Liability of Strangers to the Trust

Introduction

Where a trustee or fiduciary commits a breach of trust, the beneficiary's first remedy is a **personal claim against the trustee** who committed the breach. But trustees are often insolvent, untraceable or judgment-proof. This chapter examines when a **stranger to the trust** — a third party who is neither a trustee nor a beneficiary — can be made liable as if they were a trustee. The three heads of liability you must master for SQE1 are **knowing (recipient) receipt**, **dishonest assistance (accessory liability)** and **trusteeship de son tort (intermeddling)**. You must also be able to distinguish the **bona fide purchaser for value without notice** and the **innocent volunteer**, neither of whom is liable as a constructive trustee.

Assessment focus

For the SQE1 FLK1 assessment you must be able to **apply** the rules on third-party liability to realistic client scenarios, not merely recite them. Be especially careful with the **tests**: the modern test for **knowing receipt** is **unconscionability** (*BCCI v Akindele* [2001]), not the older 'five Baden categories of knowledge'. The test for **dishonest assistance** is the **objective standard of dishonesty** (*Royal Brunei Airlines v Tan* [1995], as clarified in *Barlow Clowes v Eurotrust* [2005] and now aligned with *Ivey v Genting Casinos* [2017]) — the partly-subjective gloss in *Twinsectra v Yardley* [2002] is **no longer good law**. Questions are single best answer questions (SBAQs); the examiner will frequently give you a fact pattern and ask which head of liability applies. This is a closed-book assessment — learn the elements and the leading authorities from memory.

Study tips

1) Map every fact pattern to one of three heads: did the stranger **receive** trust property (knowing receipt), **help** the breach without receiving property (dishonest assistance), or **act as a trustee** without appointment (intermeddling)? 2) **Knowing receipt** is now governed by **unconscionability** (*Akindele*) — abandon the old language of 'actual and constructive knowledge' as a self-standing test. 3) **Dishonest assistance** uses an **objective** test of dishonesty; *Twinsectra*'s combined subjective limb was disapproved — do not select it in an MCQ. 4) Dishonest assistance gives rise to **personal** liability (account as a constructive trustee) — the stranger never held the property, so **tracing is unavailable**. 5) Remember the two defences/categories: a **bona fide purchaser for value without notice** takes free of equitable interests; an **innocent volunteer** is not personally liable but **may be subject to tracing**.