Strangers who assist a Breach of Trust

Primary Liability

Where a trustee commits a breach of trust he will be personally liable to compensate the trust for any loss suffered in consequence of his breach. His liability is a primary liability, as he was subject to the trust obligations. However, equity will also hold liable a stranger who participates in a breach of trust by assisting a trustee in action which constitutes a breach.

The liability of such an assisting stranger is a secondary liability.  The stranger is liable as an accessory to the breach of trust. Such accessory liability may provide the only effective remedy for the beneficiaries if the trustee is insolvent. Equity will hold a stranger who assisted a breach of trust liable to account as a constructive trustee. This was recognised in Barnes v Addy (1874) 9 Ch App 244 where Lord Selbourne stated that the responsibilities and liabilities of a trustee may be ‘extended to those who are not properly trustee, if they are found…actually participating in any fraudulent conduct of the trustees to the injury of the [beneficiary] trust.’

A personal remedy

A stranger who acts as an accessory to a breach of trust will generally only be subject to a personal liability to account to the trust for the loss suffered in consequence of the breach. Ordinarily he will not have received any trust property, and consequently the beneficiaries will be unable to identify any assets in his hands which could be the subject of a proprietary claim.  It is highly artificial to describe the liability of a stranger who has assisted a breach of trust as ‘liability to account as a constructive trustee.’ By definition restitution is only available to reverse an unjust enrichment. This was recognised by the Privy Council in Royal Brunei Airlines v Tan:

‘Liability as an accessory is not dependent upon receipt of trust property; it arises even though no trust property has reached the hands of the accessory. It is a form of secondary liability in the sense that it only arises where there has been a breach of trust,’ [1995] 3 All ER 97.

Requirements of accessory liability

A stranger will only be held liable as an accessory to a breach of trust if four requirements are satisfied. These requirements were identified by Peter Gibson J in Baden Delvaux v Société Général and subjected to significant revision by the Privy Council in Royal Brunei Airlines v Tan.

The existence of a trust

A stranger can only be held liable as an accessory to a breach of trust if there was in fact a trust in existence. This requirement is generally uncontroversial. For example, in Royal Brunei Airlines v Tan the claimants were an airline which employed a firm to act as their agents for the sale of tickets. Under the contract between the parties, the firm agreed to hold any money received from the sale of tickets on trust for the airline until it was paid over. The defendant was the founder and the principle shareholder of the firm. In breach of the terms of the contract the firm, authorised by the defendant, used money received from ticket sales for its own purposes.

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For more information on:

  • A breach of trust
  • Assistance in the breach of trust
  • Dishonesty