true
i.e. that the fact he has knowledge only means he cannot deny the beneficial
owners interest but the trust is already there c.f. here knowledge of mistake
gives rise to the trust hence unconventional
A Burrows
Supports overruling of Sinclair for lack of justification for imposing proprietary
restitution for failure of consideration but noted exceptions e.g. Quistclose trust
(an RT), a constructive trust recognized in Neste Oy v Lloyds Bank plc
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B. Mistaken payments CT arises when recipient retains transfer after conscience is
affected (Westdeutsche, applied in Re Farepak in rationalising Neste Oy v
Lloyds Bank to find CT at time of receipt; Chase Manhattan overruled on that
point for no knowledge of mistake)
Note counter arguments in (i) time of notice/ verification (ii) knowledge
of the payment being for a particular purpose (e.g. only resolved to cease
recruitment of members)
N.B. may be justified on RT in that when money was paid over under factual
mistake, there was no valid intention to benefit transferee Birks/Chambers
but note RT debate
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Neste Oy v Lloyds Bank plc (1983) payment for discharge of function as
shipowners agent was made after company decided it should cease trading
Found constructive trusteeship arising at the time of receipt
1. Payment made under mistake since D had already resolved to cease trading
and it is clear that there would be total failure of consideration
2. Any reasonable and honest director wouldve arranged for immediate
repayment; contrary to fairness if recipients general creditors could profit
3. Hence inequitable and could not therefore in good conscience retain the
payment
4. CT at the time of receipt
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Criticisms
Unnecessary to impose CT for an original owner to recover
property for common law principles can go quite far in relation to stolen
properties Victim retains title to the property anyways even though he no
longer has possession and can sue thief in tort of conversion i.e. wrongfully
handling property
Victim retains legal and equitable title hence the thief has no title
to the property to become a trustee
Shalson v Russo
No trust arising immediately upon payment but only when, upon discovery of
fraud, transferor elects to rescind
Criticised Westdeutsche Thief does not obtain any proprietary
right in the stolen good hence difficult to see why there would be
immediate trust on CT
Tracing at equity generally requires pre-existing fiduciary
relationship and it would not be right to say that stolen property must
necessarily be trust property to satisfy that precondition
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o Would further take into account bars of rescission
before granting order hence El Ajou is out of line with principles
c.f. El Ajou only refers to tracing c.f. claiming
Unless the innocent party in a
deliberate fraud situation has informed all possible authorities
available Universal Finance Co Ltd v Caldwell
o C.f. c/l rescission is a self help remedy that does not
depend on court order but would require rescission in specie ie for
the whole thing to be returned
Contractual concepts
Total failure of consideration where you would have a claim for
money had and received under the lwa of unjust enrichment
Breach of contract giving damages, consequential losses and
replacement costs
Vitiating factors giving right to rescind contract to revert to
original position
Go for TFC and vitiating factors if its a bad bargain; or breach of
contract otherwise for the expectation measure will give you the market
price
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Re Goldcorp Exchange, Lord Mustill [1995] PC from NZ no trust (most
orthodox)
Company operates like a bank and sells gold to investors takes deposits
in return for certificates of ownership; undertook to audit gold vaults from
time to time to ensure adequate stock of gold to satisfy investors demand
of withdrawals
Appeared that the investors had an interest in the bulk until physical
delivery
No segregation of gold from overall stock which was also under floating
charge that crystallised when co went bust; there wasnt enough gold to
satisfy all claims
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Proprietary right is based on personal claim for return of
price, which cannot exist so long as the sale contract remains in
existence and enforced
c. Even if there was rescission, it doesnt necessarily give rise to
proprietary rights superior to those of third party creditors
entitlement otherwise would be too extreme and not supported by
authority (El Ajou was not cited)
o cf El Ajou equitable tracing is justified by
existence of right to rescind
Same for all voidable contracts eg mistake, total failure of
consideration
Critique
Reasoning compatible with orthodox principles
Though read together with other authorities mistaken payor would be in
a better position under Westdeutsche obiter than payors in Re Goldcorp
situations
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only in form of right to claim repayment to transferor i.e. rescission (iii)
making of the claims evinced sufficient intention to rescind to give rise to
implied rescission here referring to claims in court c.f. Re Goldcorp in
which there was no factual rescission and (iv) upon (implied) rescission,
transferor would become entitled to assert proprietary interest that would
entitle tracing
4. However limited and will be defeated by TP rights must rescind before
interests of bona fide purchasers arise, and before liquidation for properties
would otherwise have gone into statutory distribution regime
5. May be referring to resulting trust by citing El Ajou c.f. not consistent with
traditional principles on RT which only arise in 2 situations; should be CT
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Boardman v Phipps (D buying shares in conflict of interest but in cos
interest)
Liable to account as a constructive trustee though ambiguous
Confusing as to whether its personal/ proprietary claim
and should instead refer to accountable in equity Sinclair c.f. clear
that its referring to proprietary remedy from declaration of CT FHR
European Ventures
Granted even though the property couldnt have been
obtained by P without sanction of the court for being unauthorised
under the testators will
Case on liability rather than remedy hence not really good
authority on this
Bhullar v Bhullar
Held the piece of land bought by the director was held on CT giving rise to
duty to reconvey the land to the company in exchange for purchase price
paid
Whether or not P could have or would have obtained the
opportunity
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AG for Hong Kong v Reid [1994] PC, per Lord Templeman
Bribes received to suppress criminal prosecution and spent on property
abroad
Departing from Lister v Stubbs though cannot overrule it as
a PC decision
Adopted in an HKCFI decision by Reyes J but unlikely to be
followed (LH)
Courts reasoning
1. No pre-existing proprietary right for the bribes did not belong to B
2. Fiduciary owes duty to account for bribes from the date of receipt,
which is an equitable right
3. Equity treats as done what ought to be done
4. When the debt is incurred, equity treats it as already having been
repaid even though legal title was with F hence equitable title arises
upon receipt
5. Hence bribes, whether in cash or kind, are held on CT upon receipt for
B which covers property here for being purchased with bribes
LH Apparent that court was motivated by the idea that
bribery is an evil practice that has rotten the foundations of civil
societies and full disgorgement of properties received is warranted
Critique
Appears to have decided the case on the basis of
heavy policy reasons in deterring bribery but arguably proprietary
interest is not necessary
Proprietary overkill (Crilley) giving B too much
proprietary protection over general creditors if there is accrual of TPs
right or insolvency subsequent to receipt since first in time prevails
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Lord Milletts 1998 LQR article supporting the outcome in Reid but
based on disability rule
Constructive trust is only another way of saying
vendors promise to convey the land to purchase is specifically
enforceable
An implied trust, whether C/RT, is a true trust; there
cannot be one where there is no trust and there cannot be a trust
where there is no property
Hence there can be no C/RT unless property is
identifiable in hands of recipient and its not freely available to
the recipient as general assets
Justified the duty to account for bribes in specie (which
Templeman failed to do) F under disability to make any gains from
breach of FD so gains made ought to belong to B hence obliged to
account for bribes in specie for proprietary interest has always been
with B; precluded to defend otherwise
Commented that Reid does not decide that a breach of
FD would inevitably give rise to CT here only held obligation to pay
over bribe upon receipt for he has no authority to receive the payments
for his employers account at all hence no authority to mix them with
own money and use for own purposes subject only to duty to account;
basically not authorised despite having received it to retain/ use it
himself hence not at his free disposal similar to QT
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the principal and not deriving from opportunity from the principal)
3. Further reasoning
a. Distinguished between (i) F who deprives B of an asset e.g.
Fossett, Keech, Phipps and (ii) F who enriches himself by
committing a wrong against B
b. No proprietary claim in gains acquired by fiduciary in breach
of his duties unless the property (a) is or has been beneficially Bs
property, or (b) by taking advantage of an opportunity/ right thats
Bs
Even if the profit could not have been obtained if
he wasnt fiduciary would only give rise to a personal claim
Cited Phipps and Bhullar to support second
exception
Implicit category (c) for all other cases in which
theres no CT
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unless the exceptions apply
6. Hence no proprietary claim/ CT on the proceeds
of sale
Critique by LH
On policy
Deterrence is indeed quite irrelevant to the grant of
proprietary rights but equitable compensation would not be sufficient
to deter either should instead have said deterrence should be
achieved by disgorgement of profits which focuses on Ds gain rather
than Ps loss and strip him of his gains
On exception (b)
a. Authorities cited do not support the categorisation
Boardman and Bhullar do not in fact provide
justification for CT and in any case no insolvency involved in the
cases hence cannot be authority regarding grant of proprietary
rights when creditors interests are at stake
b. Imprecise scope as highlighted by Mankarious in re-
characterising bribes as an opportunity and arriving at a different result
to give proprietary interest
c. Arbitrary distinction between certain types of bribes
E.g. bribes obtained in Reid cannot be
reconstrued as opportunity belonging to the government for it
cannot lawfully accept bribes for non-prosecution c.f. Mankarious
If deterrence is the underlying policy, bribes
should at least be of the same level of blameworthiness, if not
more, than normal commercial bribes
d. Opportunities dont properly belong to P (Bhullar)
needs more justification
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was property of B (iii) all others; (i) and (ii) giving rise to CT but not (iii);
here issue on ii/iii boundary
Policy arguments
Bribes being an evil practice and fiduciaries should be
discouraged from accepting bribes for which full disgorgement may be
deterrent (Reid) c.f. sufficiency for personal liability to account
(Sinclair)
Harm to general creditors c.f. they shouldnt have had the
benefit of bribes in the first place anyways c.f. its a competition
between innocent parties
Milletts comment
The money paid can in fact be considered part of the purchase price
hence within category 1 of Sinclair c.f. payment under sale is an
out/out payment
Disability argument anything obtained would be received on behalf of
B
Scenarios
1. Enrichment by subtraction where Ps claim has a proprietary Base
o D gain at the expense of P in the sense of total or partial loss of
proprietary base, but does not require a fiduciary relationship
institutional constructive trust
2. Enrichment by an equitable wrong producing deemed agency gains
o Not about deprivation of assets, but on diversion to D of an asset
which is his duty in equity to obtain not for himself but for P (use of
knowledge, info, etc itself cannot be said to be deprived of, so P has no
loss) remedial constructive trust
3. Enrichment by an equitable wrong producing gains other than deemed agency
gains
o E.g. Bribes, gains received unconnected to Ps existing business
personal order, as P has no pre-existing restitutionary interest, why
should he not accept the same risk of Ds insolvency as Ds general
creditors?
o P has furnished none value, but Ds creditor has gave value, why
should Ds creditor be subordinated to P
o So should not distort rules of insolvency, and certainty of
commercial dealings
Following i.e. follows the physical location of the misappropriated tangible asset, in
whose hands it has been held and has reached
T steals trust property/ vase, gives it to mistress who passes to son
still the same vase
Not possible if the case is in the hands of a bona fide purchaser
Claiming i.e. establishing the right C can assert after following or tracing
Essentially to claim in rem (e.g. right in the iPad and asking for specific
delivery) but not a claim in personam against the person holding the iPad
Requirements
1. Separate equitable title requiring a fiduciary relationship between
claimant and the person misappropriating the asset to establish that there is a
separation between legal and equitable title and that the claimant has equitable
proprietary interest in the asset
C.f. Tracing has nothing to do with whether there is a fiduciary
relationship (c.f. claiming) and the inquiry should merely be whether there is
sufficient proprietary basis to allow the original owner to trace the property
into other forms
Re Diplock (1948)
S executed will to donate almost all his fortune for charitable or benevolent
objects as T in their absolute discretion may select; next of kin challenged
validity to recover payments to charities
Charitable purposes interpreted narrowly under 4 categories at
equity of (i) advancement to education (ii) advancement of religion (iii) public
purposes (iv) alleviation of poverty
Found to be void for not exclusively charitable issue on recovering
disbursement
Requires a fiduciary or quasi-fiduciary relationship of a continuing
righ to fporperty recognized in Equity note ambiguity
Virgo the key element should be whether the claimant has a right
of property recognized in Equity that is either a continuing right, or one
created as a result of breach of FD/ other duty i.e. that theres equitable
proprietary base instead of focusing on fid relationship
Diplock in fact recognizes that equity may operate on the
conscience of volunteers provided that as a result of what has gone before
Mixed with properties of innocent party e.g. T steals $1 from Bs trust and $1
from As then used $2 to buy an apple
Mixed with Ts own money eg T steals $10, add $5 of his own to buy a $15
bottle thats now worth $30 recovery is not limited to the misappropriated
amount Foskett v McKeown
Critique
The wrongdoing trustee may be able to benefit himself
which is inconsistent with the rationale of authorities Any inferences
should be drawn against T and hence usually plaintiff-friendly approach
HM prefers allowing the plaintiff to cherry-pick the best
option, following Shalson v Russo and approach taken in Foskett v
McKeown
Doubtful if it would be followed; here claimant was going
for double recovery hence court didnt allow her to make a claim while
there is sufficient remaining balance LH
Note do not apply where the funds belong to Bs rather
than trustee
Trust fund + funds of innocent volunteer/ parties None would have the
benefit of evidential presumptions
Note innocent volunteer i.e. TP who mixes claimants
money with his own, gave no consideration for the claimants property and
who had no reason to suspect that someone else has proprietary interest
in the money c.f. wrongdoer who knew or did have reasons to suspect for
which the normal tracing rules would apply
Exceptions
A. Subrogation Boscawen v Baiwa i.e. B may be
subrogated to the secured liability discharged by misappropriated trust
fund if it is used to discharge a secured liability
E.g. where if B repays As debts, B would step into
the shoes of the creditor and becomes As creditor; hence B can claim
subrogation and charge over property for mortgage situations
It can only be against secured creditor because
theres no point in subrogating to the claim of an unsecured one
Paragon Finance v Thakerar & Co (1991), per Lord Millett establishing 2 types
of CT
a. Constructive trust arising because of pre-existing fiduciary relationship before
the occurrence of the impeached transaction (T becomes trustee breach CT
imposed)
Not subject to limitation period for claim in breach of trust
b. Constructive trust arising in the absence of pre-existing fiduciary relationship,
and only imposed by wrongful behaviour not a proprietary type of trust
Generally subject to limitation period of 6y from classification as tort
unless theres dishonesty
Stemming from Barnes v Addy if found making themselves trustees de son tort
or participating in fraudulent conduct of the trustee to the injury of the cestui qui
trust, but not for mere agents of the trustee in transactions within their legal
powers unless they receive and become chargeable with some part of the trust
property, or assist with knowledge in a dishonest and fraudulent design on the
part of T
In personam action preferable where property is destroyed, or passed on to TP
Liability as constructive trustees only denoting that range of
remedies available would include those normally available against express
T; here just personal
Nature of liability not settled; possibly UE, wrongful interference with beneficial
rights, graded extension of express trusteeship; main debate on whether it is
based in UE or knowledge
Basis in UE or wrongdoing (as suggested by Akai which imposes
liability for equitable compensation) problematic
Issues
1. Apparent authority found belief irrational and hence no apparent
authority
Basically issue of whether the agreements were executed
with authority (i) applied test of apparent authority for no express (ii) ie
irrationality test (iii) application to facts (iv) void contract hence no valid
title passed (v) sale of shares amounted to act inconsistent with owners
title (vi) hence conversion
Applied the test on irrationality i.e. actual impropriety or
dishonesty; whether the belief in the directors authority was dishonest or
irrational
o Constructive knowledge is not sufficient do not
use being put on inquiry
Considered factors (i) it was a substantial amount (ii) it was a
one-sided loan with liability from the loan and pledge incurred solely by
Akai Holdings but no apparent benefit derived (iii) there was a clear
conflict of interests for the director was also director for the debtor (iv)
bank relied on forged minutes not of the board (which was normal
procedure) but only an executive committee and failed to ask further for it
(v) failed to take other normal procedures Akai was new client
Hence the contract was void for want of authority
Criticism on the second issue of knowing receipt [check RL/LH case note below]
a. /
b. On the issue of security interest giving rise to beneficial receipt
Underlying transaction is already void for want of authority
hence there should be no right to sell the shares; physical custody of share
certificates doesnt suffice
On (i) looking at construction of the agreement c.f. it should
fall out of the picture once the contract is set aside for want of actual and
apparent authority hence irrelevant LH/ RL (ii) possession does not give
any legal or equitable interest in the shares hence all the bank got was
physical possession of share certificates with no interest in the shares
difficult to see therefore how there could be sufficient control LH/ RL
C.f. Gold v Rosenberg in which receipt of a contingent
security interest over the trust property would suffice for KR for
encumbrance of trust property involves subtraction of its value and
conferment of corresponding benefit on TP c.f. the pledge was already void
Distinction from Criterion weak for there is similarly no valid
transfer of assets under a void contract Yap
o Should really be looking at the nature of
arrangements or property and the distinction on executed/ executor
is not relevant
Gold v Rosenberg may give a higher yield (though may be
capped at the value of the loan) but in any case would be assessing it at
date of judgment KL
Where the contract with defaulting fid as agent is void e.g. for want of
authority referring to situations where the agent transfers assets of the
principal
But traceable product from property transferred can still be
subject to KE
Akai Holdings
a. Equitable compensation to be subject to the Target/ Canson
test i.e. remoteness and foreseeability do not count
b. Should be assessed at the date of sale, even if a claim of
knowing receipt arises at the time of receipt, applying Target test
Always open to the owner to recover the certificates from the
bank until sale and found Akai would have retained those shares
anyways hence loss would only have occurred upon sale
c.f. LH/ RL receipt should be the sale proceeds so no question
should arise on valuation of shares
NB if its security interest, its value may be capped at
outstanding loan amount
c. Should in any case to equate with c.l. damages for commercial
certainty
Criticism by LH/ RL
Suggesting that liability is loss-based i.e. not grounded in UE
note debate above on the nature of KR liability
Would have been justified if court endorsed concept of KR as
imposing trustee-like liability but without which may give rise to
misimpression that measure of recovery is exactly the same, and not less
than that of an express trustee
Reference to equitable compensation is new
No reason for confining equitable compensation by common law
principles
Requirements
1. Breach of trust/ FD by someone other than the defendant; a technical
breach suffices and need not be dishonest Royal Brunei v Tan c.f. apparent
wording in Barnes v A
2. To which D assisted
Only requires minimal participation
Applying the but for test i.e. had D not helped, the fiduciary
would not have been able to commit the breach Brinks v Abu Saleh
(No 3) (Issue of whether the wife of driver who helped putting money
misappropriated by fiduciary in the boot of a car and drove it across the
border was liable for merely accompanying him)
o May be distinguished where despite mere presence,
it serves the purpose of impliedly verifying authority of defaulting
T/F
Nature of the test settled as an objective test taking into account subjective
elements
N.B. factual circumstances may indicate a lack of honest belief +
unreasonableness
Application
A-G of Zambia v Meer Care (solicitor helped client launder money stolen
from Zambian government by helping with setting up accounts with money
from dubious source)
Exonerated by taking into account subjective competence,
experience and knowledge here solicitor didnt have much experience/
competence with international transactions and money laundering
Rejected the use of a hypothetical comparator i.e. whether an
honest solicitor would have done what D did, given his knowledge of facts
which entails wrong assumption of Ds competence
Bearing in mind the need for cogent evidence for finding of fraud
Affirm that you take into account the subjective competence of D
and only compare him against an honest person but not an honest and
competent person
Limitation Ordinance s. 20
(1) No limitation period shall apply to an action by a beneficiary
under a trust,
(a) In respect of fraud/fraudulent breach of trust to
which Ts party/privy;
(b) OR To recover from the trustee trust property or traceable
proceeds in Ts possession, or previously received by the trustee and
converted to his use.
(2) Otherwise limitation period of 6 years for an action by a
Provided that the right of action shall not be deemed to have accrued to any
beneficiary entitled to a future interest in the trust property, until the interest
fell into possession.
Interpretation of (1)(b)
Not referring to where a person having taken possession of property on his
own behalf is liable to be declared as a trustee but only where he originally
takes possession upon trust i.e. type 1 CT Taylor v Davies, cited in
Peconic
Issue of whether DA can be treated as trustee for these purposes since the
case does not necessarily involve a dishonest breach of trust by original
trustee
Falls within Type II constructive trust in the absence of pre-
existing fiduciary relationship before wrongful act hence does not fall
within s.20(1)(a) Pragona, per Lord Millett; affirmed in Peconic
Industrial (2009) per Lord Hoffman in HKCFA, and Central Bank of
Nigeria, per Lord Sumption in UKSC
Also construed in respect of merely as claim against the
trustee on the grounds that he committed a fraudulent breach of trust
Peconic, Nigeria i.e. would not be satisfied even if the original trustee
commits a dishonest breach
o The rule only to protect co-trustees acting in good
faith
But LO s.26(1) applies where fraud is involved i.e. time only
starts to click after P discovers the fraud, or could with reasonable
diligence have discovered it Peconic (Ponzi scheme for purported
investment in property development)
o Though leaving open the question of whether the
objective reasonableness test would nonetheless take into account
personal characteristics of P
o Hence issue of whether/ when P can discover with
reasonable diligence to be proved by P
o Requires only knowledge of facts to make out a
prima facie case but not necessarily evidence beyond reasonable
doubt; though does need to know that (i) D participated (ii) in a
fraudulent scheme
Basically (i) not a trustee, (ii) not applicable as a claim in
respect of fraud by T
Summary of articles
Ji Lian Yap on apparent authority and knowing receipt (Case note on Akai)
1. On finding of receipt
a. Would be contradictory to argue that the agent lacks authority and
contract is void, while at the same time there is receipt of shares for a claim
in knowing receipt
Should depend on the nature of property e.g. fund transfers
would not be affected by issue on authority for there being merely a
corresponding but separate adjustment of choses in action (ie bank
accounts); money is fully negotiable and good title would pass if
transferee receives in good faith and for value despite defect in title c.f.
shares
b. Distinction on executed/ory for distinguishing Criterion is weak;
Criterion may be rationalised on basis that no KR for no receipt under
contracts which are set aside hence unconcioanbility is not relevant but this is
not spelt out in Akai though noted this is not necessarily the case
c. Adopted wider/more practical approach in finding receipt of proceeds
nonetheless
2. On requisite knowledge
a. Unconscionability being criticised for lack of specificity, failing to
ascertain standard
b. Irraitonality test may be misleading for TP acting opportunistically may
be acting rationally in a commercial sense
c. Rejection of constructive knowledge as being sufficient is not
consistent with Akindeles broad-brush rejection of the need to distinguish
levels of knowledge
Knowing receipt
Rather liability is custodial and similar to that of express trustee (c.f. for unjust
enrichment or primary equitable wrongdoing similar to conversion)
o Liable to return the property immediately rather than on demand
or substitutive payment for his possession of that property is illegitimate
and unauthorized (though in fact its to restore the trustees to allow
reconstitution of the trust rather than the Bs unless its a bare trust)
o Should even be covered by TO s.60 allowing court to grant relief
for Ts liability
Liable to further account for and disgorge any profits made Lord Walker extra-
judicially, Ultraframe v Fielding
o Rationalised on the basis of express Ts duty not to place himself
in conflict of interest; or primary liability to account for profits from duty to
account for trust property (though this doesnt explain why theres duty to
disgorge non-traceable proceeds of trust property)
On similarity with unjust enrichment similarly giving rise to liability to perform
restorative duty and not dependent on allegation of breach of duty c.f. UE claim
means measure of liability at value of property at time of receipt/ disposal but KR
claim allows assessment at current market value
On treating it as wrong based (i) argument that con neg should be an available
defence c.f. not available for every wrong case and would undermine fiduciarys
core obligations, but the true reason is because theres no room to argue such for
need not allege breach of duty to claim liability
Dishonest assistance
Distinguished from KRw which is not a secondary liability/ liability for a secondary