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The legal position of Z and A- Trust law

d) Issue

The issue in this case is whether Z and A can take any action against T and C for their personal interest and profit from the information that they obtained as a result of being a beneficiary and the solicitor for the Trust.

Legal Position

The persons who are profiting from the information meant for the Trust are C the solicitors and T a beneficiary of the trust. This means that they are not a trustee but could be acting as fiduciaries of the trust. The term fiduciary has been explained by Millett LJ in the case if Bristol and West Building Society v. Mothew[1] as ‘someone who has undertaken to act for on behalf of another in a particular matter in circumstances which gives rise a relationship of trust and confidence’. In the case of Re Thompson’s Settlement Trust[2] the Court held that a man must not put himself in a position where duty and interest conflict or where his duty to one conflict to one conflicts with the one to another. Based on this it could be argued that C is a fiduciary for the trust and the beneficiaries as it is clearly stated that C is the solicitor for the trust.

The position of C

The general rule is that a fiduciary must use his position to make any incidental or secret for himself. This rule is stated in Keech v. Sanford[3] where the Court held that a solicitor who used the information on the expiry of a lease for his own benefit was to hold the benefit on trust for the beneficiary. Based on the fact, prima facie C had the information that was meant for the trust and used the information to purchase the shares. It was not clear whether all the shares were for in his name. If he purchased the shares for in his own name and not in the name of the trust then this is a clear breach of fiduciary position as he used the information obtained in as a fiduciary for the trust.

In the case of Re Francis[4] the Court held that the two trustees that had sits on the board of directors must account for the salary received a directors as they became the directors only because of the shareholding held in the name of the trust. The more recent decision is the case of Boardman v. Phipps.[5] In this case the solicitor and one of the beneficiaries bought shares in a company as a result of information obtained as beneficiaries and after the trust could purchase the shares. The House of Lords held that they were in fiduciary position that they could not be allowed to make the profit as the information was obtained as a result of information for the trust.

Based on this it could be argued that C holds the shares for the benefit of the Trust and Z and A can also take an action to claim the director’s fees earned as a result of being on the board of directors. This is because C has been on the board as a result of acquiring the shares.

The Position of T

T is a beneficiary and in the case of O’Rouke v. Derbyshire[6] it was held that the beneficiary is entitled to see the trust documents because they are trust documents and because he is a beneficiary’. However in Wentworth v. de Montfort[7] the Court in New South Wales held that the document does not belong to the beneficiary. Based on this it could be argued that T is entitled to the information but cannot keep the information or benefit directly for him alone. In Re Biss[8] it was held that a person who is not a fiduciary can be liable based on the circumstances of the case and special relationship. The case of English v. Dedham Vale[9] also reached the decision and the court held that the list of fiduciary is not closed. Based on this and the decision on the case of Boardman v. Phipps above it could be argued that T could also be liable as C as he has obtained the information which was meant for the trust. He should have shared the information with the beneficiaries and not to take the profit for him self.

f)

Issue

In this case, the fund has been mixed between the fund obtained from the Supacash and the fund obtained from the house buyers. The other issue is that the fund is now handled by third party, Grabbit (G) who has distributed the funds to various accounts.

Legal Position

The legal position in this type of situation is explained in the Clayton’s Case.[10] It states that in the event that the funds have been mixed the rule is based on ‘first in first out’. The Court of Appeal in Barlow Clowes International Ltd v. Vaughan[11] held that the rule in the Clayton’s Case is used when the fund belonging to several beneficiaries has been mixed in one account. This means that the fund that comes to Grabbit could be assumed to have been taken out based on the first in first out basis. However the fact revealed that there is no more funds with Grabbit but has then be channelled to a bank in Cayman Island.

This brings the issue of liability of Grabbit and the bank in Cayman Island (the bank). They could be liable as constructive trustees. The case of Sinclair v. Brougham[12] decides that it is possible to trace into the hands of volunteers. This means that the money could be traced to the bank.

On the other hand it could be argued that the bank and Grabbit were parties to the scam as agents for T. In Barnes v. Addy[13] it was held that strangers who intermeddled in trust property would be treated as constructive trustees. Based on the case of Royal Brunei Airlines v. Tan[14] liability of such persons depends on whether he assists the fiduciary in breach of the trust or whether he receives the property with the knowledge of the breach of the trust. In this case the privy council held that a stranger who assisted a trustee to commit a breach of trust or procured him to do so was liable as a constructive trustee provided that the third party had acted dishonestly and not only negligently. It was also held that it was not necessary for the trustee or the fiduciary to have acted dishonestly.

Based on this, for Grabbit or the bank to be found liable as constructive trustees, the beneficiaries such as Supacash and the house buyers must show that Grabbit and the bank in Cayman Island had acted dishonestly in assisting T. If they failed to show that Grabbit and or the bank has acted dishonestly, they are not able to make a claim on the basis that these parties have provided dishonest assistance to T to dissipate with the money.

The test of dishonesty is defined in Twinsectra v. Yardley[15] where the majority in the House of Lords adopted the criminal test of dishonesty meaning that it is to be made by reference to the standard of reasonable and honest people and that he, the accused must have realised that the conduct is dishonest. This means that it has to be shown that the reasonable and honest people think that the conduct of the bank and Grabbit are dishonest and that they, the bank and Grabbit must realise that their conduct are dishonest.

A person who takes the trust property must have at least a constructive notice of the breach before can be held liable as constructive trustee in knowing receipt situation. This is the position in International Sales and Agencies Ltd v. Marcus[16] and Re Montagu’s Settlement Trust.[17] However in Eagle Trust Plc v. SBC Securities[18] the court held that inferred knowledge was required although the third party was not required to be duly suspicious. In El Ajou v. Dollar Land Holdings Plc[19] it was held that knowledge that would indicate an honest and reasonable man into an inquiry would be sufficient.

Based on this, it is argued that if Grabbit and the bank have the suspicion about the money and the purpose of the transfer then they would be liable as constructive trustee in knowing receipt of the fund. In conclusion, it is likely that Grabbbit would be liable for both knowing receipt and knowing assistance although the bank may be liable for knowing receipt only.

BIBLIOGRAPHY

Hudson, A., Principles of Equity and Trusts, London: Cavendish, 1999

Penner, J., The Law of Trusts, London: Butterworths, 2000 (2nd Ed)

1


Footnotes

[1] (1996) 4 All ER 698

[2] (1986) Ch 99

[3] (1726) 2 W& TLC 648

[4] (1908) I Ch 65

[5] (1966) 3 All ER 371

[6] (1920) AC 581 at 626

[7] (1988) 15 NSWLR 348

[8] (1903) 2 Ch 40

[9] (1978) 2 All ER 382

[10] (1816) 1 Mer 572

[11] (1992) 4 All ER 22

[12] (1914) AC 398

[13] (1874) 9 Ch App 244

[14] (1995) 2 AC 378

[15] (2002) UKHL 12

[16] (1982) 2 All ER 551

[17] (1987) Ch 264

[18] (1992) 4 All ER 488

[19] (1993) 3 All ER 717


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