Law of Trust, Strangers as constructive trust.

1. STRANGERS AS CONSTRUCTIVE TRUSTEE
WHO IS A STRANGER:Third partywho isnot
appointedastrustee.
May incurliabilityif theyreceive ordeal withtrust
propertywithactual/constructivenotice.
The trust propertyistransferredinbreachof trust.
3 TYPES OF STRANGERS
1) Strangerunderno liability(BFPWOWN)
2) Innocentvolunteer
3)Liable asconstructive trustee @trusteede son
tort
- Knowingreceiptordealing
- Knowingassistance
TRUSTEE DE SONTORT
Where a personknowsthatthe propertywhichhe
has receivedistrustpropertythenhe will be liable
as constructive trustee. Itisalsoknownas trustee
de son tort.
MARA V BROWNE [1896] 1 Ch 199
H: What constitutesa‘trusteede son tort.’ It
appearsto me if one,not beingatrustee and not
havingauthorityfroma trustee take uponhimself
to intermeddle withtrustmattersorto doacts
characteristicof the office of trustee,he may
therebymake himself whatiscalledinlawa
trustee of hisownwrong (trusteedeson tort)
Halsbury Law of Malaysia
A personwho,notbeinga trustee andnothaving
authorityfroma trustee takesuponhimself to
intermeddle withtrustmattersorto doacts
characteristicof the office of trustee makes
himself atrusteede son tortthat is a trustee by
virtue of hisownwrongdoing,or,as suchpersonis
alsocalled,aconstructive trustee,if he either
makeshimself asatrustee de son tort or actually
participatesinanyfraudulentconductof a trustee
to the injuryof the beneficiaries
1 )Knowingreceiptordealing (Recipientliability)
2) Knowingassistance (AccessoryLiability)
The liabilityisdividedto two categoriesabove.
Basedon the dictumof Lord Selbourne inBARNES
v ADDY [1874] LR 9 CH App244
“…Strangersare not to be made constructive
trusteesmerelybecausetheyactas agentsof
trusteesintransactionswithintheirlegal powers,
transactions,perhaps,of whichacourt of equity
may disapprove,unlessthoseagents: -
A) receive andbecome chargeablewithsome part
of the trustproperty
B) theyassistwithknowledge in adishonestor
fraudulentdesignonpartof trustee.
KnowingAssistance
A strangermay be liable tomake goodwhenhe
fraudulentlyparticipateswiththe trusteeinthe
breachof trust
Soar v Ashwell (1893) 2 QB 390
“A personnot nominatedastrustee maybe
boundto liabilityasif he were a nominated
trustee,namelywherehe hasknowinglyassisteda
nominatedtrustee infraudulent/dishonest
dispositionof trust.”
Privy Council Decisions:
Lord Nichollsin Royal Brunei AirlinesSdn. Bhd. v
Tan [1995] 2 AC 378 at 385 declinedtoapplyLord
Selbourne’srule :claimantdidneednottoshow
that the breach of trust assistedbythe defendant
had beenadishonestbreach.
Royal Brunei AirlinesSdn.Bhd v Tan
Lord Nicholls:Courtswere ledintotortuous
convolutionsintheireffortstoinvestigate the sort
of knowledge possessedbythe defendants.

2. Determinedafreshstartand the bestwayis to
avoidknowledgeasa definingingredientof
liability.
Law adoptedby PC in Royal Brunei:
Dishonestyonthe partof the thirdparty isa
prerequisite forliability
Dishonestyisalsoasufficientingredient
The breach of trust by the trustee neednotitself
be dishonestandfraudulent.
AdoptedbyJamesFongin Industrial Concreate
Products Bhd v Concrete EngineeringProducts
Bhd [2001] 2 AMR 2151
KnowingReceipt or Dealing
Three situations:
1. He receivestrustpropertywiththe
knowledge thatitisinbreachof trust.
2. He receivestrustpropertywithoutthe
knowledge andsubsequentlybecomes
aware of the trust and act inan
inconsistentmanner
3. He receivestrustpropertyknowingitto
be such but withoutbreachof trustand
subsequentlydealswithitina manner
inconsistentwiththe trust
Essentialsof knowingreceiptliability
1. A disposal of the plaintiff’sassetsinbreachof
fiduciaryduty
2. The beneficial receiptbythe defendantof
assetswhichare traceable as representingthe
assets of the plaintiff;and
3. The defendant’sknowledge thatthe saidassets
are traceable tothe breach of fiduciaryduty.
RequirementofKnowledge.
Caseson receipthave adoptedthe five fold
classificationof PeterGibson.
SelangorUnitedRubber Estate v Craddock
H: Constructive aswell asactual knowledge could
suffice.
BelmontFinance Corporation Ltd v Williams
Furniture Ltd (1979) 1 All ER 118
(Requirementforactual knowledge.) BuckleyLJ:
The knowledge of thatdesignonthe part of the
partiessoughtto make liable maybe actual
knowledge.
If he wilfullyshutshiseyestodishonestyor
wilfullyorrecklesslyfailstomake suchinquiries,
he may be foundto have involvedhimself inthe
fraudulentcharacterof the design.
DevelopingLaw
Akindale[2001] Ch 437,
H: Dishonestywill suffice butisnotrequiredto
make the defendantliable where he hasreceived
and dealtwithmisappliedtrustpropertyforhis
ownbenefit.
General rule:defendantwill be liable whenever
hisstate of knowledgeis…such as to make it
unconscionable forhimtoretainthe benefitof
the receipt