1. CONSTRUCTIVE TRUST
STRANGERS AS CONSTRUCTIVE
TRUSTEE

2. WHO IS A STRANGER
 Third party who is not appointed as trustee.
 May incur liability if they receive or deal
with trust property with actual/constructive
notice.
 The trust property is transferred in breach of
trust.

3. 3 TYPES OF STRANGERS
1) Stranger under no liability (BFPWOWN)
2) Innocent volunteer
3)Liable as constructive trustee @ trustee de
son tort
- Knowing receipt or dealing
- Knowing assistance

4. TRUSTEE DE SON TORT
 Where a person knows that the property
which he has received is trust property then
he will be liable as constructive trustee.
 It is also known as trustee de son tort.

5. MARA V BROWNE [1896] 1 Ch
199 Al Smith LJ
 “What constitutes a ‘trustee de son tort.’ It
appears to me if one, not being a trustee and not
having authority from a trustee take upon
himself to intermeddle with trust matters or to do
acts characteristic of the office of trustee, he may
thereby make himself what is called in law a
trustee of his own wrong (trustee de son tort)

6. Halsbury Law of Malaysia
 A person who, not being a trustee and not having
authority from a trustee takes upon himself to
intermeddle with trust matters or to do acts
characteristic of the office of trustee makes himself
a trustee de son tort that is a trustee by virtue of his
own wrongdoing, or, as such person is also called, a
constructive trustee. The responsibility which
attaches to a trustee may extend in equity to a
person who is not properly a trustee, if he either
makes himself as a trustee de son tort or actually
participates in any fraudulent conduct of a trustee to
the injury of the beneficiaries

7. Ungoed- Thomas J in Selangor United Rubber Estates
v Cradock (No 3) [1968] 2 All ER 1073 at 1095.
Two different kinds of so-called constructive trustee.
1) Person though not
appointed trustee,
take on themselves
to act as such and
to possess and
administer trust property
for the beneficiaries,
- trustees de son tort.
2) Person whom
a court of equity
will treat as
trustee by reason of
their action,
of which complaint
is made.

8. 1 )Knowing receipt or dealing
(Recipient liability)
2) Knowing assistance (Accessory
Liability)
 The liability is divided to two categories above.
 Based on the dictum of Lord Selbourne in
BARNES v ADDY [1874] LR 9 CH App 244

9.  “…Strangers are not
to be made
constructive trustees
merely because they
act as agents of
trustees in
transactions within
their legal powers,
transactions, perhaps,
of which a court of
equity may
disapprove, unless
those agents:
 A) receive and become
chargeable with some
part of the trust
property
 B) they assist with
knowledge in a
dishonest or fraudulent
design on part of
trustee.

10. Knowing Assistance
 A stranger may be liable to make good when
he fraudulently participates with the trustee
in the breach of trust
- Sometimes known as accessory liability /
dishonest assistants.

11. Soar v Ashwell (1893) 2 QB
390
 Bowen LJ;
 “A person not nominated as trustee may be
bound to liability as if he were a nominated
trustee, namely where he has knowingly
assisted a nominated trustee in
fraudulent/dishonest disposition of trust.”

12. Trust funds was misapplied
by sole trustee.
The defendant is
a solicitor
who has advised
on the appointment
of trustee.
Beneficiary sued
the solicitor
Held : Not liable
Lord Selbourne’s
formula :
They assisted with
knowledge
in a dishonest
and fraudulent
design on the
part of the trustee.
Barnes v Addy (1879) 9 Ch App 244

13. Privy Council Decisions
 Lord Nicholls in Royal Brunei Airlines Sdn.
Bhd. v Tan [1995] 2 AC 378 at 385 declined
to apply Lord Selbourne’s rule : claimant did
need not to show that the breach of trust
assisted by the defendant had been a
dishonest breach.
 Affirmed by HOL Twinsectra Ltd. v Yardley
[2002] 2 A.C 164

14. State of mind
 Changes in courts’ attitude towards the
defendant’s state of mind. Compare the two
cases.
 Peter Gibson in Baden Delvaux and Lecuit v
Sociėtė Generale (1983)
 Privy Council decision in Royal Brunei
Airlines Sdn Bhd v. Tan [1995] 3 WLR 64

15. BADEN DELVUX ND LECUIT SOCIETE GENERLE
[1983] BCLC 325 : Knowledge comprises
5 different mental states
1) Actual knowledge
3) Wilfully and recklessly failing to make such inquiries
as an honest and reasonable man would make
4) Knowledge of circumstances which
would indicate the facts to an honest and reasonable man
2) Wilfully shutting one’ eyes
to the obvious- Nelsonian Knowledge
5)Knowledge of circumstances which
would put an honest and reasonable man on inquiry

16.  Peter Gibson : Type (ii)- (v) = imputed or
constructive knowledge
 His classifications formed the starting point
for discussions
 Cases after Baden Delvaux.ppt

17. Baden Delvaux and Lecuit v Sociėtė
Generale (1983)
 Peter Gibson stated that there are four elements to
liability for ’knowing assistance’:
 1) existence of a trust
 2) existence of a dishonest and fraudulent design
on part of the trustee of that trust
 3) the assistance by the stranger in that design and
 4) the knowledge of the stranger.

18. Royal Brunei Airlines Sdn. Bhd v
Tan
 Lord Nicholls : Courts were led into tortuous
convolutions in their efforts to investigate the
sort of knowledge possessed by the
defendants.
 Determined a fresh start and the best way is
to avoid knowledge as a defining ingredient
of liability

19. Law adopted by PC in Royal
Brunei
 Dishonesty on the part of the third party is a
prerequisite for liability
 Dishonesty is also a sufficient ingredient
 The breach of trust by the trustee need not
itself be dishonest and fraudulent.

20. Lord Nicholls
 “…dishonestly is a necessary ingredient of accessory
liability. It is also a sufficient ingredient. A liability in
equity to make good resulting loss attaches to a person who
dishonestly procures or assists in a breach of trust or
fiduciary obligation. It is not necessary that, in addition, the
trustee or fiduciary was acting honestly, although this will
usually be so where the third party who is assisting him is
acting dishonestly, “Knowingly” is better avoided as a
defining ingredient of the principle, and in the contest of this
principle the Baden scale of knowledge is best forgotten

21.  Adopted by James Fong in Industrial
Concreate Products Bhd v Concrete
Engineering Products Bhd [2001] 2 AMR
2151
 HOL in Twinsectra v Yardley [2002] 2 AC
164 followed th PC decision in Royal Brunei
case

22. Knowing Receipt or Dealing
-Where stranger receives trust property knowing that his
possession is in breach of trust or where he receives trust
property without knowledge of any breach of trust but
subsequently he becomes aware of the trust but acts in a
manner inconsistent with it.

23. Three situations
 He receives trust property with the
knowledge that it is in breach of trust.
 He receives trust property without the
knowledge and subsequently becomes
aware of the trust and act in an
inconsistent manner
 He receives trust property knowing it to be
such but without breach of trust and
subsequently deals with it in a manner
inconsistent with the trust

24. Essentials of knowing receipt
liability
 1. A disposal of the plaintiff’s assets in
breach of fiduciary duty
 2. The beneficial receipt by the defendant of
assets which are traceable as representing the
assets of the plaintiff; and
 3.The defendant’s knowledge that the said
assets are traceable to the breach of fiduciary
duty

25. Requirement of Knowledge.
 Cases on receipt have adopted the five fold
classification of Peter Gibson.
 As to whether it falls under either categories
i-v : there is no clear allignment.

26. Cases
 Selangor United Rubber Estate v Craddock
(1968) 1 WLR 1555 – constructive as well as
actual knowledge could suffice.

27. Belmont Finance Corporation Ltd v
Williams Furniture Ltd (1979) 1 All ER 118
 Requirement for actual knowledge.
 Buckley LJ:
 The knowledge of that design on the part
of the parties sought to make liable may be
actual knowledge. If he wilfully shuts his
eyes to dishonesty or wilfully or recklessly
fails to make such inquiries, he may be
found to have involved himself in the
fraudulent character of the design.

28. Developing Law
 B.C.C.I (Overseas) Ltd v Akindale [2001] Ch 437,
Nourse L.J sought classification by Peter J:
dishonesty will suffice but is not required to make
the defendant liable where he has received and dealt
with misapplied trust property for his own benefit.
 General rule: defendant will be liable whenever his
state of knowledge is … such as to make it
unconscionable for him to retain the benefit of the
receipt