Equity Trusts 118

Equity & Trusts Revision Notes
Equity and Trusts

Revision Notes
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Express Trusts
Types of express disposition

1. Fixed Trust i.e. share/object determined (exact sum may fluctuate e.g. HSBC dividends)
2. Discretionary i.e. discretion on how much and to whom
C.f. fiduciary power of appointment (T to appoint Bs) and bare power (TP to appoint)
o Need not distribute at all for powers but may be subject to FD for former
o Note power of distribution coupled with trust to dispose of the undistributed
surplus, and trust for distribution coupled with power to withhold portion
o S transfers property to be held on trust by Ts for the benefit of such students as Ts may
appoint, and in default of appointment, between A, B, C in equal shares = Ts with fid
power of appointment, but FT would only kick in in default of appointment
Fixed trust Discretionary trust Fiduciary/ Bare power

Trustees Must distribute the Duty to distribute the property; No duty to distribute on
duties trust property In the survey the field; seek out the the part of the trustee
specified beneficiaries
predetermined
manner
Bs proprietary interest of No in rem right by individual B No in rem right, or
rights his share in the trust in the underlying assets only a personam right against the
property personam right against the trustee
trustee to exercise the discretion
No right even as a class to
Class as a whole would be able to require trustee to transfer
require trustee to transfer property
property
Constitution of express trust

Complete constitution only with
A. Declaration of trust by the settlor (must precede/ be contemporaneous with
B. Vesting of title in Trustee/ Constitution of Trust i.e. transfer of legal title to T
Once constituted, (i) cant be revoked unless S reserves such power [even before constitution if B
provided consideration for declaration of trust, (ii) enforceable only by B against T, (iii) S no longer
owns any interest (iv) trust property would be segregated from Ts general assets
N.B. possibility of having a nominal settlor
A. Declaration of trust (i) formal validity (ii) substantive validity

Formal validity
o If inter vivos, oral declaration suffices unless subject matter is land, which requires
declaration to be evidenced in writing CPO s.5(1)(a)
o Note possible issues of evidentiary proof for making of the declaration
o If testamentary, in writing, signed by testator in presence of 2 witnesses WO s.5
Substantive validity
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Not a sham e.g. for tax evasion; For the benefit of human beneficiaries, or for charitable
purposes but not private purpose; Must not infringe rules of perpetuities (fixed period of 80
years in Hong Kong)
S must have legal capacity and is of sound mind
Trust free from vitiating factors e.g. illegality, fraud, public policy, set up to defraud creditors
Three certainties
1. Intention to create trust as opposed to other relationships otherwise outright gift

2. Subject matter otherwise interest results back to S for certainty of intention means that the
receiver should not benefit from the property
3. Object similar to (2)
1. Certainty of intention (a) whether he intends to create trust (cf other relationships eg
bailment, agency, loans and equitable charges), and (ii) if so, type of disposition
o On (a) whether he will be required to distribute the property for Bs benefit
o Even if (the unsophisticated) settlor is not aware of effects of his word Paul v
Constance (the money is as much yours as mine; both paid joint winnings into acc)
o Should take into account the background and circumstances
o Requires an objective construction of words;
o Use of precatory words eg trust, desire, wish is not conclusive
o Inclined against it in domestic cases in the absence of unambiguous language
o Not sufficient to find intention to impose legally enforceable obligation in Adams
v Kensington (to the absolute use of wifein full confidence that she will do
whats right; found only moral obligation); Jones v Lock (handed cheque to baby
son saying I give this to the baby for himself; no actual endorsement of the cheque
found outright gift and rejected argument on self declaration)
o C.f. Paul v Constance (post- Jones) but Jones principles remain good law
More strained and court more likely to follow Jones v Lock
2. Certainty of subject matter must be ascertainable

May involve after-acquired property as trust property Tailby v Official Receiver
(equitable assignment by way of security of all present and future book debts)
Issue e.g. shares sold before segregation inc those which would be subject to trust?
a. Traditional rule requires segregation from general mass Re London Wines

b. Intangible property distinction identification or segregation is not necessary for former
Moss
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Hunter v Moss (trust over 50 of 950 shares)
C.f. Re London Wines for involving intangible assets here
Found identification or segregation not required for all of the shares are identical
hence no uncertainty hence sufficient to declare trust over a specified number of
shares seems to be based on in/tangible distinction
On appeal same conclusion reached but on the basis of analogies drawn with gift by
will which is possible over part of shareholding seriously criticised
No issue of blended fund
Directly applied in Re CA Pacific Finance (No. 2) [HK] before White/ Lehman i.e. still
open to argument on HKs approach
White v Shortall (Aus SC of NSW, 2006) ( declared trust over x of 1.5m shares)
Found a trust of the entire shareholding for 2 different beneficiaries with powers of
management and where duties on Ts would arise
So long as theres one trust and T has the power to elect which assets are
subject to trust
In light of type of rights involved in holding shares, the absence of need to
identify in certain contexts e.g. trust over entire shareholding
Need not identify specifically the individual shares held on trust
On Hunter v Moss seriously criticised CAs reasoning but not conclusion

Justified by some for involving intangible property e.g. Moffatt
Rejected analogy with legacies of shares citing Haytons criticism that beneficial
interest in testamentary disposition will be disposed of whereas it depends on
whether all procedural requirements are complied with for inter vivos one;
moreover intended Bs only have equitable chose in action until completion of
administration of asset
Rejected analogy with Re Rose (i) on a different issue (ii) that its an effective
transfer if T has done everything he ought to do does not indicate whether it is
necessary to identify the exact property to be passed which depends on facts
Accepted factual distinction with HvM but no justifications for the difference in
legal outcome implicitly rejecting relevance of distinction
Pearson v Lehman Brothers Finance SA (UK) (found securities acquired for LBFs
account, though mixed with others, held on trust by LBIE, which is at liberty to deal)
Found co-ownership with T; immaterial that segregated fund is a constantly changing
fund beneficially co-owned by a constantly changing class of clients as in CA Pacific
Trust of part of a fungible mass w/o appropriation is valid if the mass itself is
sufficiently identified + Bs proportionate share is not of itself uncertain H v M
o Affirms its the reasoning but not conclusion in Hunter thats challenged
o Adopting White trust works by creating beneficial co-ownership share in
the identified fund; not the more diff notion of identifying a particular part
subject to trust - UK law hence open to another construction of Hv M
Considered scope of rights covered a matter of intention instead
Tweaked the in/tangible property distinction by setting the dividing line as non/
fungible property
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Parkinson
Distinction in that there is a fluctuating mass
Should suffice if the source of trust fund is ascertained and trustees obligations are
sufficiently clear
3. Certainty of object i.e. beneficiaries clearly defined

a. Fixed trusts complete list test
b. Discretionary trusts and powers Is/ Is not test laid down in McPhail v Doulton
o On the basis of similarities between the two
o Rejected IRC v Broadway Cottages application of the complete list test court
would have to intervene on the basis that equality is equity c.f. can give effect to S
intention (in choosing CT not FT) by e.g. appointing new Ts, draw up scheme of
distribution
o Must be able to determine is/is not for any given person Stamp LJ, Re Badens
Deed Trusts (No. 2) c.f. as long as satisfied for a substantial group/ auto
classification as one if not the other and that Stamps approach is essentially the
same as complete list test Sachs, Megaw LJJ
o Latter criticised in HM first point inconsistent with authorities; second not
true
o Further considers administratively workability a requirement for DT (not powers)
o Otherwise onerous duty to survey the field
o C.f. evidential uncertainty (in enabling identification) or ascertainability (in
ascertaining whereabouts or continued existence)
o However not to be struck down for being administratively unworkable
simply for breath of the class Re Hays Settlement
B. Vesting of title
1. Trust by declaration property already with T
Need only to affirm intention to make himself trustee Middleton v Pollock
T Choithram International SA v Pagarani, Lord Browne-Wilkinson in PC (executed deed to

establish foundation by means of trust and appointed himself as one of the T; verbally declared
transfer of all his properties to the trust)
Rejected argument that (i) S intended an immediate gift, which (ii) failedin fact
immaterial on whether its trust or gift as both preconditioned on transfer of legal title
Found essentially words of gift on trust rather than outright gift
Equity will not strive officiously to defeat a gift
Found the only possible meaning in the context of I give to the foundation is that
I give to the Trustees of the Foundation trust deed to be held by them on the trusts
of latter foundation not having legal existence apart from the trust declaring
its existence in the factual context
o Using a benevolent construction (rejected by lower court) to treat
ineffective words of outright gift as declaration of trust possible to
construe words as a trust if interpretation is permissible
o Found irrevocable intention to set up a trust
Held immaterial that property has not been vested in other Ts as long as one has title
Ss conscience affected immediately upon declaration; its unconscionable for him to
deny the trust hence obliged to transfer such property anyways
Basically (i) not gift but a trust stretching facts (ii) found trust by declaration c.f.
having appointed Ts hence arguably trust by transfer (iii) sole T = Ts including himself
Difficult to justify declaration of trust from the language used; arguably M v L situation c.f.
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necessary to prevent an over rigid application of the rules; unconscionability point
2. Trust by transfer
Formalities in transferring title
Conveyance by deed for land CPO s.4
Transfer of shares require (i) Execution of share transfer form, attachment to share
certificates, (ii) delivery of both documents to the company and (iii) registration of
transfer in the company
Chose in action statutory assignment for legal CIA pursuant to LARCO s.9, or equitable
assignment for equitable CIA e.g. interest under another trust
Would generally require some acts by the assignor showing that he is passing
the chose in action tot eh supposed assignee Tjio/ Yeo citing
Mere taking of (constructive) possession for money and ordinary chattels delivery
The fact of legal title vesting in T is sufficient regardless of the reason for transfer Re
Rallis Will Trusts (T is trustee for both marriage settlement and subsequent testators
will; found constitution of former when property passed to T in his latter capacity)
C.f. Re Brooks ST in which court held that there is no constitution of earlier trust
as it would only be a voluntary covenant to transfer after-acquired property not
supported by consideration and no obligation/ duty for S to transfer property
Saving Failed transfers

a. General rule
Court will not give effect to Ts intention relating to one mode of disposal by applying
a different mode Milroy v Lord
o Modes of (i) absolute transfer of property wont be perfected for Equity will
not assist a volunteer/ perfect an imperfect gift unless consideration is given
(ii)(iii) (self declaration) of trust
o Not to perfect an imperfect gift Jones v Lock
o Will not compel Ss personal rep to complete the act (Re Rose)
o Clear distinction between donor and trustee in Jones v Lock
Milroy v Lord (S purported to transfer shares by deed to be held on trust for C, handed to T
share certificates but e.g. registration required; T with power of attorney which would
allow transfer of shares to himself but didnt exercise it)
1. S must have done everything required by the nature of trust property to ensure
effective transfer
2. Equity will not perfect an imperfect gift and give effect by a mode different from that
intended and reinterpret intention of S
3. Here clear intention of trust by transfer (as opposed to self declaration of trust)
4. No legal transfer of title and though T does have power of attorney court would not
force personal rep to transfer
Noted distinction between trust/ gift, donor/ trustee
Considered Ts power of attorney but found court not in the position to compel T to
transfer property when it could not compel S; absence of intention as T
Should be seen as a case where the inappropriate instrument is used to effect the
transfer in light of Re Rose Tjio/ Yeo
Exceptions Equity will not strive officiously to defeat a gift
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Transfer of shares require (i) execution, (ii) delivery, (iii) registration [which may not be
mere technicality; construed as form of consent to novation Tjio/Yeo], (iv) possible
additional requirements under cos M&A
Milroy v Lord requiring (i) (iii)
Re Rose requiring (i) (ii) [nothing more needs to be done by donor to perfect title]
which is not applicable if theres decisive intervening factor e.g. Treasurys consent
Pennington v Waine requiring only (i)
Neither execution nor delivery where B provides consideration
N.B. in none of the above did the donor intend to resile from the gift
b. Where S does everything necessary in his power for him to transfer property to T and
failure to constitute is not due to S fault Rule in Re Rose
Would give rise to a constructive trust on transferor in favour of the trustee and
enforceable by trustee to compel actual legal transfer
o Remains a constructive trust until actual transfer of legal title but it cannot
be revoked or withdrawn
o N.B. the consequent imposition on FD and e.g. trust over prop derived
For equity treats as done what ought to be done
Re Rose (1952, CA) (purported to transfer shares with one intended as gift to wife and the
other to be held on trust; completed relevant documentation and delivered to company for
registration which was completed 3m later)
Issue on effective date of the trust to determine liability to pay estate tax
Found effective in equity upon delivery (i.e. step ii) for he has done everything
necessary for him and in his power to effect the transfer
o Adding to M v L judgment such that its sufficient if S does everything
necessary in his power by the nature of trust property
Inability to interpret intention to make a gift as intention to declare trust does not
prevent recognition of a constructive trust
C.f. essentially validating an invalid gift by construing as declaration of trust Moffat
Re Rose (Midland Bank Executor and Trustee v Rose; 1949) (bequeathed shares in will
but executed transfer documents in acc with companys regulation and transferred
certificates but had not been registered in transferees name) upheld
Applied in the context of gift of house Mascall v Mascall (father handed land cert +
executed transfer doc, son to submit for stamping and registration; found effective
usual for donnee to seek registration)
Re Paradise Motor Co (did everything except having the transfer doc signed) found
effective for signature was mere irregularly and not essential
Should be sufficient that transferor has done everything essential for effecting the
transfer and without which the transfer cant take place on the basis that there is
also something more that can be done Virgo, Clarke LJ
o Noting that e.g. Re Rose transfer still pending directors consent which may
depend on provision of further info
Does not apply where theres decisive intervening factor Re Fry (applied for
consent from Treasury as required for transfer of shares but didnt obtain it; found
insufficient for Treasury might require further info and hence hasnt done
everything necessary to effect transfer)
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o Perhaps better construction as whether donee has been put in a position to
complete the transfer Tjio/ Yeo, drawn where donee doesnt require
further assistance from donor in Re Rose
Effective so long as he has done everything only he can do even if actions remain
undone that sb else can equally do Corin v Patton (obiter), cited in White
o Must not merely leave matters In the hands of his agent can easily revoke
instructions noted in Penington
c. D had done enough to effect transfer that its unconscionable to deny its validity
Pennington v Waine (D told nephew she would give him 400 shares and wanted him to
become director, for which he needed >1 share; both signed share transfer form delivered
to cos auditor but donor died before auditor delivered to co)
Issue whether equitable interest in the shares had passed to the nephew (not whether
they are held on trust for aunt intended transfer by way of gift)
1. (i) Execution of share transfer form, (ii) reg, (iii) delivery to transfer legal title
here incomplete; equity not to perfect an imperfect gift
2. But recognized exceptions of (i) Re Rose, (ii) CT under Choithram doesnt fall
foul of Milroy v Lord as not finding express trust, and (iii) benevolent
interpretation
3. Transfer contravenes the articles, which provide for pre-emption rights c.f. pre-
emption rights contractual and do not bind TP hence effective despite breach of
the articles; unless it has matured into option/ TP has notice Arden LJ
Arden LJ applied all 3 exceptions but ruled on the basis of exception to Re Rose;
tempered the wind to the shorn lam by (i) Re Rose exception (ii) utilising CT (iii)
applying benevolent construction to words of gift
(i) Re Rose not directly applicable for it requires delivery but it affirms existence of
exceptions to Milroy v Lord
Auditor an agent and failed to do everything in his power to effect transfer; D
could demand return of form anytime before delivery to co
(ii) Notwithstanding failure to deliver, found here delivery dispensed with as a
requirement because it is unconscionable for S to deny upon execution of share
transfers where N was informed of Ds instructions and told he neednt do anything
Here nephew already told of the gift and already made director
No comprehensive list of factors but included intention to make an immediate
gift voluntarily, informing donee of the gift, A telling donee that he need not do
anything and donee agreeing to become director
(iii) Alternatively benevolent construction such that words used by donor and agent
mean that they become donees agents for submitting transfer to company to
satisfy Re Rose
Reading Choithram as indicating that a court may benevolently construe a
trust if it is permissible as a matter of construction c.f. strict app of Milroy v
Lord (Tjio/ Yeo)
(iv) CT (primarily) which is more in line with the principle of unconscionability
Clarke LJ voluntary transfer of equitable property

(i) Aunt had both legal and equitable interest at the time of transfer
(ii) Classified as valid equitable assignment of shares execution of share transfer
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doc coupled with intention for mere execution to take immediate effect
Interpreted Re Rose as saying that only execution is necessary and sufficient
for the transfer; reg only needed for legal title transfer
o As long as doc for transfer of property is apt and proper
In the absence of intention/compelling reasons not to give effect then
Lies in the maxim that equity looks to intent rather than form Tjio
Need not be supported by consideration Corin v Patton
(iii) Read Re Rose in saying that only execution but not delivery is necessary and
sufficient for a valid equitable assignment of shares
(iv) Found express trust arising from the assignment issue of S intending to make
outright gift instead and equity will not perfect an imperfect gift
(v) Agreed on unconscionability; Further noting that e.g. donor can always do more
(c.f. ratio in Re Rose)
Critique on the courts reasoning issue not on whether the equitable maxim of not
perfecting an imperfect gift is undermined but whether such is justified
Arden LJ focusing on unfairness for donees who have relied on the appearances of
gift c.f. Clarke LJ seeking to give effect to donative intentions
In criticising Arden LJs judgment creating uncertainty in the area

1. Reliance on Re Rose in creating exceptions to Milroy v Lord
a. To justify creating further exceptions c.f. Re Rose does allow exceptions but that
does not justify creating further exceptions
b. Whether Re Rose is correct the general is too harsh and non-perfection may not
be due to donors fault c.f. relaxing formalities requirements too much and may be
going too far in protecting claimants form tax liabilities
2. Reliance on Choithram
a. Whether its right to rely on Choithram for reference to unconscionability
Choithram because S declared express trust, duty on S to transfer shares
and failure to do so would be unconscionable c.f. Pennington because it is
unconscionable to recall the gift, theres a trust
o i.e. used to justify perfection of trust after finding one in C v P
o Here used to convert a donor into T contrary to Ds wishes (Jones v
Lock on gift/ trust, donor/ trustee distinction)
o In fact in Choithram construed the apparent intent to make gift
Better interpreted as estoppel making revocation unconscionableVi, Tjio
Generally conscience affected because of an equitable assignment but not
merely by virtue of resiling from incomplete gift Tjio
b. Whether Choithram is correct in itself see above
c. Finding of unconscionability
No actual detriment (c.f. Briggs J in Curtis by agreeing to become director)
and only indication of reliance is in accepting office Virgo
Giving court unfettered discretion Moffatt
May undermine policy of safeguarding Ds interests and allowing D to resile
from voluntary acts Arden LJ
Choithram should arguably be narrowly applied as there the court wanted
to encourage transfers for charitable purposes
Note that at least theres signature on execution docs is satisfied here which
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is a very low threshold
3. Unconscionability as a test
Vague (c.f. list of factors) factors do not clearly point to unconscionability; no
requirement on detrimental reliance which is absent unless here nephew
incurred detriment from becoming director or he was looking for other alternative
sources for qualification shares
o (i) look at factors considered by court (ii) how unconscionability can be
found, and (iii) how it can be applied in arguing vagueness
In fact list of factors only indicate that donor had made a representation to the
nephew on which he relied, albeit not to his detriment Virgo
In criticising Clarke LJs reasoning

Difficult to justify carving out of equitable interest w/o prior declaration of trust by
donor, which would not be recognized except with clear evidence of intention (MvL)
Division only for recognized ground at equity allowing otherwise every failed
absolute gift to be characterised as perfect gift of equitable interest Tjio/ Yeo
Should require compliance with formalities for assignment of such interest
Reading of Re Rose may not be justified co can still refuse registration of the shares
even after valid assignment if the son only has equitable interest; and in any case
may not be able to rely on Re Rose as there the issue was the date of valid transfer
for purposes of estate duty
Note difference between Ts and donors

Ts are under onerous duties in the management of trust properties which is inconsistent
with intention of gift which involves disposition of all interests in the property
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Case note Re Rose Revisited Tjio and Yeo
Transfer of shares is based on novation, for which cos consent is reflected upon
registration the issue is whether the equitable interest has passed nonetheless
Discussed Re Rose and Treasurys consent focus is perhaps on whether the done is
put in a position to complete the transfer, rather than just on the acts of donor
a. Equitys intervention in voluntary assignments of legal rights is that equity looks to

the intent rather than form
Arden LJ
b. (i) Re Rose as applying when S has done everything necessary for him to transfer
the absolute title, hence (ii) issue was whether assignment of beneficial interest
arose out of an incomplete transfer of absolute interest in shares (iii) Re Rose
envisaged delivery of the relevant documents to done
c. (i) there should be clear ascertainable point in time on completion of the gift in the
interests of legal certainty (ii) not limited to delivery but rather if it is
unconscionable for the donor to withdraw from the gift
Cited Choithram but unconscionability there arose from donors declaration of
trust whereas Arden LJ used it as the reason for equitable assignment even
though it is generally not unconscionable merely to resile from an incomplete
gift but only bound because of an equitable assignment - perhaps better
explained using estoppel principles further gives rise to uncertainty
d. Alternatively found Ss agent as Bs agent for submitting the share transfer forms to
satisfy the delivery requirement which appears to go further from Lord BWs view
that equity will not strive officiously to defeat a gift
Arden LJ construed Choithrams construction of words of gift tot the foundation
to mean gift on trust for it being the only possible meaningful construction in the
context, as a sign that a court can benevolently construe trust if it is permissible
as a matter of construction but she did not then find declaration of trust but
used it to make finding of fact
Clarke LJ
a. It is almost always possible to argue that the donor could have done more
b. Agreed there was unconsiconability but didnt go as far as to agree with it as a test
c. (i) Saw it as a perfected equitable assignment of beneficial interest c.f. failed transfer
of absolute interest which has to be saved at equity (ii) strong indications in Re Rose
that delivery is not required and that the critical moment is the execution of the
instrument of transfers bypassing all diff with failed transfers of absolute interest
d. Problem with (i) shouldnt be separation of equitable interest without prior
declaration of trust and (ii) Milroy would not recognize latter without clear evidence
it was the intended mode of transfer (iii) otherwise all failed absolute gifts can be
re-characterised as perfect gift of beneficial interest (iv) mere execution of doc
cannot allow done to secure interest
Comment willing to use benevolent construction to satisfy Re Rose despite prohibited

to invent declarations of trust; deviation from strict approach in M v L
Curtis v Pullbrook (purported to transfer shares by issuing share certificates [as director of
the company but without actual authority to do so] and without providing transferees with
the executed share transfer forms)
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Applied the three ways of tempering the wind to shorn lamb by Arden LJ
Rejected (i) benevolent construction not possible here to construe as trust where S
clearly intended to make an outright gift and transfer legal and equitable title, (ii) Re
Rose failing to send executed share transfer forms to transferees/ company, share
certs issued w/o cos authority etc (iii) no act or omission in reliance of the transfer,
let alone detrimental reliance
d. Where consideration is given for a covenant to create a trust

Would neither require delivery or execution of the contract
Generally not enforceable by Bs w/o value for often not privy to the contract (ie
unenforceable at common law), and are mere volunteers (at equity)
o Such that Bs would only have enforceable rights as a volunteer if covenantor
actually enforces his promise and transfer property to T
o Difficulty for T would be holding the covenant for his own benefit or by
way of resulting trust in favour of transferor; additionally court would likely
direct T not to sue on the covenant if S has not completely constituted the
trust for he may revoke at will until then
Except where consideration is given such that they are not volunteers either with
common law consideration or that recognized at equity (marriage consideration)
o Note that deeds provide consideration at common law but not equity
o Only possible where consideration is provided by the beneficiaries Re
Cooks Settlement Trust (grandfather providing consideration for kids),
except where marriage consideration applies
o i.e. would still be unenforceable at c/l as not privy to contract but wont be
volunteer at equity
Property would be held on constructive trust
N.B. consideration irrelevant once trust is established
Marriage consideration (i) B falls within marriage consideration i.e. spouse/ issue of
the marriage and (ii) the covenant is made in consideration of marriage
Not available to next of kins Re Plumptres Marriage Settlement even though they
are intended beneficiaries
Must be made before marriage unless it contains a true recital that it is made in
pursuance of an ante-nuptial promise to create the trust Re Hollande
Re Kays Settlement (executed settlement when unmarried over her properties in favour
of future children; subsequently got married and gave birth)
Settlement not enforceable by children who are volunteers as the trust is not made
in consideration of the marriage
Where the covenant relates to after-acquired property

Future property must be distinguished from existing vested/ contingent rights to
obtain property at some future time future property is what you dont have yet, c.f.
latter e.g. already named legatee
At law, assignment of future property is void but it may be effective at equity as a
contract to assign the property when and if received if assignee gives valuable
consideration (same position for purported trust Williams v CIR)
o Would automatically become constituted and giving beneficiary an equitable
interest upon acquisition of the property
o Even in the absence of transfer so long as consideration is provided for
equity treats as done that which ought to be done Pullan v Koe
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Pullan v Koe (wife covenanted to settle on trust property acquired after marriage;
received a present which was used to buy bonds)
Found bonds trust property for being acquired using the trust asset of gift
Court enforced the covenant in favour of those within marriage consideration
Treated as done that which ought to be done by imposing a CT
Alternative solutions
1. Construction of the covenant as a declaration of trust which would be fully
constituted upon subsequent transfer of property automatic if self declared
o E.g. Re Rallis Will Trust where the property came to the covenantor in a
different capacity uncertainty for depending on wholly fortuitous situation
2. Covenant contained in deed with B but would only give rise to damages
3. Action for damages brought by Ts at law damages only to compensate Ts loss,
unless covenant is for a stated sum
o T would hold covenant on trust for B for either his own benefit or on
resulting trust for S due to absence of intention to benefit him
o Ts may be under duty to do so c.f. court unwilling to direct Ts to sue under
covenant for e.g. it would bypass the rule that equity will not assist
volunteers - Re Pryce, Re Kays Settlement, Re Cooks Settlement Trust
o Arguably should only be enforceable by volunteers where S has irrevocable
intention to create promises Moffat
4. Action for SP by covenantee would require consideration
Beswick v Beswick (coal merchant covenanted with nephew to transfer his business to
him, who in turn promised to employ S as consultant and pay S widow)
Widow could not sue at law as a volunteer; but could seek SP in her capacity as
administratix of S estate as S provided consideration
e. Where the covenant to transfer property is intended to be held on trust

Requires intention to hold the promise on trust [which cannot be merely assumed
Re Schebsman; Need not take further steps to constitute
o Issue of whether S intends to create trust of (the benefit of the) covenant, or
of the subject matter of the covenant if or when transferred to T
Generally marriage settlement falls within former
With the effect that (i) trustee can enforce the covenant with transferor for common
law damages, or SP where consideration is given and damages inadequate, and (ii) B
can enforce the trust against T
o Damages as the value of the property that would have been transferred had
the covenant been performed Re Cavendish Brownes Settlement
Looking at covenantors intention though promise is technically promisees property
as otherwise unlikely to be enforced for depriving promisee of the promises benefit
Fletcher v Flectcher (S covenanted absolutely to pay Ts a sum to be held on trust for J)

Issue of whether J could enforce the covenant even though he is volunteer
(i) there are exceptions to rule not to assist volunteers (ii) c.f. normal voluntary trust
here testator subjected himself to liability at law and legal liability comes regularly to
be enforced by law (iii) hence immaterial that claimant is volunteer
o Covenant as equitable interest and so may be held on trust (for TP)
Held that S vested in the trustees the right to sue his executors for the contracted
amount which was sufficient to produce a completely constituted trust of the benefit
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of the covenant that was enforceable by the son
Would however require some clear manifestation of the appropriate intention of S to
create a trust with the contractual right as the SM as opposed to the future property
o However artificial and arguably should be rejected albeit for the wrong reason
in Re Cook RL
Court eager to construe precatory words as revealing intention to create trust; predated
full development of privity of contract doubtful on modern courts approach
Note however different line of authorities inc. Re Kay, Re Cook criticising the judgment
in that there cannot be a trust of a covenant to create a trust property
o Re Cook reasoned that one cannot have a future property as the subject matter
of a trust c.f. under Fletcher its the covenant that is the subject matter rather
than underlying asset hence argument on impossibility to have trust over
non-existent asset is misconceived
o Predating and therefore considered rejected in Re Cook which found no trust
of the benefit of the covenant (to settle after-acquired property)
Trust of a covenant to transfer future property

N.B. for the time being, ascertain first whether S intends to create a trust over the
underlying assets or only the covenant
Should arguably be a rebuttable presumption that S intends not to create a trust of
the covenant but only of the property when acquired and transferred to Ts H/M
Re Cooks Settlement Trusts (covenanted to settle future proceeds from sale of assets; all
Bs were mere volunteers)
Classified as an executor contract to settle a particular fund which did not exist at the
date of covenant and which might not come into existence i.e. analogous to covenant
to settle after-acquired property
Distinguished from Fletcher for here the covenant did not create an enforceable
debt (albeit bearing fruit only in the future and upon contingency in Fletcher)
Distinguished also from Re Cavendish for the property was not belonging to S
Unclear whether rejected for lack of intention to create a trust for the benefit of the
covenant or covenant couldnt be subject matter for being a mere expectancy; appears to
be based on a likelihood of acquisition Virgo
Seems to have based judgment on absence of debt but should be sufficient if theres any
enforceable promise which is a chose in action not limited to debt
C.f. flawed reasoning as the subject matter is the existing covenant not underlying asset
o C.f. RL artificial to say S intends to set up a trust of a covenant though Re
Cook is decided on the wrong ground
Rejected also in Re Kay future property cannot be the subject matter of a trust
The Rule in Saunders v Vautier (S declared shares on trust for B until he reached 25 when
accumulated dividends would be given; he claimed fund when he reached majority)
" Where a legacy is directed to accumulate for a period, or if payment is postponed, legatee, if he has an
absolute indefeasible interest in the legacy, is not bound to wait until expiration of that period, but may
require payment the moment he is competent to give a valid discharge"
i.e. An adult beneficiary of sound mind, and entitled to the whole beneficial interest (absolute
indefeasible interest in the trust), can direct Ts to transfer trust property to him
Page 15 of 118
Would result in termination of the trust; fund may be transferred to TP if so directed but does
not allow qualification or amendment of operation of trust e.g. appointment of T, direction on
how to invest the trust property
o Transfer to TP need not be in writing as required for disposition of equitable interest as
it would be destroyed upon termination of the trust
Depends on whether Bs interest is in fact contingent upon the condition in question which
would mean B does not have an absolute interest in the property
o Found in Saunders immediate vesting of interest which has only been postponed
Applicable if there are >1 B if it is possible to sever parties interests for each holds an absolute
right to that part Re Sandermans Will Trusts
Applicable also if Bs are entitled in succession, i.e. one as life tenant and other the
remainderman, so long as (i) both are of full capacity, and (ii) both agree in the direction to Ts
for transferral of trust fund Anson v Potter
o Even if S seeks to exclude the application of the rule Stokes v Cheek
Supplemented in Hong Kong by the Trustee Ordinance s.40A allowing Bs to give written
direction to a T directing him to retire under s.40A(2)
o Provided that trust deed does not nominate someone for appointing new trustees
(1)(a), and B(s) under the trust is/are absolutely entitled to the property and of full age
and capacity (b)
o T would be required to make a deed declaring retirement if (a) reasonable arrangements
have been made for protection of his rights, (b) there will be > 2 trustees after his
retirement, and (c) there will be newly appointed trustee or remaining trustees consent
to the retirement s.40A(3)
Extra notes
May involve protector commonly one who gives permission to Ts before new Ts can be
appointed though it cannot be taken up by the settlor himself for his administration of the trust
may result in court holding the trust as a sham
o Appointment and distinction from trustees discussed in Review of the Trustee
Ordinance and Related Matters Consultation Paper/ Consultation Conclusions (June
09/ Feb 10)
Note one cannot declare himself as T for his own benefit responsibility and benefit vested in
the same person
Page 16 of 118
Duties and powers of trustees
Nature of duties
Inc strict liability for duty to abide by terms of the trust, exercise discretion properly and in
good faith, keep account and be ready with them, of impartiality, to act personally subject to
powers to delegate etc
Note statutory rules beneficial in providing concise, concrete and easily accessible statement of
laws as guidance c.f. need for case-to-case analysis, potential conflict with CL and further
complication of resolution of disputes
N.b. S may still influence execution of trust by (i) LoW, (ii) protector, and (iii) trust deed
(revocation of trust or reservation of powers)
Duty to provide information to allow monitoring of enforcement of trust

Stat duty to provide info discussed in consultation paper imposing an additional duty over and
above c/l but subject to express contrary intention either (i) to provide info to Bs vested in
possession or who request for info on assets/ liabilities, or (ii) to simply inform of interest
o Rejected in 2012 consultation on trust law reform case-to-case analysis
A. Duty to notify sui juris (legally competent) beneficiary that he is a beneficiary Brittlebank v
Goodwin
Name and add of trustee Re Murphys ST; existence of settlement and Bs interest
Only to take reasonable steps in all circumstances and may only apply to primary objections
if theres >1 group of objects Re Manistys Settlements
Trust deed expressed as confidential is inconsistent with Bs irreducible core of rights and
may suggest that the trust is a sham HM, citing Armitage v Nurse
No bright-line distinction between Bs under discretionary trusts and objects of discretionary
powers of appointment by extension of the Schmidt rule
o A question of fact and degree on strength of claimants claim to be determined in
light of all circumstances inc. letter of wishes
B. Access to trust deeds

1. Basis for ordering disclosure O Rourke v Darby, Salmon J in Re Londonderry c.f.
(primarily) Schmidt v Rosewood Trust, Breakspeare v Ackland
Proprietary basis i.e. prima facie entitled to access to documents belonging to executors
as executors which in a sense are their own ORourke v Darby
o Defined as those in possession of Ts as Ts, containing info about the trust which
Bs are entitled to know (exc. minutes etc) such that Bs have proprietary interest
in and are entitled to see them Salmon J, R London.
General views (n.b. docs marked with tick now only prima facie discloseable)
Suggestions circulated among trustees and enquiries made in writing as to the
circumstances of a member of the class RL
Correspondence on admin of trust property between Ts/ appointers, TA/ Bs RL
Docs relating to business of underlying companies even if wholly owned by T Re
Rabaiotti (New Jersey)
Aide-memoire on state of fund, past distributions and future possibilities RL
Correspondence between Ts solicitors and Ts Re Londonderry
Title deeds Snells; Statements on state,past distributions, future possibilities

Page 17 of 118
Trust Accounts Duty to keep proper accounts and produce on demand along with
supporting oral or documentary information
Generally entitled for trust docs showing financial position of the trust, assets
included and how they have been dealt with Rabaiotti; but not an absolute right
Not excluded from courts discretion under Schmidt
C.f. inherent jurisdiction for court to supervise Schmidt, Breakspear

o Not a matter of entitlement as of right on disclosure of anything
o Proprietary right neither sufficient nor necessary and not dependent on a fixed
and transmissible beneficial interest opened the door to access of documents for
even objects of a mere power under discretionary trust
o N.B. not wholly contradicting Re Londonderry Danckwerts LJ referred to very
restricted app of right to inspect c.f. Salmon LJ; court generally noted the
proprietary analysis was both inconclusive and unsatisfactory
Criticism on proprietary basis

Drawing virtually incomprehensible distinctions, casting doubts on rights of Bs with no
equitable proprietary interest in trust assets cited by Hartigan, Schmidt
Offers too much protection for Ts on docs which are not classified as trust docs, and Bs
too great a right to inspect activities of Ts otherwise Rydge
Disclosure of certain documents may cause e.g. trouble to family that is out of proportion
to the benefit from inspection Re Londonderry
2. Re Londonderry confidentiality principle remains good law as noted in Breakspear v

Ackland which judgment is confined to family discretionary trusts
It is in the interests of beneficiaries of family discretionary trusts, and advantageous to the

due administration of such trusts, that the exercise by Ts of their dispositive discretionary
powers be regarded as an essentially confidential process
Except (i) When T himself gives reasons, in which case court can consider soundness (ii)
Case concerns lack of bona fide or with improper motive RL
Enables discreet but thorough inquiries on Bs competing claims, reduces scope of

litigation on rationality of Ts discretion, encourage suitable Ts to accept office
o Considered justifications still apply to avoid deterring family trustees from
accepting an arduous unpaid office which can be argued against
Accountability issues (editors of Underhill) c.f. recognition and protection from the
recognition of fiduciary duties owed by Ts Briggs J
Not an undue burden imposed, and prevalence of use of professional trustees
3. Where it falls outside Re Londonderry scope/ overriding discretion Breakspear
Page 18 of 118
Letter of wishes generally subject to RL principle - Breakspear (in the context of
substantially contemporaneous LoW for a discretionary family trust)
Should never draft it such that it forms part of trust deed may infer sham trust since
settlor should drop out of the picture once constituted
General approach
1. Basis for ordering disclosure proprietary or otherwise
2. Jurisdictional issue i.e. grounds for courts intervention (i) identify context (ii) grounds
for alleging unfairness/ mala fide Breakspear v Ackland
Not if its within range of reasonable+ rational decisions which T might make
3. Disclosure issue
a. Generally (i) nature of doc (ii) whether it falls within Re Londonderry confidentiality
rule (and whether it stands) RL c.f. Hartigan c.f. Schmidt)
b. Exercise of overriding discretion (i) nature of applicants interest in the trust
[remote/ theoretical/ defeasible?] (ii) Balance competing interests of diff Bs, Ts, and
TPs esp. personal (e.g. Bs needs as drug addict) or commercial (e.g. if rival purchases
interest under a trust to discover more about the trust properties) confidentiality
4. Disclosure of documents in full or redacted form, and other safeguards limiting use
should assess objective effect instead of subjective purpose for disclosure
Page 19 of 118
Case authorities on duty to provide access to trust docs
Re Londonderrys Settlement [1965] (protection of Ts deliberation)

Object of discretionary power with interest in the trust in default sought discovery of documents inc.
agenda and minutes
a. Applied proprietary basis in ordering disclosure (issue on which is trust doc)
b. Subject to principle that Bs are not entitled to disclosure of Ts deliberation on discretionary
matters absent an action impugning Ts good faith
Rejected disclosure of material upon which Ts reasons were or might have been based
inc. Ts meetings agenda/ minutes
Except where Ts give reasons in which case court can examine
Justified for burden on T, likelihood of embittering family feelings and relationship
between Ts and family members, preventing inhibition on full and free discussion
among Ts, and fruitless litigation
Acknowledge the remaining issue of what constitutes trust docs, and disclosure may cause
trouble in the family out of all proportion only Salmon J adopted the proprietary basis and
attempted at defining the term
Hartigan Nominees Pty v Rydge (Australian CA) majority rejected disclosure of LoW
Proprietary basis favoured by Maloney J.A., but found sufficient though not necessary by Kirby J
(who criticised the test) and not helpful by Sheller J.A.
Maloney J.A. held not discloseable for confidential and within Re Londonderry scope
a. LoW is not trust property
b. Inferred that the LOW was given on a confidential basis and wrong to breach that
c. LoW is a doc relating to reasons for exercise of Ts discretion approved Re Lond.
Kirby J held discloseable

a. Criticised Re Londonderry for being old-fashioned modern trusts involving pro T
b. In any case LoW is ancillary to trust deed i.e. trust doc and rejected duty of confidentiality but
reservation for express provision of confidentiality in LoW
Sheller J.A. held not discloseable for confidentiality

a. Approved RL principle but qualify it as only applying to materials revealing the reasons
themselves or the reasoning process but not any material upon which reasons were or might
have been based and excludes LOW from scope
b. Nonetheless rejected disclosure from inference of S intention on confidentiality
Page 20 of 118
Re Rabaiottis Settlement [2000, Jersey] (i) basis for disclosure (ii) letter of wishes
Disclosure to Bs of accounting docs and LoW in relation to discretionary settlement
Strong presumption in favour for accounting docs but against for LoWs
Approach of (ii) applicant, (ii) type of document, (iii) nature
a. Held that the court has discretion to refuse disclosure if it would be prejudicial to the interests
of Bs as a whole for court to balance competing interests
Only strong presumption in favour of ordering disclosure for Bs (inc. contingent Bs and
objects of discretionary trust) but overriding discretion on the part of court
Rejecting the proprietary basis for involving the difficult issue of classification, offering
too much protection for non-trust docs but too little for trust docs
b. On disclosing LoW strong presumption that its within Londonderry and confidential anyways;
it is for B to show good reason not to respect it
Affirmed rationale for Re Londonderry and found LoW within its scope for being closely
related to the decision-making process and reasons though not binding on Ts; likely to be
material upon which reasons were/ might have been based
o Though not ancillary to trust deed informal doc which may be ignored by Ts and
only an expression of S preferences
o Should generally cover materials on which reasons may have been based rejecting
Sheller J.A.s proposition
o Basically held (i) covered by Londonderry wording, and in any case (ii) would
undermine the principle in Re Londonderry if disclosed
Also endorsed Hartigan that it need not be disclosed on ground of confidentiality
Should ordinarily respect confidentiality either where strongly implied or expressly
stipulated unless there are good reasons not to respect that
Nonetheless ordered disclosure for being in the interests of Bs as a whole and that of
applicant here relating to separate divorce proceedings and ascertainment of applicants
interest is needed for assessing financial provision
Schmidt v Rosewood Trust Ltd [2003] Privy Council cited in Tam Mei Kam but not on LoW
Son of mere object of power seeking disclosure of trust documents [adopting Sheller Js in H v R]
a. Found to be as a matter of construction (c.f. rectification) that the court could conjecture that
the gap in distribution for such purposes as are acc to the laws be filled with charitable
especially in view of a contemporaneous and simultaneous trust deed executed
b. Presumption that beneficiary is entitled to see trust documents but court has an overriding
discretion to withhold if satisfied that this is in the best interest of Bs
c. Disclosure of trust docs an aspect of the courts inherent jurisdiction to supervise, and if
necessary, to intervene in the administration of trusts
Rejected the proprietary basis not an issue in ORourke v Darbshire and not explicitly
adopted except by Salmon J in Re Londonderry
o Virtually incomprehensive distinctions, casting doubt on rights of Bs with no
equitable proprietary interest, protection not where its needed citing H v R
No distinction between objects of mere power/ DT, or those with fixed interest though
generally not ordered for those with no more than theoretical possibility of benefit
o Proprietary interest neither sufficient nor necessary c.f. Kirby P: sufficient
More flexibility c.f. greater uncertainty; basis of holding Ts accountable
d. Determinations on (i) nature of beneficial interest e.g. whether discretionary object should be
granted relief (ii) classes of docs falling within rule on disclosure (iii) safeguards to limit use
Factor (i) may be important; Competing interests to be balanced esp where there are issues
as to personal/ commercial confidentiality
Safeguards inc. only showing it to professional, redacted etc
Page 21 of 118
LOW can be revealed though weight given to confidentiality and possible prejudice
Granted for personal rep which has strong claim on disclosure standalone and as relevant to
whether more funds would be available but for breach; and possible object
N.B. change of approach from considering whether its a trust doc and if so, whether it falls within
an exception, to whether it should be disclosed in the courts inherent jurisdiction
Breakspear & Ors v Ackland & Anr [2009], per Briggs J

Beneficiaries seeking disclosure of wish letters from de facto settlor of the trust which are substantially
contemporaneous with the settlement itself
N.B. go through the four situations for revision
Preservation of secrecy tends to preserve family harmony and mutual respect while allowing Ts
to be briefed on all necessary matters and disclosure would defeat not only intention of Ts/S but
also cause the harm which led to inclusion of info in separate LoW c.f. merits in informing Bs of
their interest to enable planning, supervision of enforcement
o Advantage of confidentiality most acute for family trusts; non-binding in nature
Distinguished from situations of (i) claim involving an issues on which the LoW is allegedly
relevant dealt with by rules of disclosure, (ii) disclosure requested from Bs or otherwise here
concerning the invocation of the courts original jurisdiction to supervise for being invited to
resolve the issue not in relation to some other pleaded cases
o For (ii) Ts need not disclose unless it is int heir view in the interests of sound
administration fo the trust and discharge of powers and discretions
(dicta) Subsequent giving/ withholding of consent on disclosure by S not material given to Ts
for use on fid basis and in accordance with Ts best judgment and as to interests of B/ sound
administration of trust a matter of discretion for T and court but not S
o (dicta) Neither appropriate nor legitimate for S to fetter discretion by including special
terms on confidentiality in the wish letter or subsequently (c.f. Hartigan) e.g. where LoW
asserts a fact that can only be checked by inquiry of B
Generally (i) whether a discretionary object should be granted relief, (ii) classes of documents, and
(iii) safeguards to be imposed for both invoking jurisdiction and challenging negative exercise
N.B. a discretionary approach though giving rise to uncertainty and recipe for litigation
a. Proprietary basis firmly rejected; a matter of discretion for the court

b. RL remains good law (noted general endorsement in Schmidt) for interests of Bs and due
administration of family trusts by allowing discreet but thorough inquiries by Ts; reduce scope
of litigation on the rationality of Ts discretion; encourage Ts to accept office
Recognising the contrary proposition that it would limit Ts accountability
c. LoWs in the family discretionary context within Londonderry confidentiality principle brought
Page 22 of 118
into existence solely/ predominantly for serving and facilitating an inherently confidential
process - should be regarded as confidential as the process intended to serve
But still subject to overriding discretion of the court
N.B. discussion on S attempts to fetter Ts discretion on disclosure above
d. In deciding on disclosure rejected for no justification to invoke courts intervention here
(i) T in general to regard LoW discloseable or not depending on what he judges best serves
the interests of Bs and due administration of the trust regardless of request by B,
incapacity, death or change of heart on the part of S
A matter of discretionary power hence not obliged to give reasons
Ts need not approach decision towards (non) disclosure but found Ts
consideration that its prima facie confidential correct
(ii) Where therere proceedings solely for disclosure (i) if T applies must give reasons
and full disclosure (ii) if B applies must allege with reasons or evidence of mala fide or
unfairness to defend Ts claim for protection under RL, or provide grounds to justify
invocation of courts jurisdiction
For latter, mere refusal to disclose, unaccompanied by reasons or evidence of
mala fides or unfairness, would not ordinarily suffice; nor mere intention on part
of Bs to ascertain prospects of future benefit
Unless Ts give reasons satisfied for stating it would lead to family discord
Mala fide test not satisfied despite there being pending claim to avoid an
appointment of B on grounds fo alleged breach of self-dealing rule
administration of the trust not affected by order for/against disclosure
(iii) Here (i) on negative exercise right to treat it as prima facie confidential, did give reasons
but nth to suggest its otherwise than honest, fair or rational (ii) invoking original
jurisdiction, nth to suggest court should intervene
e. Nonetheless ordered disclosure on the basis that Ts will likely return in reasonably near future
for sanction of a proposed distribution of the entirety of trust fund
Which would then require full disclosure inc. explanation for reasons and LoW as a key
document that trustees must take into account and to which As likely a party
Would be a waste of time and money if re-litigated in the absence of adverse consequences
for Bs or admin of trust if the matter is decided at present proceedings
Acknowledging the displacement of Re Londonderry in that context
f. May consider private reading of the doc
Comment Fox
May be explained by the content of non-reducible duties on the trustee obligated to comply
with terms of trust hence access to trust docs is necessary for enforcement c.f. free to exercise
discretion with no further duty as long as they do so in good faith, for proper purpose and not
taking into account irrelevant matters hence nth else accountable for
Alternative grounds for Re Londonderry principle relevance of the private donative trust
where Ts own the assets managed, and Bs are mere donees receiving gratuitous benefits
For discovery in civil proceedings if a genuine issue as to construction of trust deed becomes
subject of litigation likely illuminated by background material evidenced by LoW
Standard disclosure would normally be granted where B can make out a properly particuarlised
claim i.e. not a mere fishing expedition to see if docs support a claim
Document may be irrelevant if it does no more than illuminate Ts reasons, unless Ts by partial
disclosure of their reasons put into play the issue as to their rationality
Page 23 of 118
Trustees may be compelled to disclose substance of reasons for decisions, legally through
discovery or subpoena, or practically to avoid inferences Scott v National Trust
Covers where e.g. background info in LOW helps construing trust deeds
Tam Mei Kam v HSBC International Trust Ltd (2011, CFA)

Beneficiary challenges validity of the trust; trust deed providing that the trustee shall not be obliged to
make known to beneficiaries existence of the trust
(i) confidentiality found S aware of LoWs non-binding nature and concern on confidentiality
suggested as reason for engaging pro T to ensure upholding of her wishes
(ii) obligation to inform B of interest here only arising when a B becomes absolutely and
indefeasibly entitled to trust fund and construed provision on confidentiality accordingly
o Provision not saying that T owes no obligations at all/ duty to account to Bs here given
wide discretionary powers which they may/not exercise in favour of any B
o In any case the trust deed not necessarily rendered void by invalidity of that clause
Page 24 of 118
Fiduciary duty of loyalty consider common law principles first before statute
A. No unauthorised remuneration except with prior authorisation or subsequent ratification
B. No conflict rule Tito v Waddell (No 2) [real danger of conflict between P/Bs interests]
Liability depends on whether B has given fully informed consent Conaglen
Starting to shift away from the traditional concept of disabling rules but rather interpreting
e.g. liability to account for unauthorised profits as wrong-based
a. No self dealing honesty, fair price and open market sale irrelevant; voidable by B
Liability to account for profits if P rescinds sale of trust property to himself or his property
to trust which are voidable Pitt v Holt; unless
Excluded by terms Sargeant v National Westminster Bank plc; or
o Wright v Morgan (son/ T had right to purchase land held on trust under terms
which he assigned to another who was also T) court set aside purchase despite
at fair price
F has fully informed consent of P or court may depend on fairness of transaction
Even if T holds an auction (risk of discouraging bidders) or for sale by mortgagee, or
after retirement unless he planned the purchase beforehand/ used info acquired as T;
but allowed to buy from TP to whom he sold
Extending to companies of which Ts principal shareholder, MD or principal office= Re
Thompsons; or a partnership to which he is member Colgates
Holder v Holder (testators son appointed as executor for estate which was to be divided
equally between wife and kids; D sought to renounce executorship to purchase farms)
Restates the rule as that purchase of trust property is voidable within reasonable time
at the instance of any B subject to courts discretion but not that T may not purchase
trust property
Held D (i) never assumed duties of executor/acquired knowledge on the deal, everyone
concerned knew of his interest; purchased BF at public auction at good prices hence
no actual conflict of duties (ii) if he had resigned, he did no act that constitutes
intermeddling with the estate, and (iii) in any case, the issue is not one of resignation by
T to avoid conflict but whether B acquiesced (Danckwerts LJ)
Criticisms Undermines the strict liability of fiduciary duties

Benevolent interpretation due to concession on invalid renouncement; not a case where
B had relied on Ts and there were other executors who could sell D assets
May be alternatively explained as that B had previously affirmed the transaction with
full knowledge of the facts which bars rescission
Court significantly recognized power to sanction transactions despite breach of the rule
which though recognized, may undermine strict app of this rule
b. Fair dealing rule i.e. Sale of Bs beneficial interest to T transaction upheld if full disclosure,
fair and honest transaction and no advantage of B has been taken
Also with independent legal advice; Fair price indicates consent is fully informed
Both negotiations and final agreement must be completely above board and reasonable
with no hint of fraud, concealment or advantage being taken
Rescission barred by the same equitable principles
More relaxed (chance to establish fairness) genuinely two parties in the deal c.f.
Conaglen- fid often with more bargaining power both rules operating in the same way
i.e. fairness only to show informed consent removing distinction (Virgo)
Page 25 of 118
C. No unauthorised profits
D. No competition with B
Duty to exercise reasonable prudence trust terms prevail

Alternative test of in conducting his private affairs which may possibly be lower
Would be satisfied if its reasonably necessary to delegate certain functions or consistent with
business practice Speight
Subject to the same rules applicable to negligence e.g. defence of contributory neg
o Must further show that they would have acted differently to impose liability failed in
Nestle v National Westminster Bank (no proof that the trust would have benefited
financially had there been better management of investments)
Speight v Gaunt (1883) instructed broker, appointed at Bs request, to invest in corporation

securities, who in fact bought debenture stock issued ultra vires by company
Standard of an ordinary prudent man of business in conducting his own business and not
what people accustomed to deal in the subject matter would do
o Issue here of (i) whether OPM would hire broker to purchase security, (ii) whether he
would be put on inquiry by the irregularities (iii) would he have paid
o T not obliged to go further in seeing to the application of money himself if its ordinary
course of business to rely on agent
o To determine from circumstances and construction of doc on whether he would be put
on further inquiry (esp. where it concerns a large amount)
On construction (i) whether theres irregularity (ii) whether it would point to
anything irregular in the deal for an ordinary prudent man
o No distinction between claim for (gross) negligence
Not to delegate trust (i.e. where he is employed to do it himself Bowen LJ) but entitled to
employ anyone as an ordinary man of business would employ an agent to do not much of an
issue that D appointed family broker
o Sufficient for proper selection of broker and paying over money for the invest-ment
provided that the brokers in good standing and nth to raise suspicion
Further considered that the loss would still have occurred had he inquired hence no but for
Lindley LJ
Should give trustee the benefit of doubt or ambiguity in construing docs or otherwise for it
would otherwise discourage T since trusteeship is an unpaid office Jessel M.R.
Page 26 of 118
Learoyd v Whiteley (1886) investment (cf general management) of trust property; investing on
brickfield as security for trust money diminishing value and in any case value depends on
circumstances of the speculative and fluctuating business i.e. very risky
Standard of an ordinary prudent man of business, having regard to the present and future
interests of Bs in the context of making investments
o Qualifying the rule in Speight v Gaunt in highlighting need to consider nature of
business in investing $ for benefit of persons entitled to it at some future time
o In this context, to preserve money for those entitled to the corpus in remainder and
invest to produce reasonable income for present Bs
o Considered not justified in investing trust funds in property where active and
exceptional vigilance and diligence is needed for T to prevent loss Lopes LJ
Immaterial whether T has special skill and ability must be dealt with as an ordinary man of
ordinary intelligence i.e. purely objective
Not to act harshly against Ts so far as to deter honest reasonable man from acting as T
Not sufficient that T has acted BF, obtained and acted on the advice of professionals apparently
competent in their professions must act with prudence on such advice
Liable only for part of the investment which was found risky
Page 27 of 118
Bartlett v Barclays Bank Trust Co [1980] higher standard for professional Ts

Board of company largely owned by Ts, who are not represented on the Board decided to make
investments, some of which failed resulting in loss to trust assets
Ordinary prudent man would safeguard investments by e.g. inquiring and consulting directors if
put on inquiry, and ensure that he has sufficient info; even higher here and not proper to merely
rely on annual balance sheets received esp. as it was put on inquiry
Higher standard of special care and skill which it professes to have justified for remuneration
and (holding out to have) greater expertise
C.f. statutory requirements replacing the common law principles unless excluded
a. UK Trustee Act 2000 s.1 must exercise such care and skill as is reasonable in the
circumstances, having regard any special knowledge/ exp that he has/ holds himself out as
having, and (ii) if he is a professional T, to any special knowledge/ experience that it is
reasonable to expect from sb acting in the course of that kind of business
b. Hong Kong Trustee Ordinance s. 3A codifying CL with subjective + obj elements
Applicable to power of investment, appointing agents, nominees and custodians, powers
relating to trust property, insurance, dealing with reversionary interests, valuations and
audit Schedule 3
NOTE potential argument that s.3A doesnt apply to omission s.3A(2)
Would not be responsible for loss if they have discharged statutory duty of care s.11(4)
(1) To exercise care and skill that is reasonable in the circumstances, having regard to
(a) Any special knowledge/ experience T has or holds out as having, and
(b) If acting as T in the course of business/ profession, any special knowledge/ exp
reasonably expected of person acting in the course of that kind of business
(2) If applicable to T when exercising a power or doing an act, the statutory duty if applicable
has effect in place of CL rules/ equitable principle
(3) Statutory duty of care may be excluded by the instrument creating the trust
(4) Not applicable for trusts created before commencement date in so far as S (jointly if >1) of
full capacity, or B(s) absolutely entitled to the property whos either a company with power
or an individual of full age and capacity, executes deed providing that ss (1) should not
apply
N.B. TO.27 on delegation where T is temporarily unable to exercise powers and discretions;
s.41V on remuneration
Relief from liability prima facie by (i) express provision in trust deed, (ii) statutory relief under
TO s.60 (iii) Bs prior consent or subsequent acquiescence/ release
A. Exemption clauses from compensation/duty; so long as S knows and approves it

Generally upheld for freedom of contract c.f. limiting liability to Bs disadvantage
Alternatively indemnity insurance i.e. S paying premiums using trust assets
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Armitage v Nurse [1997], Millett J, CA (then) found not void for being too wide
No trustee shall be liable for any loss or damageunlesscaused by his own actual fraud
A. Construction
1. The reference to actual fraud excludes constructive or equitable fraud (which refers to
unconscionable use of power) e.g. undue influence
2. Fraud is defined in the Derry v Peek sense i.e. nothing short of fraudulent intention and
requires proof of dishonesty; but must be more than gross and culpable negligence
(gross neg c.f. reckless indifference)
3. Actual fraud is found if T (i) knows that action pursued is contrary to Bs interests or (ii)
being recklessly indifferent whether its contrary to their interests
o Regardless of whether he stands to gain personally
o So long as he doesnt have honest belief in promotion of Bs interests
o Noting that a deliberate breach of trust is not necessarily fraudulent may be in
good faith and honest belief though could be reckless in taking the risk
nonetheless (classified as fraudulent Lord Nicholls in Royal Brunei v Tan)
o In determining whether T is recklessly indifferent or negligent, court has to
consider whether T has in mind and intentionally disregards Bs interests
o The definition is a subjective one looking at what T subjectively believes is in
Bs best interest
4. Hence the exemption clause is intended to exempt liability for, inter alia, (i) wilful
default and (ii) negligence
B. Whether the exclusion is void for being repugnant to the trust or contrary to public policy
1. There is an irreducible core of obligations inc. duty to perform trust honestly, in good
faith for the benefit of Bs which cannot be exempted
2. Such irreducible core does not include duties of skill, care, prudence and diligence
3. Negligence, or gross negligence (the distinction is only a matter of degree) is not equated
with mala fide hence possible to be exempted
4. Wilful default is defined as a deliberate breach of trust, nothing short of conscious and
wilful misconduct i..e that he is conscious or recklessly careless that he is committing a
breach of duty (Re Vickery) and in doing so he consciously takes the risk of loss resulting
from breach or is recklessly indifferent to the outcome
But nonetheless may be done in good faith, with best intentions and honest belief
that the risk ought to be taken in Bs interests in which case he can be protected
5. Not material as to whether the clause can exempt equitable fraud because a claim
alleging such is usually for setting aside contract which does not relate to/ depend on
loss or damage (dicta)
6. It is for the legislature to decide on applicability of exclusion clauses for professional Ts
Criticism by H/M
There should be different standards for professional Ts
Criticised the exemption of liabiltiyw here the breach is deliberate but honest (see also
Walker v Stones disctum)
Walker v Stones [2001] not liable for loss or damage other than for wilful fraud or dishonesty
CA found dishonesty in Ts deliberate act that no reasonable solicitor trustee would consider
to be in Bs interests i.e. an objective test
Confined judgment to solicitor trustees unclear on applicability
Page 29 of 118
Spread Trustee Company v Sarah Ann Hutcheson [2011] UKPC on Guernsey law
Exempting liability for loss made in good faithexcept wilful and individual fraud and
wrongdoing issue of whether liability for gross negligence can be exempted
Approving Armitage v Nurse English law does not allow exemption of liability only for
wilful misconduct in the sense that the misconduct must be wilful
Acknowledged distinction drawn between breach of fid duties and of duty of care
o Noting that former has no relevance where the latter is impeached for former
doesnt alter the standard of the duty of care
o Though in any case former likely breached if latters committed in the absence of
good faith and honesty
Irreducible obligations of a fiduciary do not include duty of care and skills which is not a
fiduciary duty Lord Clarke (3:2) [c.f. arguable but customary to allow exc.]
Dissenting judgment suggesting wilful default covers gross negligence wilful default in Re
Vickery includes lack of ordinary prudence or negligence though even there it required
consciousness/ recklessness as to committing a wrong
Citibank v MBIA (2007)

Lady Justice Arden Citibank seeking courts directions
Citibank as T for noteholders; senior creditors given further security
for which MBIA reserves right to give instructions to T on which it need not consider noteholders
interests; exemption of T for liability to noteholders when acting on MBIAs instructions
Upheld (i) binding effect of MBIAs instructions
and (ii) theres still a trust + trustee despite MBIAs trustee controlling powers subject to
which noteholders knowingly took their commercial interests and (iii) still has duty of good
faith hence not undermining the irreducible core obligations
Comments Trukhtanov
Evinces liberal approach for being commercial arrangements between sophisticated parties
of comparable bargaining power, entered into in sophisticated environment
Reduced the irreducible core of obligations in duty to act in Bs interests duties liable to
circumvention by MBIAs instructions and effectively removing T altogether
MBIAs similar to protector case of treating it as fid depends on scope of powers
Had in fact made Citibank its agent here and making it immune
Prompted Arden LJ to state that the court will interpret against construction that would
reduce Ts powers to an extent that it would cease being T not reached here as T continues
to have duty of good faith and retains certain unfettered discretions
C.f. implicitly recognizing Ts not acting as T for some powers; good faith not a standalone
duty but referring to the exercise of duties which are absent here
Hong Kong statutory control TO s.41W **

C.f. UK reforms considered (i) absolute prohibition imposing SL (ii) reasonableness
requirement, and (iii) differentiating between pro and lay trustees; kept status quo
Justified on a matter of policy remunerated so should be accountable, more protection for
B, other professionals cannot rely on such clauses and the privileged position is not justified
in view of the very duty they are placed to hold, had held out to have greater degree of
expertise, on which Bs relied in making appointment
Page 30 of 118
(1) Applicable to T who (a) acts in a professional capacity, and (b) receives remuneration for
services provided to or on behalf the trust
(3) Terms of trust must not (a) relieve, release or exonerate T from liability for breach arising
from Ts own fraud, wilful misconduct or gross negligence (c.f. reckless act in consultation),
or (b) grant T indemnity against the trust property for the liability
(4) A term is invalid to the extent of purporting [to achieve (3)]
(5) Section applicable for trust created on or after commencement date of 2013
(6) Where created before applicable on the expiry of 1 year after commencement date, Ts
liability within which is not affected
(7) Professional capacity construed under s.41R(1) providing that if
(a) T acts in the course of profession/ business that consists of, or includes, the provision of
services in connection with management/ admin of trusts (generally or of that
particular kind), or any particular aspect of such; and
(b) Services T provides to/ on behalf of the trust falls within (a)
N.B. s.41R(2) lay person if he is not a trust corp and doesnt act in pro capacity
On the interpretation of s.41R(1) (a) covering those who provide professional services inc.
solicitors, bankers and accountants regardless of whether they are holding out as trustees (b)
covering those who actually serve as professional Ts
B. Statutory relief of Ts liability discretionary

Found liability covered by exemption clause which excludes liability for gross negligence but
considered that statutory relief would otherwise not be granted for GN Re Clapham
TO s.60
The court may wholly or partly relieve T from personal liability for breach of trust committed
despite T having acted (i) honestly and (ii) reasonably, and (iii) ought fairly be excused for the
breach of trust and for omitting to apply to court for directions
C. Doctrines of concurrence, release or acquiescence Re Paulings Settlement Trusts (No 1)

Consent must be from all Bs being free and informed, before/ after breach B would be
barred from claiming unless it is fair and equitable under other circumstances
Judicial review of Ts exercise of discretionary powers by trust deed or TO e.g. s.4 on power to
invest, s.13 on power of sale, s.15 on giving receipts in a trust for sale, s.17 renewing leases, s.21
power to insure, s.34 power of advancement, s.56 seeking courts order
TO provisions apply in addition to terms of the trust TO s.3(2); unless excluded by trust
instrument or qualified (3)
N.B. T may give binding and conclusive decisions on matters of fact assuming that the specified
factual circumstances are conceptually certain, or even incidental question of construction for sb
with expert knowledge in the relevant factual area
Other ways of reviewing discretionary decision inc (i) formal/ procedural defect (ii) manner
used not authorised (iii) violations of rules of law (iv) improper purpose etc
The rule in Re Hastings Bass N.B. difficult to argue if T advances the Re Londonderry rule
The court may in its discretion set aside a disposition by T, if (i) despite exercising discretion in acc
with terms of trust, (ii) trustee fails to give proper consideration to relevant matters which ought to
have been taken into account Mettoy, affirmed in Pitt v Holt, Futter
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Linked with the distributive rule (c.f. managerial) i.e. must exercise discretionary powers for
purposes intended by S, and not capriciously/ contrary to any sensible expectation of S
Only for disposition of trust property; X admin/management power
In re Hastings Bass (advancing capital to B for life, and remainder to family) Buckley LJ
Court may not interfere with discretionary decision by T under which he acts in good faith even if it
doesnt have intended effects, unless (i) what he has achieved is unauthorised, or (ii) he wouldnt
have acted as he did had he considered irrelevant matters or failed to take into account relevant
matters (purported summary of HB rule)
Recurring theme of what T, as a reasonable T, should/ wouldve considered/ intendedPH

The principle of re Hastings Bass is not actually derived from this decision P/H, Futter
o Decision was on (i) validity of a severed part of disposition (the other void for
perpetuity), (ii) excessive execution (c.f. inadequate deliberation) didnt consider subj
state of mind; requiring proof of invalidity and not mere voidable nature
Sieff v Fox [2005], per Lloyd LJ (T relied on incorrect legal advice to exercise discretion on
appointment of property, which turned out to give rise to substantial capital tax implications)
1. Restated the HB rule Where a trustee acts under a discretion..., but the effect of the exercise is
different from that which he intended, the court will interfere with his action if it is clear that he
would not have acted as he did had he not failed to take into account considerations which he
ought to have taken into account or taken into account considerations which he ought not to have
taken into consideration
Rejected Buckley LJs summary as the true ratio CA had already decided the case on
grounds that the advancement must stand unless it could not reasonably be regarded as
beneficial to the advance, so far as not struck down by the rule against perpetuities
o Buckley LJ saw it as a wholly objective matter (i) whether what was done is
capable of being regarded as beneficial to the intended object, and (ii) if not, it would
be outside the scope of that power, not an exercise of it at all and cant take effect
o i.e. limb (i) of Buckley LJs judgment says it all
2. Does not require breach of fiduciary duty though did not delineate limits of application
Court to take a critical and not over-exigent approach to limit the breadth but substantial
delay in raising the point with knowledge of the problem might be relevant
3. Fiscal consequences may be relevant considerations
May be irrelevant for mistakes distinguished for Ts are not dealing with assets of their
own, owe duties to B, and fiscal treatment of trust property being more complex
4. Questioned Abacus v Barri which held the transaction voidable because its being set aside
resulted from breach by trustees but questionable whether the doctrine is based on breach of
duty with same consequences; did find it attractive though
Does not however go so far as to say it should have been void - need not decide on the
point; found appointment here ineffective
5. On standard of proof, suggested that
The might test should only be applicable where B is entitled to require trustee to act
since B can still require T to start again on the correct basis e.g. Vestey allocating income
for minor Bs for a trust for applying income to support Bs
Would where Ts are not under a duty to exercise the power but do so voluntarily i.e. they
cannot be compelled to act again
Page 32 of 118
Pitt v Holt; Futter v Futter [2013] UKSC
Futter distributing capital to Bs in the exercise of power of enlargement, and advancement while
overlooking amendment in law giving rise to large capital gains tax liability for Bs; Pitt creation of
discretionary settlement for deceaseds accident damages imposed inheritance tax
Interpreting Re Hastings bass rule

A new rule developed from (i) constraints on Ts discretionary power, (ii) rescission on the
basis of mistake, and + (iii) contract may be invalidated for violation of rules of law
Agreed with the criticism of Lloyd LJ in Sieff of Buckley LJs purported summary of HB rule
additionally generality of reference to unintended consequences
Application generally not ousted by exclusion clauses
Recognized the possibility of outcome depending on very small variations of facts need to
balance protection of Bs against Ts aberrant conduct c.f. competing interests of legal certainty
and not imposing too stringent burden on Ts
Generally considered/ pleaded together with rescission on the basis of mistake
1. Upheld distinction on (i) excessive execution i.e. Ts going beyond the scope of power (void), and
(ii) inadequate deliberation i.e. failing to give proper consideration (voidable under HB)
2. Failure to give proper consideration to relevant matters/ taking into acc irrelevant matter
Does not require fundamental mistake (such that it wouldve made fundamental diff to the
facts perceived) but merely that it would/ might have affected Ts decisions
o Declines to resolve the would or might debate to allow flexibility in dealing with
the specific circumstances though recognizing that the might test may be more
applicable for pension trust cases for Bs would have contractual rights c.f. family
trusts where Bs are often volunteers
May cover fiscal consequence for private trusts if theres material diff; may depend on
subtlety/ foreseeability; unlikely app if the law is changed by subsequent decision (Sieff)
Incorporating public law concepts of Wednesbury unreasonableness but in line with
traditional view that its for T to exercise discretion, and frauds on power cases Sieff
3. Which amounts to a breach of duty duty of reasonable prudence

Wont be in breach so long as he has identified relevant considerations and used all proper
care in obtaining the relevant info and advice on those considerations
Not that it has failed the highest standards of mature deliberation/ judgment
Contrary to principle and authority to impose strict liability on Ts who conscientiously
obtain and follow apparently competent expert advice which turns out to be wrong
o Disposed of the HB argument in Pitt and Futter on this basis
o C.f. excessive execution in which they will be liable regardless of fault
Hence disposed of claim for having obtained and relied on expert advice albeit wrong
4. T would/ might not have acted the way he did had he considered those matters higher
likelihood of setting aside for the former
Considered a high degree of flexibility is warranted for the rule is centered on the failure of
Ts to perform their decision-making function which founds the courts jurisdiction to
intervene if it thinks it is just to do so
Acknowledged the suggestion hat the would test is appropriate for family trusts c.f.
pension trusts which members are not volunteers but with contractual rights
5. Rendering the disposition voidable

Since the rule depends on breach of duty in performance of sth within scope of Ts power,
Page 33 of 118
not that he has no power exercise of discretionary power is within terms of the power but
Ts have in some ways breached duties in respect of the exercise
Also to minimize unfair disruption with Ts exercise of powers Sieff
Rescission by mistake
Distinguished HB restricted to decisions by Ts and fids and not necessarily require positive
misapprehension (absence of thought may suffice) c.f. generally requires operative mistake and
applicable to wider range of situations
1. Mistake excludes forgetfulness, inadvertence or ignorance as such but can cover false belief or
assumption arising from it
o Noting distinction between misprediction and mistake as to the present matter
2. Traditionally requires (i) mistake on the part of donor as to the legal effect of the disposition
(c.f. consequence) and (ii) the mistake as to effect has to be sufficiently serious
3. But upheld abolition of distinction in Pitt v Holt in that it would normally be satisfied if there is a
mistake either as to the legal character or nature of the transaction, ro some matter of fact or
law basic to the transaction
Managing a trust
T may be appointed by (i) S on creation of trust, (ii) persons given express power by the trust
instrument either in circumstances contemplated by the trust deed, or under TO s.37, (iii)
surviving or continuing trustees under s.37(i) to replace Ts or existing trustees under s.37(6) to
add new Ts, or (iv) court under TO s.42 or in its inherent jurisdiction
Appointee may at any time disclaim office provided that he has not accepted it by words/
conduct, upon which he can only retire (i) acc to express terms of trust, (ii) if he has appointed
replacement under TO s. 37 or 42, or (iii) TO s.40/ courts inherent jurisdiction
B may remove Ts by (i) express terms of trust, (ii) terminating the trust and re-settling the
assets if all Bs are of full age and legal capacity, and are absolutely entitled ot the trust property,
or (iii) by courts inherent jurisdiction or power under TO s.42
Approach on trustees duties

1. Possible breach of duty identify as many as possible
2. Nature of duties and requirements
a. Duty of reasonable prudence Speight, Learoyd, Bartlett (if professional), TO s.3A
Causation required Nestle v National Westminster Bank plc
b. No conflict rule
3. Exclusion of liability
a. Construction of the clause (fraud and wilful default Armitage; nb dissent. In Spread)
b. Whether the court would give effect to it, which depends on whether the clause is repugnant
to the trust consider (i) irreducible core obligations Armitage v Nurse, (ii) policy
reasons; may draw analogy from Armitage if theres ref to actual
c. Statutory restrictions TO s.41W
d. Whether D falls within the exclusion clause (i) definition (ii) subjective test of Armitage v
Nurse c.f. objective test in Walker v Stones (iii) should not be able to rely on it as a matter of
policy for professional trustees
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Duties of fiduciaries
N.B. liability of F widened to cover all gains earned from the breach of duty (c.f. only loss)
1. Defining fiduciary in the context of relationships of trust and confidence

Relationship of trust and confidence arising where one undertakes to act in the interests of
another, or places himself in a position where he is obliged so to act
Based on ones position and power in respect of the other and the latters reasonably
induced expectation that former will act exclusively in latters interests (or joint) HM
o Latter being vulnerable as former has powers to detrimentally affect latter legally/
practically; the latter in vulnerabilityKao
Core obligation of loyalty i.e. duty to act in the interests of another and GF Bristol
a. Status based trustees, directors, liquidators, solicitors; c.f. accountants
Employees Canadian Aero Services v O Malley

Not arising from the mere fact of employment relationship, which is often contractual
Nottingham University v Fishel (employee worked abroad for profits from work by
embryologists under his control; alleged breach of conflict of duty)
o Unless it imposes special contractual obligations scope of obligations
circumscribed by contractual terms
Test of whether in all circumstances he has placed himself in a position
where he must act solely in employers interests which may not be with
regard to all of his duties
o Implied obligation of good faith for all employment contracts ie employer wont
w/o reasonable and proper cause, conduct themselves in a manner calculated or
likely to destroy or seriously damage the relationship of confidence and trust
only contractual and incidental
o Duty to direct his trainees what and where to work, and by directing them to work
for his personal interests, he placed himself in breach of fid duty as theres potential
conflict with duty to direct them to work for unis interests
b. Fact based i.e imposition of duties is app in the interests of justice due to Cs particular
vulnerability to being taken advantage of by D upon whose loyalty he is relying
N.b. distinction on taking into consideration/ acting in interests of another Fishel
Arising where one party is in a position of influence over another, or one is in receipt of
information imparted in confidence where the fiduciary relationship is really incidental
Lord Millett, extra-judicially; or joint venture HM
May arise in the course of negotiation of terms of a contract
2. Scope and nature of fiduciary duties

Not liable to profits derived/ act for Ps sole interest outside scope of Ps business; may be in
fid position quoad part of activities but not other parts
Breach by fiduciary =/= breach of fid duty e.g. Reasonable prudence arising from
assumption of responsibility rather than position; equitable compensation granted for
breach = damages Bristol v Mothew
Stringent duty premised on the essence of fiduciary relationship in that one pledges himself
to act in the others best interests i.e. trust, not self interest at its core; Fs duty diminished
by nature of obligation undertaken Canson Enterprise Ltd v Broughton
Fid has opportunity to exercise power to Bs detriment which is vulnerable
Hospital Products v United States Surgical Corp
Involving an inequality of bargaining power Cook v Evatt (No 2)
Page 35 of 118
Would survive resignation if its prompted/ influenced by desire to take advantage of
opportunity sought by co, or if its his position rather than fresh initiative that led him to the
opp Canadian Aero v OMalley
C.f. Cooley non-disclosure of misconduct during office hence the duty should
survive resignation i.e. liability found on the basis of non-disclosure
Generally proscriptive c.f. Item Software which interpreted failure to disclose wrongdoing
as a breach of prescriptive duty (which requires positive act) rather than proscriptive duty
in avoiding conflict of interests
Virgo better to understand this duty not as fiduciary duty but only non-fid duty as
part of Fs duty to act in the best interests of P
a. Conflict of duties Not to place himself in a situation where he owes a duty to another
which may be, or is inconsistent with the undivided duty of loyalty owed to employer
Bristol and West Building Society v Mothew (acted for purchasers and lender; No breach of
fid duty (i) no actual conflict (ii) no breach of duty of good faith omission had nth to
indicate inhibition; but he had fully informed consent [misrep only going to subsequent act)]
and at most in breach of duty of care and skill)
For potential conflicts duty of good faith rule i.e.

Inc. duty of good faith to not act with the intention of furthering the interests of one to
the prejudice of another, or allow one relationship to be influenced by another to
serve both as faithfully and loyally as if he was his own
Requires intentional conduct for breach mere unconscious omission not sufficient
(duty of care may be relevant) and dishonesty not necessary
Omission not attributable to double employment unless F is or believes he is
inhibited in performing duties to one by reason of it to another (subj)
Non-disclosure distinguished from concealment
For actual conflicts i.e. Where he cannot fulfil obligations to one w/o failing for another
should cease acting for at least one and preferably two
May test by considering Ds position if he had acted only for one client
Clear breach if he knowingly prefers interests of one to another; or if F undertakes to
advice one on merits of deal while acting for both Nocton v Lord Ashburton
No actual conflict found in Bristol on the same side and in any case no allegation of bad
faith or deliberate withholding of information for the interests of purchasers
b. Duty to avoid conflict of interests i.e. not to place himself in a position where his/ anyone
elses interests would or possibly may conflict with Bs
Objective test of whether a reasonable man looking at relevant facts would think there to
be a real sensible possibility of conflict Kao, citing Boardman
Would be accountable for all profits made while acting within scope of fid duties
Existence of undisclosed interests is sufficient
Duties include (i) No unauthorised remuneration except with prior authorisation e.g.
M&A or subsequent ratification Re Duke of Norfolks Settlement Trusts c.f. English
Trustee Act 2000 s.29 (ii) No self-dealing except affirmative proof on fairness of
transaction and full disclosure of conflict of interests Aberdeen Railway v Blaikie (iii)
fair dealing, (iv) loans by fiduciaries Swindle v Harrison (v) no competition with P
Codification of fid duties owed by directors HK Consultation Paper c.f. UK Companies
Act 2006 s.172, 175-177
Page 36 of 118
No secret bribes or commission A-G for Hong Kong v Reid [1994] Privy Council
No unauthorised profits
Strictly applied regardless of whether F has acted in good faith, whether it has resulted
in loss or even if it has left principal better off
o Justified (i) incentive for F to resist misconduct (ii) evidential diff to prove bad
faith c.f. incorporating public principle of deterrence, not effective in deterring
by only taking away profits Lionel Smith, may be over-detrerrent, evidential
argument not as strong now John Langbein
o C.f. suggestion against a harsh application Murad v Al-Saraj (CA)
Mitigated by providing allowances for honest F who have contributed time skill and
effort for the gains Phipps v Boardman
o Only if it wouldnt encourage F from breaching rule - Guiness v Saunders
Must account for any gains obtained or received in circumstances where conflict/ significant
possibility of conflict existed between his fiduciary duty and personal interest, and profits
made by use/ reason of his fiduciary position or of opportunity/ knowledge resulting from it
Info may be used if in public domain and theres no reasonably foreseeability possibility
of his needing to use it for original principal; may otherwise have sufficient property
nature to be placed in constructive trust as trust asset
1. Breach
Derived from the strict rule of Keech v Sanford wherever a lease is renewed by T it
is for the benefit of the cestui que use despite express proof that TP would refuse to
renew (T renewing lease for himself; B wouldnt have got it)
Applicable whether T obtains renewal by virtue of provision in the lease or from
position as sitting tenant; nb distinction between renewal/ reversion (Protheroe)
Regal Hastings v Gulliver [1942] (directors applying for shares in a sub for which it had
been the original intention of the board to be subscribed by co but it was ultra vires)
Liability rises from mere fact of profiting and not dependent on e..g absence of bona
fide, P would/ could have got it etc so long as he has/ can have conflicting personal
interest Viscount Sankey
C.f. to be accountable for shares acquired by reason only of their position and in the
course of execution of the office Lord Russell of Killowen
Boardman v Phipps [1967] HL n.b. did give allowance

Involves Ps minority shareholding in another company; it was suggested to P that it should
buy more shares in that company to get control to make sure that the business is profitable
but idea was rejected by the trustees; lawyer advising them went ahead to obtain
controlling shareholdeing and made the company profitable i.e. trust asset value went up;
D had obtained the consent of all Ts except one
Issue: whether Ts solicitor should be held accountable for profits made from use of
info and opp acquired in advising T to obtain large shareholding in a co for personal
and the trusts interest in BF, which he may/not have obtained but for his position
Support for view that liability doesnt depend on proof of actual conflict but real
sensible possibility would suffice under a strict application of the rule of fiduciary
duties which covers use of info and opportunity acquired while acting on behalf of Ts
Majority (2:1 divided on whether info can be trust property)

a. Liability to account for profits made by reason of his fiduciary position and
Page 37 of 118
opportunity/ knowledge obtained satisfied by mere fact of a profit having been
made and not dependent on e.g. absence of mala fide
Confidential info itself constitutes trust property 2:1 (Lord Cohen)
b. Found additionally possibility of conflict of interest in Fs ability to give unprejudiced
advice on the purchase of shares
Lord Guest and Hodson on (a); Lord Cohen on (b) c.f.
Dissenting judgment Lord Upjohn, Viscount Dilhorne

a. Requires at least that the reasonable man would think there was a real sensible
possibility of conflict
b. No use of trust property since info is not one the property here was not trust
property/ contemplated as the subject matter of a possible purchase held info cant
be trust property and should instead consider whether its imparted in confidence
Rejected argument that info learnt is trust property unavailable to him for use
otherwise would not be able to act for >1 trust
May be used unless its confidential and given to him (i) in circumstances that it
would be breach of confidence to use (ii) in fid capacity and use would place him
in conflicts of interest
c. No possibility that the info can be used to injure the trust not in connection with
trust property and in fact used to enhance value of trust property
d. Not a situation where theres any possibility of conflict at all
N.B. case affirms that liability does not depend on actual conflict
Milletts LQR controversial ruling but outcome in line with orthodox principles
Info not property as such but bears characteristics of trust property cannot be used for
Fs ulterior purpose; should be restricted to if use is FD breach
Bhullar v Bhuallar [2003] (directors/ shareholders bought property adjacent to co prop.

after giving notice of intention to break relations and subsequently saw notice of sale)
Considered the no profit rule a facet of the wider rule on no conflicts
Emphasizing flexibility of rule and strictness regardless of whether P would/ could
have taken the opportunity, and whether the opp is received in Fs private capacity
Irrelevant whether P has pre-existing proprietary interest in the asset
Simply ask if Fs exploitation of opp is such as to attract application of rule
Followed Boardman in the objective test of whether a reasonable man would regard
F as having placed himself in a position where there was a real sensible possibility of
conflict with their self interests and those of the company
Found under duty to communicate information regarding the opp which would have
been commercially attractive notwithstanding its suspension of investment stict
Consent insufficient for risk of undue influence on board
Shepherds Investment v Walters [2006] (broader formula)

Directors were developing new products for company and came up with some structures to
sell financial policies; company asked to conduct feasibility study but later decided not to
take it up; directors went about setting up their own company drafted business
proposals, engaged lawyers, resigned then acted in the new capacity as directors to
compete with P
The conflict rule applied not only to usurping business activities but also prep steps
to set up company which is legitimate until conflict of interest arises
Found here retention of legal services to set up business gave rise to conflict
Page 38 of 118
satisfied by clear irrevocable intention to set up new business
a. Adopted strict approach need not wait until engagement in actual business and for
actual conflict would arise but so long as theres clear irrevocable intention to set up
new business in which event they must inform the original employer which they
failed to do
b. Held that fids owe duty to act in good faith, in best interests of fiduciaries hence no
engagement in conflicting business C.f. traditional formulation of duty not to let
personal interest conflict with principals interest
New formulation embracing a positive duty to act rather than not to do
something which is more onerous and under which fids cannot tie hands up and
disregard existing obligations
May even cover e.g. absentminded, passive, nonchalant fiduciary
c. No separate and independent duty of disclosure straightforward application of
ordinary principles of equity concerning fiduciary duties; but fids must disclose
conflict of interest (under duty to disclose subjective intention) to avoid liability to
account for secret profits
Duty to inform is only a way to discharge duty not to allow conflict of interest
The duty of loyalty is a time-honored rule; it focuses on principle not on the
particular words used in any particular case or context. It is dynamic and
capable of application in cases where it has not previously been applied but the
principle or rationale of the rule applies. Equity operates on conscience. It
allows for continuous evolution in corporate law.
Peso Silver Mines v Cropper (1966] Can did not have opportunity to read Boardman
Director decided in the BOD not to go ahead with the mine investment for financial and
risk reasons; later set up own company and took it up no breach
a. When the fiduciary as directors in BOD decided not to go ahead, they acted bona fide
C.f. Phipps irrelevant so long as theres possibility of risk/undue influence on BOD
b. After the company decided not ot go ahead, the directors acted in the personal
capacity as the person of public to be approached and did not use any personal
information to their advantage as it was publicly accessible
C.f. they were approached because they were directors and had the knowledge
Canadian Aero Service Ltd v O Malley (1973) Canadian Supreme Court (former
directors taking fruits of a corporate opp in which P had prior and continuing interest)
Prohibited from usurping for himself/ diverting to another with which he is
associated, a maturing business opportunity which his co is actively pursuing even
after resignation if prompted or influenced by wish to acquire for himself the
opportunity without disclosure, or if it was his position with the company rather
than fresh initiative that got him the opp
Justified for the degree of control entailed by their positions
Rejected conflict test, or accountability for profits acquired by reason only of being
directors and in the course of execution of office, in Regal as exclusive tests not
right to e.g. limit Regal to benefits acquired by reason of and during holding of office
Regardless of (legal) incapacity to take advantage/ if gain not at its expense
Should consider individual circumstances inc. position held, nature of corp opp and
its ripeness, specificness, defaulting fids relation to it, amount of knowledge
possessed, circumstances in which it was obtained, whether it was special or
private, factor of time, circumstances of termination of relationship
Page 39 of 118
Kao, Lee & Yip v Koo Hoi Yan & Others [2003] Hong Kong
Breached no conflict and no profit rules for advising the establishment of law centre by
BOC though only giving rise to nominal damages, failing to inform firm of the
business opportunities and even diverted it to himself; however no duty for other
partners to inform P on D1s acts unless stipulated in contract
No conflict of interest rules

Must pass on info to B and not keep it for own personal interests even if it may have
been received by fiduciary in his personal capacity citing Cooley
Where employee is contemplating leaving the employment more relaxed than

Shepherds; counter-arguments on use of spare time, permissibility
1. Employees are entitled to use spare time for whatever he pleases so long as not
inconsistent with fid duties or in direct competition with Bs interests
Company time for company purposes question of whens it spare time
May inc arrangements for competition with P after termination of contract
2. A matter of degree on what is permissible
Merely evincing an intention to leave and set up competition
Issuing circulars, hiring servants, looking at premises, consulting pros,
approaching banks for finance, informing suppliers
Soliciting existing clients of fid generally requires > merely informing client of
his departure; even where approached by such clients except with Ps consent
Not to profit duty Diverting business opportunities
Considered distinct from non-conflict duty eg if P wouldnt have had interest in it
Approach wider than the UK test of Lord Russells dissenting test on real sensible
possibility which is seen only as one of the factors
1. Generally entitled to make use of acquired skills, general knowledge, know-how, exp;
or cultivated commercial relationships upon termination of relationship Kishimoto
2. Must however account for profits deriving from position of trust and confidence - by
reason/ use of his fiduciary position, or of opportunity/ knowledge resulting from it
Even if the opp wouldnt have been available to B Regal, Cooley
3. Would clearly be in breach for taking advantage of opp while relationship subsists
But permissible to take prep steps so long as theres no actual competition
4. If he has resigned, may still be liable if
a. Resignation prompted or influenced by wish to acquire for himself the
opportunity sought by the company Canadian Aero, Cooley
b. Diverted an opportunity which had originally negotiated by P, regardless of
whether P would have got the opp Canadian Aero
o Maturing business opportunity test i.e. whether it is actively pursued by
B in the first place and what stage it has reached
Not the sole test but in any case must be tangible c.f. embryonic
(Kishi) when F is still in position of trust and confidence Kao
Not if its so remote that eventual obtaining of it cannot
realistically be said to be linked to any position of trust/
confidence that F was in
Check if opp results from prolonged fresh initiative+timing Kao
May ultimately only be a question of causation i.e. that the profits
made are caused by the breach Kao, Lee & Yip
o Where it was his position with the company rather than a fresh initiative
that led him to the opportunity
Page 40 of 118
2. Causation between gain and the breach of fiduciary duty satisfied so long as it is one
cause of the gain Barton v Armstrong
For F to prove that he has received the gains exclusively from activities legitimately
undertaken in his own interests
Regardless of whether the gain would have been obtained
But for test rejected in Murad v Al-Saraj [2005] (F used Bs JV assets supposedly for
purchase of hotel to set off a loan owed to hotel owner and received commission; B
argued it would have insisted on higher profit share c.f. F arguing that he would have
been allowed to keep that portion of profits
Not for the court to investigate hypothetical situations and no defence for F to
say that he would have profited anyways Arden LJ
3. Defence
a. Authorisation expressly or by necessary implication by contract
b. Informed consent of al Bs being of full capacity and between them absolutely entitled
to the trust property Phipps v Boardman
Or of independent Ts for if F is someone employed by Ts or B acquiring
special information while purportedly representing trust Regal
Relaxation of the rule

Murad v Al-Saraj [2005] by Arden LJ It may be appropriate for higher court to revisit and
make the rule on secret profits less inflexible, following Can/Aus (Peso, Queensland Mines)
Especially where Fs acted out of the best motives
Can impose affirmative burden on F to show B wouldnt have wanted to exploit the
opportunity or wanted F to act any differently
Court has now extensive investigatory powers, possible to put the burden on defaulting
trustee to show circumstances of good faith, and possible to keep deterrent effect
despite taking into account honest belief of D c.f. strict approach reinforced in Regal
c. Duty of disclosure of own misconduct as safety net/ last resort
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Item Software (UK) Ltd v Fassihi and others (director helped co negotiate a contract,
encouraged a hard line approach while secretly approaching TP and offered similar terms)
Applied but for test would have still taken hard line approach if not so advised i.e. no
causation between the loss from diversion of opportunity and the duty
As a fall-back position where the action on maturing business opp fails due to lack of
causation ought to have disclosed that he is engaging in a conflict of interests
The single overriding touchstone is the fundamental duty to act in good faith and in the
best interests of B; found breach and Bd have taken another approach hence awarded
claim for compensation of loss suffered (cf account of profits)
This is not a distinct duty but only a part of that fundamental duty though in
proscriptive formulation but considered that FD is not limited to proscriptive or
prescriptive duty; disclosure here confined to ones misconduct
No issue on causation, no defence (reasonable belief that it is not in the interests of the
company to know of his breach)
Appreciating Equitys dynamic app c.f. couldnt work in GF cases doubtful authority
Policy argument economic efficiency concern for company to investigate conduct of
employees which is difficult to detect; possibly erroneous business decisions
By reason of position
Regal Ps ability to obtain is irrelevant
Boardman possibility of conflict suffices and satisfied by use of info/ opportunity
Bhullar capacity irrelevant; need no pre-existing proprietary right in the matter
Diversion of business opportunity

Canadian Aero maturing business actively pursued; fresh intiative; Kao
Setting up business
Shepherds irrevocable intention; Kao
Application of fiduciary duties in solicitors

The Law Society of Hong Kong Guide to Professional Conduct prohibiting solicitor from acting
where his own interests (are likely to) conflict with interests of clients P 7.01
Must disclose with complete frankness where he has/ might obtain personal interest in the
transaction in which he is acting for client P 7.02
Duty of confidentiality over all information acquired in the course of the professional
relationship unless disclosure is expressly or impliedly authorised by the client or required by
law or unless waived P 8
Duty survives the professional relationship whether or not differences have arisen
Not to accept instructions where it is likely he would be duty bound to disclose or use in breach
confidential knowledge acquired concerning an existing or former client P9.02
Not to act for >1 client if theres conflict of interest P 9.03
If received instructions on the same matter, to advice client on fact of being instructed by
the other party, and that no info received in connection with the matter from oen can be
treated as confidential so far as the other is concerned, and withdrawal may be
necessitated if a dispute develops that cannot be resolved
To cease acting at once if conflict arises unless he can without embarrassment and
propriety continue to represent one with the others consent
Page 42 of 118
Remedies for breaches of trust and breaches of duties by fiduciaries
Basic principles
Generally, personal remedy against T may be available where the trustee commits
(a) Breach of duty of care resulting in losses
(b) Breach of duty of loyalty/ fiduciary duty (c.f. breach of duty by trustee) resulting in gains or
losses (which is less often)
(c) Breach of term of the trust/ contract i.e. any act or neglect on part of a trustee which is contrary
to the duties imposed, and which is not excused by law, or terms of the trust instrument
resulting mostly in losses
N.B. it often does not matter which duty has been breached for most remedies do not require proof
of wrongdoing; note possible liability also for standing by with knowledge of breach or taking no
steps to redress, or resigning to assist with other Ts breach
Further that express trustees are always under personal liability c.f. CT which depends on whether
his conscience is affected
Personal vs. proprietary right determine the preferred remedy in each case
N.B. to say something is exigible against A, it is against A whom one can enforce the right
In personam right only exigible against the person who owes a duty towards you
C.f. proprietary right i.e. can be enforced against anyone who happens to be holding that
particular piece of property subject to priority contest
Preferred Situations
Proprietary a. If the value of the property has gone up
b. If original wrongdoer who took the property is not worth pursuing e.g. T has
stolen the trust fund and passed it on to a mistress who then purchases a ring, or
where T has absconded and left the jurisdiction
c. Whoever is holding the property himself has gone bankrupt only assets which
are beneficially owned by the bankrupt or insolvent party will be shared by
creditors i.e. property held on trust for another would not fall within the
bankrupts estate so such beneficiarys claim is even stronger than SC
Personal a. Destruction of the piece of property i.e. damaged, extinguished, or
b. The value of the property has gone down and the incumbent/ relevant wrongdoer
is not insolvent
Overview of personal remedies

Non-monetary (a) injunction (b) Rescission i.e. setting aside contracts vitiated by e.g. UI which
puts all parties back to pre-transactions situation (restitutionary remedy i.e. restore or return gain
obtained no consideration given to loss incurred at all) unless TP is bf purchaser for value without
notice of the trust (c) declaration on Ts duties (d) appointment of new Ts
Monetary
A. Disgorgement/ Account of profits
Not dependent on allegations of misconduct, ID of breach or quantification of loss D
deemed to have implicitly undertaken to account for gains received under the fictional
concept that F never does anything wrong
Page 43 of 118
B. Compensation for loss
I. General accounts/ Taking of accounts/ Equitable compensation Exclusively for trustees as
fiduciaries dont necessarily keep accounts
Based on Ts core duty to account for management of the trust property; hence to
provide accounts to Bs, who have a correlative right to take account
o Taking account per se is not remedy for a wrong, but enforcement of
performance of an obligation Millett in Libertarian
Only procedural requiring production of account to be reviewed by B, who can then
require T to make good the deficit by making payments, described in modern cases as
equitable compensation [though not compensation for loss/ restorative]
a. Taking of common accounts/ Account of administration in the common form

Applicable to misapplication/ wrongful disbursement of trust fund or erroneous
items by falsifying the account (by crossing out items) AND omission to enter a
credit on the account by surcharging (for omitted credit that should have been
entered)
o Providing compensation by giving rise to a shortfall as the balance should
show the effect of the disbursement which must be made good i.e. must
reconstitute the trust fund in specie/ money if former is not possible
restoring it to state it would have been in
No allegation/proof of misconduct required hence c/l principles of contributory
liability and remoteness are irrelevant purely admin
B may elect to allow unauthorised disbursement may treat it as TP and trace
May claim substitutive performance claims for objective value of property market
value at date of misapp or judgment, whichevers lower
b. Taking accounts/ Surcharging on the basis of wilful default

Involves the allegation that T hasnt even received some amounts that T ought to
have received had he not been in default [as opposed to merely failing to enter it as
credit] hence requiring proof of misconduct
o On the basis that D should be treated to have performed his duty and
obtained it for the benefit of the trust Millett, Libertarian
o Essentially surcharging for loss of opp to obtain the lost trust amount
Wilful default defined as nothing but the breach of trust; need not even been wilful
or dishonest (as defined in other contexts); and breach of trust in turn defined as
breach of any duty by trustee i.e. duty of care, loyalty, terms of trust
II. Equitable compensation for fiduciaries, and trustees if taking of accounts is not appropriate
(McLachlin J, Canson Enterprises; endorsed by Libertarian v Hall)
First recognized in Nocton v Lord Ashburton in the context of breach of FD as an order for
D to make restitution, or to compensate the plaintiff by putting him in as good a position
pecuniary as that in which he was before that injury
Distinguished from equitable damages under HCO s.17 which provides for statutory
discretionary jurisdiction to grant damages in lieu of injunction or sp
o Traditionally to fill in the gaps of the lack of compensatory awards at c/l but
considered redundant now in light of the development LH
Arising from Fs duty who has misappropriated assets or caused loss or damage in breach
of duty to restore the lost property Libertarian, per Ribeiro J
Required to restore the financial position of the trust fund to what it would have been if
the trustee had not been guilty of wilful default.to compensate the trust for
Page 44 of 118
consequential losses that follow from the trustees breach in the context of accounting
on a wilful default basis Snells Equity
o Considered an equitable debt owed to the plaintiff so the action is more akin to
that for debt as opposed to claim for common law damages
o Not necessarily involving wrongdoing, and not in terms of expectance or reliance
measure again distinguished from common law remedies
Page 45 of 118
Election of remedy may be alternatives, or sue for both/ switch depending on nature of breach
and the position of the person in breach (assuming that the breach causes losses)
Avoid double recovery e.g. where loss + profits are claimed, to give credit for overlap
Trustee Fiduciary
Taking common accounts
Taking accounts on the
basis of wilful default
Equitable compensation When taking accounts becomes unfruitful as a result of
uncooperative attitude Libertarian; questionable
whether one can directly claim equitable compensation
Tang Man Sit v Capacious Investments (1996, PC) (vendor/ CT rented property out in breach of
trust after signing S&P [giving rise to the CT] but before the actual conveyancing i.e. misapp)
Issue of whether claimant is confined to one/ any of the remedies Landlord made a profit and
the purchaser suffered loss of rent i.e. the same misconduct giving rise to two effects which are
the flipside of each other
Held C cant claim equitable compensation for loss of rent + additionally account of profits
Would have been different if the flat is rented out and e.g. there is some tear and wear in the
property leading to further losses, in which case one can claim compensation for such losses in
addition to claim for account of profits, for consequential loss is not merely flipside of the
misconduct here
Libertarian Investments v Hall (2013, HKCFA) (P gave D money in a trust handed into solicitors
trust account for buying shares, which were misappropriated by D purporting to buy the shares when
he failed to do so; represented otherwise but couldnt produce certificates)
Allowed plaintiff to drop the taking of accounts and asked instead of direct immediate award of
money as it would not be fruitful to require further accounting uncooperative attitude of the
trustees and account of profits would be difficult
No question of election as the remedies are not mutually inconsistent account only a admin
procedure aimed at ascertaining the deficit and after which one has to falsify/ surcharge and
require reconstitution with Ts own $, and failure to do so would in any case result in an order
for immediate payments Ribeiro PJ
P may elect not to call for account or further inquiry if it is unnecessary or unlikely to be fruitful
but court will always have the last word Lord Millett
o May be misleading to say that the primary remedy for breach of trust/ fiduciary duty is
an order for an account (i) itself an entitlement as of right once trust or fiduciary
relationship is established (ii) not a remedy in itself but first step in proc
Pragmatic approach justified for not wasting courts resources; but not to be interpreted as
allowing all Cs to avert need to ascertain deficiencies after initiating it LH/Lee
Account for profits necessarily involves breach of fiduciary duty

Applicable for unauthorised profits, remuneration, secret commission and bribes
Theoretical basis that equity in fact considers that a trustee can never commit a breach, hence
any gain made is on behalf of the principle (Boardman) Lord Millett
o Hence liability to account as a constructive trustee i.e. as if he is an express trustee
o Basis being that D owes you a debt
To account for profits from taking advantage of the opportunity or knowledge given by Ds office
so long as causal link between opportunity and profits found Kao, Lee & Yip
o Irrespective of loss i.e. Not based on unjust enrichment where Ds gain = Ps loss
Page 46 of 118
Everything treated as being derived form the breach if T cannot distinguish between profits
made in breach of duties and otherwise Murad
Phipps v Boardman (1965, HL) (using info acquired as trustee to purchase shares; found real
sensible possibility of conflict of interests)
A. Granted personal liability to account for profits
B. Declaration of constructive trust which is applicable where a gift emanates from property
entrusted to the fiduciary
o Dissenting 3 held that info obtained qua fiduciaries is not trust property hence shares
obtained using those info arent under CT; 2 relied on the (further) contention that there
is no real sensible possibility of conflict
o C.f. majority CT applicable for D had acquired the knowledge and opportunity to
purchase the shares while purporting to represent the trust
Under strict application of fiduciary duties
o Suggesting that the use of position as opposed to use of trust property is equally capable
of generating proprietary constructive trust c.f. Lister v Stubbs (1890, CA) (bribe
obtained from abuse of position), overruled in Reid
Arguably easier to justify CT over bribe for incontrovertible assumption that the
victim ahs lost property at the value of bribe and unjust enrichment for F if allowed
to retain it c.f. profit in Boardman not made at the expense of B (except from risk of
harm where F cannot give disinterested advice) + in GF
Limitation of disgorgement
a. But-for causation need not be established Arden LJ, Murad v Al Saraj
Need only show that the breach was a cause of the gain controversial reasoning (LH)
b. Equitable allowance taking into account Ds care and skill Boardman v Phipps
Careful in not encouraging F to place themselves in conflicts Lord Goff, Guinness
c. Extent of accounting Warman International v Dwyer, Kao, Lee & Yip (for business opp)
Only accountable for profits properly and reasonably attributable Kao, Lee
Warman International (Aus HC) (no prior understanding; diverted business opp)
Will not be required to account for all profits made where the breach results in profits not in
the form of specific assets but operation of business
1. Determine the basis for account

Limited to 2 years (i) Had F not committed the breach but simply resigned, would take a
year to set up the new co to compete i.e. 1 year headstart; (ii) new co hired staff from P
hence benefit of well-trained former staff hence another year added
1 year assessed on the basis that the contract would have otherwise remained on foot
for a year given e.g. terminable on 3 months notice; TP dissatisfied
(ii) showing quantum not restricted to profits directly attributable to the carrying on
of Ds agency during that one year
2. Applicable approach (i) pro-rata shares between F and B i.e. each take a certain
percentage of shares in light of the contribution e.g. if there is prior understanding of some
sort of sharing, or (ii) equitable allowance only for F e.g. if profits mixed
Here adopted second approach the businesses were sufficiently the same and hence
should adopt the approach unfavourable to D
Page 47 of 118
Kao, Lee & Yip applying Warman and limited accounting to 1 year
Implicit but for reasoning for reference to had he not committed breach and resigned
properly, it would have taken them [period] before they could take the business away;
Causation wordings not explicitly used but requires proximity with gain
1. Establish link liable for whole of profits arising from breach regardless of whether he
chooses to share them with another by transferring to a jointly-owned company
Delay in seeking relief mitigates against the granting of relief
2. If a cap is needed (where profits made are so remotely linked with the opp)
3. E.g. how long would P have retained the opp, headstart
Taking of accounts for defaulting trustees

Falsification
Not dependent on proof of wrongdoing; and if T cannot perform core obligation to account for
and deliver a trust asset in specie, court can order monetary payment in substitution (i.e.
substitutive performance claim) of the objective value of the property at date when account is
taken and with benefit of hindsight
Possible for breach of duty of care as well so long as theres unauthorised transaction
Re Dawson (misappropriated NZD when it was on parity with AUSD i.e. 1:1 EX rate; B falsified acc and
requested reconstitution when AUSD had appreciated i.e. more AUSD for the same NZD)
Note context of traditional family trusts traditional principle applicable to all cases
Duty of reconstitution to original position arises from the date of breach i.e. D owes an
immediate duty to restore the trust fund and which continues up to the date of judgment
o Remedy is to take common accounts and falsify the disbursement of NZD, such that T
has to reconstitute trust fund in NZD as quantified at the date of judgment c.f. of breach;
if in specie is not possible, substitutive payment on same basis
o To put Bs in a situation where they would have been in had there not been breach
o Irrespective of whether the currency depreciated/ appreciated
o Basically stopped the clock at date of breach for quantifying liability
NAI (referred to as causation in the judgment), remoteness and foreseeability irrelevant which
by extension would rule out contributory negligence and mitigation LH
Misapp of trust fund requires only performance of primary obligation i.e. to make good the
disbursed amount, as opposed to secondary/remedial obligation arising from breach
Target Holdings v Redferns (1996, HL) * remains the authority though controversial
Solicitor released loan purchase money prematurely before execution of mortgage as required in
breach of trust [misappropriation of trust fund or unauthorised disbursement] mortgage executed
anyways, transaction completed but purchaser defaulted; there was a big fall in the market when P
had to realise security i.e shortfall between loan released and proceeds from sale
N.B. the breach committed left P in exactly the same position as if there was no breach
Arguments
a. (i) Once there is misapplication, duty to reconstitute the trust fund arises immediately
applying Re Dawson (ii) As duty arises immediately, one does not take into account subsequent
events; causation and remoteness being irrelevant under Re Dawson
b. (i) The same debit would have been made had there been no breach i.e. same shortfall would
have been suffered even if $ released after mortgage (ii) Imposition of liability on the trustee
would give beneficiary something that he would not have obtained anyways
House of Lords judgment Lord Browne Wilkinson (disapproved by LH)
Page 48 of 118
A. Duty to reconstitute the trust fund accepts its to put Bs to position theyd be in
B. Drew distinction between traditional family trusts (defined as for passing family wealth) and
bare commercial trusts latter often involve sole B and S, esp. in conveyancing, where it is inapt
to talk about reconstituting the fund for the sole B would get all trust assets anyways and should
simply award compensation (c.f. former where T has to put money back into the account for
later distribution); to not make trust commercially useless
Considered that B who has become absolutely entitled wouldnt have automatic entitlement
to reconstitution of the trust even under traditional principles
C. For bare commercial trusts
1. Loss arises at breach and immediate liability to restore, but quantified at date of judgment
but taking into account all subsequent events running up till then
In fact in line with Re Dawson only that this doesnt require reconstitution
2. D ought to be liable for loss which, with the benefit of hindsight and common sense, can be
seen to flow from the breach
Endorsing McLachlin J in Canson Enterprise (on breach of fiduciary duty)
Essentially incorporating a modified but-for test for misapp of trust fund in bare
commercial trust not satisfied as lender suffered loss from insufficient security not
solicitors breach; subsequent event of completion of transaction taken into account
Hindsight referring to taking into account subsequent events showing that the event did
not actually result from the breach whether subsequent events would have caused the
loss without the breach (here would have resulted in loss anyways)
o Noting that but for practically means the breach is a necessary cause
N.B. bare commercial trusts seem only applicable for falsification for breach of trust by trustee
Critique of Target Holding

Significance not in allowing the court to consider subsequent events to see whether Bs would
ultimately have suffered the same loss anyways, but only in that the court can look to whether T
has rectified matters in an authorised manner HM (personal opinion; essentially Youyang
approach c.f. Target) C.f. just take the amount at the date of judgment
LHs critique Lord Millett offering a better approach

A. Distinction between the two forms of trust novel and difficult to distinguish; further contrary to
the traditional approach subjecting all trusts to the same principles
Lord Browne-Wilkinson invented the term of bare commercial trust
Distinction in the judgment seems to be drawn on the basis of number of Bs
Does not exhaust all possibilities e.g. pension/ unit trust (LH) look at whether T has
discretion/ active powers of management or investment rather than no. of Bs would be
bare trusts if T has no actual duty except to hold the trust fund and do as instructed
hence there can be >1 B for bare trusts i.e. X pension/ unit trusts
Since technically the distinction is based on the fact that T has to act further in
investing or distributing assets in acc with terms of trust
Should not be relevant if the only question is remedies Bs should get
On the extent of duties Target (c.f. Youyang) where the trust had already been
executed hence money can be handed back directly
Always (i) apply Target, (ii) discuss merits of that argument
B. Causation is irrelevant under the traditional approach of falsification which is only admin and
enforcement of primary obligation
Page 49 of 118
CF. Lord Milletts LQR article same conclusion (in line with intuitive judgment that the solicitor
should not be liable to give P windfall) but different reasoning
Criticised the distinction between bare commercial trusts and traditional family trusts
1. Primary duty to account for trust property hence misapplication of trust fund gives rise to
primary duty to reconstitute (in specie, or in a substitutive manner if impossible) hence
common law rules of causation and remoteness have no place ie no Q of stopping the clock
2. Ts obligation to restore the property is not an obligation to restore it in the very form but any
form authorised by the trust achieved here by subsequent execution of mortgage hence breach
effectively remedied and no unauthorised application by date of judgement
Breach not in parting with the money but in not obtaining title deeds in return
unauthorised disbursement when paid out money hence duty to reconstitute and trust
money notionally restored; subsequent authorised application when mortgage was
acquired hence discharged primary duty; no need to quantify loss
Adopted by academic authorities e.g. Mitchells article (2013)
Youyang v Minter Ellison (Aus HC) (wrongful disbursement of T fund; intended as instructed to
purchase security which turned out to be defective and failed to obtain banker deposit cert)
Investor co went bust and Youyang who invested in the former suffered loss w/o protection
Essentially unauthorised disbursement for failing to obtain the right security (X DOC/ FD)
May be used to confine Targets application to cases where transactions were ultimately
completed with merely a technical and temporary breach in line with Milletts
1. Distinguished from Target the underlying commercial transaction at present was never
properly completed for the solicitor never managed to get the right security c.f. mortgage being
executed in Target so ultimately the breach was only technical and temporary
Here there has been no rectification or completion of transaction and plaintiff wasnt left
in the same situation had there been no breach
HL in Target stating that the D was obliged to restore clients account until the
underlying transaction had completed no such right thereupon
Hence not bound by Target; sought to distinguish it though appears to be rejecting it as
convincing authority
Rejecting the argument that the co would have gone bust anyways
2. Applied the traditional principle i.e. stopping the clock w/o causation test in Target reference
to loss arising by reason of breach (a broader test than but for)
3. (dicta) doubted application of common law principles to fiduciaries parties in neg/ contract
cases are taken as independent and equal actors CF fiduciary relationships, which essentially
involve one party pledging itself to act in the best interests of the other and thus with trust at
its core the balance should in this case favour the party wronged
Summary on falsification (and surcharging within taking of accounts) [note Target BCT]
Causation But for Dawson (only implicit by ref on duty to reconstitute the fund to the
position it would have been had there been no breach), by reason Youyang
Remoteness/ Irrelevant Dawson, Target, Millett LQR (principles have no place given that you
foreseeability only perform your primary duty to account for trust property)
NAI Irrelevant Dawson
Con neg Irrelevant by extension of logic in Dawson
Mitigation Irrelevant by extension of logic in Dawson
Approach
Page 50 of 118
1. Establish trustee relationship (n.b. all cases referring to breach of trust)
2. Falsification not dependent on breach or wrongdoing as an admin procedure for enforcement of
primary obligation
3. But for causation Re Dawson, Target
4. Re Dawson imposing duty to reconstitute on date of breach which continues to the date of
judgment but disregarding remoteness, causation etc c.f. Target quantifying liability as for loss,
which with the benefit of common sense and hindsight, flows from the breach, thereby covering
subsequent events
5. Discussion Target distinction between forms of trust, which may confine the case to that
particular context (link with present cases facts); may be further confined by Youyang dictum
on whether the transaction has in fact been completed; other Target controversies
6. Conclusion on preferred approach (+ why) Target remains good authority so unless c.f.
Surcharging
a. Surcharging within common accounts e.g. where fund is received but not entered into account no
proof of misconduct required
b. Surcharging for loss on the basis of wilful default i.e. T shouldve received the fund
By ref to loss suffered, inc. loss of chance to avoid detriment/ make gain Bank of NZ
Requires proof of WD defined only as passive breach of trust, omission to do something he
ought to have done (Bartlett); lack of prudence/due diligence (Millett); doing what he
ought not do or omitting to do what its his duty to do Re Owen
Applicable e.g. for breach of duty in negligently making authorised investment which
subsequently declines in value, Ts failure to do positive act etc
May take the highest intermediate value rather than as at the date when it ought to have
bene acquired/ when account is taken if D is T with power to sell the property or if he is
fiduciary who ought to have kept P informed and sought instructions(Lib, M)
Relevance of c/l rules on causation

But for generally required for FD Bartlett (loss in deprivation in shares market $);
mitigation relevant - Canson
Relevant Not settled though more likely in the context of duty of care
Surcharging is different quantification on what B wouldve made had T not been in breach
(cf falsification only treating as though no disbursement; common law rules of causation
and remoteness should apply Lord Milletts LQR article (1998)
Substance of claim analogous to c/l duty of care claim for loss occasioned by want
of skill and care; duty of care is not FD despite him being a F
Which is in line with principles not every duty of a fiduciary is fid duty
Only refers to the need to quantify but no discussion on e.g. test of causation
Endorsed in Bristol v Mothew (1998, per Lord Millett) but in the context of fiduciarys
breach of duty of care and skill (itself applying its reasoning to fid+T [obiter]) applied in
Bank of NZ (Canadian) [see Libertarian quote] though proof of factual but for is still
required regardless of nature of breach, and Libertarian (obiter); other Ca authorities
finding NAI and mitigation also relevant
Bristol citing duty of care arising from assumption of responsibility for affairs/
property for others; not description of the trade/ position they hold
Libertarian cited Bristol for trustees breach of duty of care as well
C.f. Duty of care being a common law concept and should not apply in trust where Ts are
held to higher standards; essence of fid relationship being that F pledged to act in the
interests of B Youyang (obiter, citing Canson Enterprise) [nb didnt discuss nai]
Page 51 of 118
Should set a different standard of care at equity esp. when most trustees are
remunerated these days Getzler
But unnecessary to refer to the higher moral duty if breach is one of duty of care
C.f. may depend on type of trust e.g. management less complex for Target type of trust
Libertarian Investments v Hall ***** (2013, HKCFA per Justice Ribeiro) (Breach of trust by
misappropriating trust fund; further breach of FD in wilful default)
Money put on trust to purchase shares; misappropriated 5.5m purporting to buy shares but
didnt do so; P couldve resold at a higher price for there was subsequently a company
interested in the purchase and P already had some shares; loss of 19m profits
Surcharging preferred for one would only obtain 5.5m on falsification subject to
considerations on remoteness and foreseeability depending on authorities followed
Only on misappropriation and fiduciary duties
1. Endorsed Bank of NZ mutually exclusive categories of breach causal link required

a. Misapplication resulting in loss/ damage to trust property requires but for causation;
remoteness, nai and foreseeability irrelevant (citing Target and BNZ); mitigation
irrelevant unless clearly unreasonable behaviour by P if he fails to take the most obvious
steps to alleviate losses and failures so egregious (Canson)
Stringent duty analogous to that of deceit rather than neg to encourage observance
of full duties; had assumed responsibility (Canson)
b. Breach of FD requires that breach is material to loss (onus on D); foreseeability and
remoteness inapplicable (both following BNZ v NZ)
Narrow escape route warranted by policy reasons
c. Breach of duty of reasonable prudence (obiter) common law rules of causation,
foreseeability and remoteness generally apply (i.e. adopting Mothew and BNZ)
2. A case on equitable compensation (from election) and misapp required to restore the trust
to position had there been no breach
3. Distinction on deliberate and non-deliberate breach of FD Here involving actual WD,
intentional, deliberate, actual wrongdoing which justified equitable compensation on the
basis of wilful default: strict measure liability i.e. X remoteness/ foreseeability
i.e. liable for loss that, with the benefit of hindsight and common sense, flows from the
breach Applying Target and Canson Enterprise
To apply common law rules on causation if not deliberate (Millett)
Took into account the possibility of bundling the shares and reselling at higher price
Noting that F is estopped from pleading a case inconsistent with his fiduciary duties i.e.
assessed on the basis that he would have purchased the said shares and put up the
whole bundle for sale when potential buyers show interest
Unclear whether this is applicable to breaches other than breach of trust, and in any
case still begs Q on when he would have purchased the shares exactly
4. Assessed quantum on which hypothetical remainder of shares could've been sold Rejected
the higher figure (proposed during fruitless negotiations) but still evidential gap in valuation
on what hypothetical purchaser wouldve paid for them since co had gone listed etc
resolved against D for created by his wrongdoing ie presumed unless proven contrary hence
and took the figure of trading price at the date of trial judgment
Lord Milletts judgment not dissenting but gave a different approach

1. Taking accounts is not a remedy but only first procedural step to identify and quantify
deficit, which is sometimes termed as equitable compensation
2. Should quantify loss at the date of account being taken and with full benefit of hindsight
applying common law principles
Page 52 of 118
3. Classified the case as surcharging on the basis of wilful default but taking of accounts and
enquiries unlikely to be fruitful because of Ts obstructive attitude
4. Since the evidential gap (on the price at which hypothetical remainder of shares could be
sold) was the consequence of Fs own breach of duty, the court can resolve against D (i)
take F at his word regardless of truth in it (ii) make assumptions against D, and (iii) do
rough and ready justice without precise justification for amount of award hence presumes
that the loss quantified by P can be attributed to Ds own wrongdoing
Critique LH/ LH and RL

Reaffirms that (i) common law rules of causation and remoteness apply to a negligent
breach of trust [obiter but didnt consider Youyang] (ii) court to apply reparative principles
laid down for breach of fid duty by fid where T deliberate breaches FD
Would fit coherently with CL damages and equitable compensation for fid causation
and remoteness calibrated acc to culpability and nature of duty but not historical origin
i.e. causation and remoteness required for negligence c.f. deliberate wrongdoing and
equitable compensation; in any case only liable for but-for loss flowing from breach
Ribeiros approach could be explained by the change in awarding E/C instead and may have
felt not constrained by principles on surcharging on the basis of wilful default
But gave a new meaning to WD as to mean deliberate wrongdoing hence now wilful
default has a different meaning for accounting c.f. E/C on the basis of WD; also differs
from surcharging on basis of WD where nature of breach immaterial
Adopted the 3 categories established in BNZ embracing the need to differentiate between
types of breach of trust (which was not necessary traditionally)
Departing from the idea of fid rules as those of disabilities i.e. traditionally E/C claims are
for restitution of the (value of the) thing B was cheated and hence an equitable debt rather
than reparative award c.f. now fiduciary rules impose duties and breach of which amount to
civil wrong triggering secondary liability may be conductive to (enhancing) explicit
engagement quantification of loss
Applied Target Holdings and Canson Enterprises but Target is on falsification and very
controversial in itself, no discussion on Target controversy or refer to Youyang; Canson
Enterprise referring to breach of fiduciary duty
Issue still remains on whether nai is relevant not at issue here; could be said to have adopted
Canson Enterprise which found nai relevant CF Canson breach was not deliberate and for
deliberate breach, rules of fraud seemed more relevant ie recoverable
Issue remains on where there is no evidential gap but deliberate breach question on whether
this case should be confined to situations where both conditions are satisfied
Millett decided on basis of obstructive attitude and Ribeiro additionally on deliberate
wrongdoing
Summary on surcharging on the basis of wilful default (usually not for breach of trust)
Causation But for Libertarian (obiter for DOC); But for Bartlett c.f. only to show material:
for D to disprove if its breach of FD; or Canson test if deliberate Libertarian
Remoteness/ Relevant Millett LQR (noting diff from falsification)
foreseeability For breach of duty of care and skill yes - Bristol, Bank of NZ (Canadian),
Liberatarian (obiter) c.f. Irrelevant Youyang (obiter, citing Canson Enterprise)
c.f. criticism on it;
For misapplication irrelevant Libertarian (obiter, citing Target, BNZ)
Fiduciary duty Irrelevant if its deliberate wilful default Libertarian
NAI For breach of duty of care may be relevant by extension of reasoning in Millett
LQR, Libertarian (obiter)
Page 53 of 118
For breach of FD relevant if Ts breach didnt permit wrongful./ negligent act of
TP Canson and cited in Libertarian (obiter for not at issue and note)
For misapplication irrelevant (Libertarian obiter, citing Target, BNZ)
Con neg Should not be required to look after own interests (implicitly in Youyang); for
breach of duty of care Common law principles (Bristol) may be by extension of
reasoning in Millett LQR
Mitigation Relevant if B acted clearly unreasonably Canson (but on Fs breach of fid duty)
cited obiter in Libertarian; for breach of duty of care may be by extension of
reasoning in Millett LQR
Approach
1. Establish trusteeship, nature of breach, and claim in surcharging on the basis of WD
2. To quantify the quantum of equitable compensation generally
a. Breach of trust but for causation test required but remoteness and foreseeability
irrelevant because analogous to claim in deceit (Libertarian, Ribeiro J);
b. Breach of duty of loyalty only that breach is material and then for D to disprove causation
i.e. foreseeability and remonteness not relevant (Libertarian)
c. Breach of duty of care common law principles should apply given the analogy with
common law claim (Millett in LQR, Bristol v Mothew, BNZ, Libertarian [dicta]) and
remoteness, foreseeability etc relevant c.f. not appropriate for Ts moral duty (Youyang
dictum)
3. But if it involves deliberate and actual wrongdoing in breach of fiduciary duty strict principles
should apply i.e. Target test of loss which with the benefit of common sense and hindsight,
flows from the breach Liberatarian, Ribeiro
Controversial for the novel distinction on forms of breach, and adoption of Target without
discussion on the controversy and difference in nature of case etc
The outcome may be alternatively deduced by resolving evidential gap against T provided
that he caused the evidentiary gap Milletts judgment in Libertarian
4. Conclusion on preferred approach (+ why)
Page 54 of 118
Equitable compensation in the context of defaulting fiduciaries

N.B. Ps generally go for breach of fiduciary duty as opposed to duty of care as there is a higher
likelihood of obtaining a favourable award of remedy
A. Breach of duty of loyalty

Causation
a. Traditional approach requiring only that the breach is material Brickenden v London
Loan Savings Company (represented mortgagor/gee without disclosing conflict)
F is not allowed to lead evidence saying theres no but for causation in light of the higher
moral standards required but harsh as the test is the same for fraud or deceit despite
present context being one on neg i.e. a less culpable breach
Cannot maintain that disclosure wouldnt have altered clients decision to proceed when
breaching the duty of non-disclosure hence not to entertain argument on but for
b. Modern approach ie liability for loss which, with the benefit of hindsight and common sense,
flows from the breach (modified but for test) McLachlin J
For the fiduciary to disprove causal link Libertarian (obiter), Canson
NAI but for test proved but real loss attributable to neg of TP in Canson Enterprises
Canson Enterprises Ltd v Broughton & Co (1991, Can) (helped P with conveyancing w/o
disclosing conflict of interest; because of which P purchased piece of land and built special
warehouse; loss from neg of structural engineers engaged by P)
Majority adopted nai and applied tort law concepts and limited the award to the extent that
was caused by TP
Parties are expected to look after their own interests under c/l hence con neg/ mitigation
are relevant c.f. equity where Bs are not expected to do the same given the difference in the
core of relationship hence foreseeability [con neg/ mitigation should also be irrelevant by
the same token (obiter)] McLachlin J, minority
Instead devised the test of loss with benefit of hindsight
Will only be liable for the loss if Ds breach permits TPs act which ultimately results
in the loss in which case causal link found
Swindle v Harrison (UK) (old lady who had signed S&P for a hotel was unable to obtain sufficient
fund for the transaction and obtained loan from solicitor who was making a secret profit)
Mummery LJ held that the solicitor was not liable (i) P was too happy to take it, (ii) would
still have suffered loss even if there was no breach applying McLachlins test i.e. yes on
breach but no liability for she wouldve taken it
(i)scope of duty breached (ii) nexis with loss (iii) Target and Canson
Remoteness not relevant Canson Enterprise (McLachlin J)
Contributory negligence irrelevant in Pilmer v Duke as Bs not supposed to look after own
interests; same for mitigation LH: no authority but same logic should apply
Punitive damages rejected in Harris v Digital Pulse Pty Ltd (NSW CA)
B. Breach of duty of care

Duty of care being that of an ordinary skilled man exercising professional skill
Page 55 of 118
Same principles as in c/l should apply for they are substantially the same Millett, Bristol &
West Building Society v Mothew, endorsed in Bank of New Zealand v New Zealnad
Guardian Trust Co Ltd; dictum in Libertarian Investments v Hall (in the context of breach
of duty of care by Ts)
C.f. Youyang dictum not appropriate given the difference in relationships
Approach
1. Establish fiduciary relationship and nature of breach
2. For breach of fiduciary duty
a. Causation test loss, with the benefit of hindsight and common sense, flowing from the
breach (Canson Enterprise, adopted in BNZ)
b. But liability limited to the extent to which TP is liable under NAI Canson (majority)
c. In any case mitigation and con neg shouldnt be irrelevant as Bs are not required to look
after own interests McLachlin J (minority in dictum)
3. For breach of duty of care analogous to common law claim so same principles should apply
(Bristol v Mothew, BNZ, Libertarian [obiter]) c.f. Youyang on impropriety
Falsification
1. Re Dawson duty to reconstitute upon breach and to be assessed at the date of judgment for
substitutive performance claim
2. Target bare commercial trusts; applied Canson Enterprise i.e. to have it assessed at the date of
judgment taking into account subsequent events
3. Limitation on Target (i) whether facts concern a B/C/T and how it should be defined (ii) or
limiting it to the situation where the transaction is ultimately completed (Youyang) (iii)
shouldnt be followed
Surcharging
1. Traditional debate Millett LQR; Bristol v Mothew (cited by Libertarian); BNZ v NZ Guardian
(cases on duty of care)
2. Youyang dictum
3. Libertarian v Hall deliberate wrongdoing allowing equitable compensation on the basis of
wilful default
4. Limiting Libertarian (i) whether it involves here deliberate wrongdoing (ii) whether it is
confined to the award of equitable compensation on WD basis (RL/LH c.f. only awarded E/C for
unfruitful accounting) (iii) only where there is deliberate wrongdoing and evidential gap (iv)
only for surcharging on the basis of wD for breach of fiduciary duties
Page 56 of 118
Resulting and constructive trusts in Commerce

Also known as trusts arising by operation of law as opposed to express trust arising from
express or inferred intention
(i) personal and proprietary rights, (ii) express and constructive/resulting trusts
Establishment of trust would give (i) personal claim against trustee for breach of trust,
and (ii) equitable proprietary interest in property which would rank in priority to
unsecured creditors and make asset unavailable for distribution; enforceable against TP
unless equitys darling and allow reconveyance of the property; would also allow claim
for rise in value, compound interest
Resulting trust and Constructive trust in Land Law (the matrimonial home context)
If failed to express an intention in writing (requirement in s.3 CPO) that both man and woman
were to share the beneficial ownership in the property, and the property was conveyed to the
mans name only, the woman can rely on (i) resulting trust or (ii) constructive trust
o Can invoke RT if she has contributed to the purchase price
o Can invoke CT if there was common intention and that she had acted detrimentally in
reliance upon the intention
More recently in Stack v Dowden the CT solution is to be preferred
General principles
Requires always an effective disposition of interest Re Vandervells Trust (No 2)
There must be some expression of an intention on the part of owner mere existence of some
unexpressed intention is not sufficient Re Vandervells
Westdeutsche Landesbank Girozentrale v Islington LBC [1996], Lord Browne-Wilkinson

His take on general principles of trust
(i) It is inappropriate to fix CT/RT trustee with personal liability to account unless their
conscience were affected with knowledge of the circumstances leading to the creation of the
trust, and
(ii) Hence RT/ CT should not arise until and unless then
Does recognize the possible burden of equitable proprietary interest arising before Ts
conscience is affected but he doesnt view it as trust
Hayton Mitchells evaluation criticising the (ii) limb

Could mitigate strictness in personal liability on T by imposing on T an obligation only to
restore property on demand rather than denying existence of trust
RT/CT can arise and grants transferee equitable proprietary interest regardless of Ts state of
conscience but T will not be personally liable before his conscience is affected by the knowledge
- HM, R v Chester and North Wales Legal Aid Area Office, ex parte Floods of Queensfery Ltd, per
Lord Millett
B only with power to fix him with duty to reconvey the property till he has notice
Resulting trusts
Arising where there is (i) transfer of property, and (ii) a recognized trigger for trust occurs, as a
result of which beneficial interest results back to the transferor
Can occur at the time of transfer or subsequently
Orthodox types of resulting trust
Page 57 of 118
1. (i) voluntary payment or transfer, (ii) purchase in the name of another, [together as apparent
gifts] and (iii) incomplete disposal of beneficial interest [failing trusts] Lord Millett
extrajudicially
2. (i) Automatic resulting trust, and (ii) presumed resulting trust Re Vandervells Trusts, per
Megarry J
Automatic resulting trust for incomplete disposal of beneficial interest or failing trusts
automatic consequence and does not depend on any intention/ presumption
(i) Initial failure i.e. where S transfers property upon trust but fails to effectively declare a
trust e.g. lack of certainty, informality etc (intention to create trust )
Requires purported express trust
Affirmed in Hodgson v Marks (express trust to lodger of house which was then sold
and mortgaged; didnt comply with statutory formalities)
(ii) Subsequent failure i.e. where some/all beneficial interest has not been exhausted, such
that there is failure to dispose of the whole beneficial interest in the property
(intention to create trust may/ not have to be presumed)
o Surplus would automatically result back to S as RT; unless S has abandoned the
property (Westdeutsche)
o Interest would be rateably in proportion to amounts they subscribed Re British
Red Cross Balkan Fund
Example Vandervell v IRC [1967] HL (V transferred shares to charity with option granted to T
to purchase back the sahres at nominal price to avoid tax obligation)
Held that trust of the option failed for lack of certainty of objects i.e. V didnt successfully
divest himself of the equitable interest despite transfer of legal title i.e. automatic resulting
trust hence continued liability to pay tax
Significance in that automatic RT can be imposed irrespective of intention of S
Presumed (intention) resulting trust apparent gratuitous gifts/ voluntary transfers

E.g. where X buys property in Ys name, or transfers to him for no consideration
And would only stand if there is no reliable evidence of true intentions e.g. presumption of
advancement; or direct evidence of intention to make outright transfer West.
The presumption being that transferor intends transferee to be his trustee [nb] would
view the transactio with a cynical eye
Voluntary conveyance resulting trust if A pays inter vivos B; purchase money resulting trust
when A inter vivos pays C to convey rights to B Swadling
o Do not arise where the right transferred is an interest under trust
o No voluntary RT if interest conveyed is different from that held by the transfero
3. No distinction between the Vandervell types Lord Browne-Wilkinson in Westdeutsche

Landesbank v Islington
Both types giving effect to the common intention of the partiesnot imposed by law against
the intentions of the trustee but gives effect to his presumed intent
o Automatic RT when trust didnt exhaust interest; Presumed RT arising where A
makes voluntary payment and did not intend to make such a gift
o Both involve (i) transferor getting nth in return for transfer, (ii) creation of a new
equitable property right rather than inertia of pre-existing beneficial interest
Chambers, and (iii) RT wont arise if theres proof of contrary intention of benefit
o And presumption of RT is rebutted by evidence of any intention inconsistent with
such a trust, and not only evidence of an intention to make a gift
Page 58 of 118
Specifically rejecting Megarrys argument that ART does not depend on intention and
operate automatically
C.f. cant account for cases where RT has been imposed though there is clearly no intention
on the part of transferor for transferee to be trustee
Rebuttal by HM and Virgo it cant be referring to the parties common intention

Reference to common intention cannot be right for it is more relevant to the common
intention constructive trust It can at most be S/Transferors intention
Its unclear what he is presumed to have intended
Theoretical basis of resulting trust

N.B. the presumption is not of a resulting trust which is a legal response to proved facts
1. On the situation giving rise to resulting trust

A. Responding to the transferees unjust enrichment at the transferees expense rejected
unanimously in Westdeutsche in the context of payments pursuant to void contracts c.f.
Lord Millett in Air Jamaica Ltd v Charlon, and Twinsectra
Too wide for allowing RT to arise whenever claimant transfers property to D and
intention is vitiated by e.g. mistake, UI, or condition did not materialise
o C.f. Chambers may distinguish between cases where the basis for claimants
payment fails after receipt of benefit, or immediately such that D has never held
the asset free of claim
Which would explain Sinclair depending on whether the depositers
claim to recover money for failure of consideration was founded on the
assertion that the building society failed to repay their money, or the
contract was void for UV from the beginning if latter, RT
B. Responding to the intention to create a trust
Cannot explain cases where resulting trusts have been imposed despite clear evidence
that the transferor never thought about it e.g. Vandervell v IRC; or why failing express
trust can be reinterpreted as resulting trust
2. On the nature of intention

A. Responding to the transferors actual or presumed intention of retaining beneficial interest
and for transferee to hold the asset for him Virgo, Lord Browne Wilkinson in
Westdeutsche, Swadling
i.e. presumption referring to the declaration of trust by transferor in his favour
in order to give effect to the common intention of the parties Lord B-W c.f. confusion
with common intention constructive trusts and contrary to imposition of RT where
transferors has no intention of becoming Ts HM
Doesnt account for the situations where S has no intention for T to hold as trustee e.g.
Vandervell v IRC (did not want interest to result back for tax avoidance), Re Vinogradoff
(transferee being a minor), El Ajou v Dollar Land Holdings Plc (unaware that the property
was taken from him in the first place)
Page 59 of 118
c.f. Vandervell v IRC, Lord Wilberforce and Lord Upjohn
There is no place for presumptions where all the facts have been proved by evidence,
and in the case of failed trust resulting trust there is no fact left outstanding
o But Chambers explanation thats framed in terms of proof of a non-beneficial
transfer should fail on the same reason that a presumption of non-benefiical
transfer cannot be the explanation for presumed RT
Though the courts proposition there did not work for the settlor retains nothing when
making such a transfer
B. Responding to the transferors absence of intention to make a gift to transferee Birks,

Chambers, HM, Lord Millett in Air Jamaica Ltd v Charlton, Lord Phillips M.R. in Lavelle v
Lavelle
Would be presumed where there is no close relationship between parties in the absence
of contrary evidence Lavelle v Lavelle
RT arises whether or not the transfer intends to retain a beneficial interest or positively
wishes to part with the beneficial interest since it responds to the absence of intention
on his part to pass a beneficial interest Millett in Jamaica
o Different from Chambers who allows RT even if there is intention to pass
property but it is vitiated or qualified in the same way that gives rise to
restitutionary claims c.f. Milletts view is based on intention to transfer
o C.f. Swadling this is a case of failed trust RT hence nothing said on the
presumptions operating on other types of resulting trust
Argues that it can be reconciled with A for evidence of intention to create a trust
demonstrates absence of intention to benefit transferee HM, Millett in Jamaica; and in
any case presumption in favour of transferor should only be used where theres not
sufficient evidence to determine the transferors intention
Birks and Chambers supported by Millett but not Browne Wilkinson

RT is not imposed in response to transfers (actual/presumed intention to create a trust/ retain
beneficial interest, but in response to the fact that he (actually/presumably) did not intend to
make a gift to trasferee i.e. absence of intention to benefit
(i) gratuitous transfers w/o consideration are apparent gifts (ii) equity tends to be suspicious of
gifts (iii) hence presumption of non-beneficial transfer (iv) which triggers a trust in favour of
transferor (v) which requires positive evidence of intention to rebut e.g. presumption of
advancement
Swadlings 5-Step Arguments against Birks and Chambers

1. Gratuitous transfers outside relationships of advancement are not apparent gifts but
ambiguous transfers
2. Suspicions are not the same as presumptions; in any case equity is not suspicious of gift
3. It is not possible for equity to presume that apparent gifts are not gifts, for not-gifts is at best a
legal conclusion from proved facts but not a fact in itself
4. A presumption of not-gift cannot be a presumption of non-beneficial transfer for the law does
not recognize a notion of non-beneficial transfer as distinct from transfers on declared trusts or
security
5. No satisfactory explanation as to why, assuming there is non-beneficial transfer, the law
should respond to its proof by the raising of a trust for the transferor
Page 60 of 118
On presumption Swadling
Classified as (i) voluntary conveyance RT (ii) purchase money RT (iii) failed trust RT
o Noting that the (i)/(ii) do not arise when presumption of advancement applies, in a will
context, wehre right transferred is an interest under trust, and additionally for (i)
where the interest conveyed is sth diff from that held
Referring to proof of one fact giving benefit of secondary fact unless rebutted
Presumption is depositive of result in the absence of contrary evidence Fowkes v Pascoe,
evidence that investment was not for purpose of trust e.g. that it was a gift can rebut
presumption Mellish, not relevant if theres no gap in the evidence Goodman v Gallant
o Presumption rebutted by evidence of any intention inconsistent with such a trust and
not only evidence of intention to make a gift West.
C.f. mere indication of burden of proof, irrebutable presumptions of law, ones which dont
compel tribunals to find in favour of any party in the absence of contrary evidence, those which
are a matter of statutory construction
The puzzle of the Quistclose trust

Where settlor fails to dispose effectively of the entire beneficial interest RT
The issue of whether the transfer is intended as an absolute gift or trust
Re Abbott fund subscribed for the maintenance and support of 2 deaf women
Held that the surplus was held on resulting trust for subscribers
C.f. Re Andrews Trust fund subscribed solely for the education of a clergymans children
Held the children were entitled to balance equally upon completion of formal education
Where a special purpose be assigned for the gift this court [rebuttably] regards the gift as
absolute and the purpose merely be the motive of the gift
o If he has given the whole of the fund, he is regarded in the absence of contrary indication as
having manifested intention to benefit the person to the full extent of SM
o Construed education in the broadest sense and found ref only a motive
Followed in Re Osoba by CA (bequest to wife upon trust for the maintenance and training of
daughter for up to university and maintenance of aged mother) held to be a trust for the 3
women absolutely as joint tenants hence no interest to result back
N.B. distinction from Quistclose intention on finding of explicit intention on exclusivity
Money lent for a specific purpose i.e. a Quistclose trust RT

The basics note that QT would be between transferor and transferee (see Twinsectra)
Where A advances money to B on terms (mutually) agreed that it will be used for a specific
purpose entailing that it does not become part of Bs general assets available for distribution in
bankruptcy but must be used for specific purpose or returned to A
Applicable if (i) property is transferred for a specific purpose but failed in which case personal
right elevated to proprietary status (ii) capable of general application TM Yeo & H Tjio (as
shown in Twinsectra) (iii) Principles of trust can be bent to achieve priority in insolvency
situations LH
Note the QT will be with the person holding legal title e.g. solicitor Sims in Twinsectra
Personal Remedy Proprietary Remedy Quistclose trust

A lends $100 to B A lends $100 to B on condition that B will only spend it on
If B had gone bankrupt, A only paying his university fees
has a personal remedy against B cannot used it for other purposes and cannot mix it
B, and rank pari passu with with his general funds
other creditors A has legally segregated the $100 from general funds
Page 61 of 118
No proprietary interest no (though not physically)
right over a specific asset of B It is common to what one can get a trust
Justification Tjio and Yeo

Lenders favoured at equity QT often arising in corporate contexts e.g. in Barclays v Quistclose
and theres arguably social value in encouraging lenders to rescue companies on the brink of
insolvency and in which case injection of capital is valuable
C.f. allow lenders to bypass all requirements of creating secured interest
o Possible argument that QT should be limited to situations where lender truly wishes to
lend money for corporate rescue
Barclays Bank Ltd v Quistclose Investments Ltd (1970, HL)

Loan arranged on condition that its used to pay forthcoming dividend
$ paid into a separate bank account with BB with which RR had overdraft arrangement
RR then went into liquidation before payment of dividends i.e. purpose of loan frustrated
Issue of whether BB could set off the monies with the amount owed by RR to it which depends
on whether Q retained proprietary interest in the loan money
o (i) Whether as between Q and RR, the terms upon which the loan was made were such
as to impress upon the sum a trust in Qs favour in the event that the dividend was not
paid and (ii) if Q did have equitable proprietary interest, did BB have notice of it so as
to be bound by the trust
Judgment Lord Wilberforce

Found that (i) money was to be used for an exclusive purpose for paying dividends (ii) it was
the mutual intention (express/ necessarily implied) between Q and RR that the money would
not fall within RRs general assets, (iii) giving rise to a primary trust in favour of intended Bs
with euqitoable right for L to see it is applied for specific prupose; if satisfied QT ends and
reverts to debtor relationship; otherwise (iv) secondary trust in favour of lender
Found the arrangements gave rise to a relationship of a fiduciary character, or a trust in favour,
as a primary trust, of the creditors [the shareholders] and secondarily, of the third person
[lender] if the primary trust fails c.f. Lord Millett, Twinsectra
(a) Primary trust for shareholders/ whoever loan was supposed to be used to pay off when
the money was advanced
Lender only with an equitable right to see that it is applied for the primary designated
purpose
If fulfilled, the loan only gives remedy in debt hence QT comes to an end
(b) Secondary trust when the primary purpose is not fulfilled
If secondary purpose of repayment to lender was intended by the parties either by
express agreement or implication RT in favour of lender (remedy in equity) otherwise
mere remedy in recovery of loan
Held there could be coexistence of legal/equitable rights and loan/ trust in the same transaction
due to the flexible interplay of law and equity
o Citing Toovey v Milne (part of the money advanced was repaid to lender for failure of
purpose) and Re Rogers (CA) (money advanced for enabling payment to creditors was
imposed with a trust and never became bankrupts property)
Further found BB had notice that the money was borrowed only for the stipulated purpose
which was sufficient to give him notice that it was trust money immaterial that it was not
aware of lenders identity though must be more than mere request of deposit into a separate
account
Basically Wilberforce requires (i) common intention c.f. Millett in Twinsectra (ii) that the
money was used for a specific and exclusive purpose i.e. that it cannot be mixed with general
Page 62 of 118
funds of the recipient
o Physical segregation/nature as loan not needed specific purpose suffices
o Needed not consider nature of QT for primary purpose failed anyways which was
important in light of Saunders v Vautier
Significance for granting security interest to lenders without need of registration
Theories on nature of the Quistclose trust not considered in Barclays v Quistclose

1. Both express trusts Lord Wilberforce in Quistclose ; problem of classifying
Trust for persons (assuming satisfaction of certainty of object) (i) shareholders of RR c.f. Bs
should be able to act collectively to compel transfer of asset (Saunders) but clearly not
intended by Quistclose hence didnt meet commercial reality of the deal (ii) Quistclose c.f.
would be able to revoke the trust (Saunders) but not contemplated by the commercial
transaction that the lender could recall the loan at any time (iii) no one as suggested by Lord
Millet extra-judicially c.f. not in line with traditional trust law which embodies a check and
balance mechanism
Trust for purpose c.f. private purpose trust would be void for not enforceable by anyone and
only recognized in traditional law for charitable public cause
2. Primary express trust for creditors, secondary resulting trust for lender from failure to exhaust
beneficial interest Lord BW in Westdeutsche (rejected that there was a RT because there is no
express trust i.e. doesnt fit within recognized categories of RT (referring to RT at the outset); and
intention for it to become intended Bs absolute property)
Referring to the instance of automatic RT where A transfers property to B on express trust
but the trust fails to exhaust the whole beneficial interest
C.f. requirements on 3 certainties (i) certainty of intention is it desirable to infer one in the
commercial context (ii) certainty of objects
Difficult to reconcile with principle that trust for private purpose would be void HM
3. RT for the lender Millett, Twinsectra, JA Glister

N.B. no failure in primary trust in Twinsectra hence nature of trust was at issue
Also note no express dissent between Hoffman and Millett in Twinsectra perhaps based
on the fact that theres no need for RT if express trust is found
Lord Millett
Referred to QT as illusory trust in extrajudicial article because the beneficial interest
remained in S and revocable at any time though taking form of an express trust
Modified his analysis later in Twinsectra in that the trust did not take the form of an
express trust but rather resulting trust though still illusory in that the recipient was not
intended to receive full interest i.e. beneficial title still remains in the lender/ settlor when
the purpose fails and thus arises by operation of law
4. Loan subject to contractual undertaking giving only contractual right to lender that is
specifically enforceable in equity to prevent misapplication Chambers
RT would only arise if the purpose for which the money was lent had failed, for the claimant
wouldnt have intended the recipient of the property to have the benefit of the property
C.f. Millett it doesnt address non-contractual payments, recognition of fiduciary duties,
evidential significance on keeping accounts separate, explanation on conjuring proprietary
rights out of contractual relationship
Page 63 of 118
Commentaries
Virgo
Lord Hoffmans express trust for lender approach is inconsistent with the orthodox approach
that the beneficiary can revoke the trust anytime or compel exercise of powers
Lord Milletts approach is consistent with his idea that RT responds to transferors absence of
intention to pass the entire beneficial interest
C.f. he appears to be considering this a case of ART from holding retention of equitable interest
but that only arises where the property has been transferred on an express trust which has
failed inconsistent with judgment as (i) Millett did not try establish such at all and merely
based it on the absence of intention to transfer beneficial interest (ii) fact of insolvency means
the reason for lending money has failed and enables lender to revoke mandate held by the
borrower even though there is no failure of trust as in Quistclose under Milletts approach as
title is always with L
o Virgos interpretation ART problematic because it is only possible if theres failed
express trust c.f. PRT for absence of intention to benefit
Reinterpreted as an express trust form the start, with intention inferred from arrangements, but
if its for an abstract purpose where there is no identifiable Bs, then it would fail initially and
give rise to RT for the lender while trustee continues to have power to use the fund until it is
exhausted
o If its purpose trust with identified Bs, it would be valid until borrower goes into
insolvency in which case the purpose can no longer be performed; RT then arises
o In which case Bs cannot terminate trust at any time
JA Glister
Questioned the extent of equitable right to see funds applied for the primary designated
purpose e.g. where A sets up a trust and gives property to B on trust in favour of C by
instalments and C seeks to invoke Saunders
Issue on proprietary interest where part of the trust is delivered such that C has gained
beneficiary interest in some property, and then becomes impossible
Chambers view cannot assist settlors in compelling performance of positive obligations
imposed on the trustee to do something and; would also not have proprietary basis to get the
money but only injunction to prevent misuse
Trustees of RT generally not subject to fiduciary duties unlike ET hence separation of legal and
equitable ownership while creating a trust does not necessarily create fiduciary relationship
but in QT trustee would be sufficiently aware of transferors intention and motiviation so as to
make him subject to fiduciary duties
o Moreover RT and ET are different in the beneficiarys control over T (Saunders)
o Does recognize that RT is more readily available in non-contractual transfers for being
based on absence of intention to pass full beneficial ownership
Page 64 of 118
TM Yeo and H Tjio, Case Comment The Quistclose Trust, LQR 2003 on Twinsectra
QT may not be distinct, analysis applicable to other deals and full range of obligations and
remedies likely available; implicit even in Milletts
Theoretical difference between Hoffman and Millett on nature of QT but not inconsistent;
merely that no need to resort to RT if ET found noting Hoffmans simplistic and in line with
contractual understanding
Milletts actually adds to the controversy on Birks/ Chambers debate though case here relates
to failure to exhaust entire beneficial interest hence RT used as a gap filling mechanism [easy
since Sims was never intended to retain beneficial interest] but taking it further, he views that
QT is applicable whenever lender does not part with the entire beneficial interest in the money;
in which case debate on intention to retain/ lack of intention to pass becomes illusory
Noted difference in significance of mutual intention but practically absence of intention is
difficult to prove so L likely to give evidence on actual intention
Milletts analysis offers a lower threshold for proving trust further extension of benevolent
construction in finding a trust in what would have been an ordinary loan
Following which, the lender who specifies purpose for a loan theoretically has at least three
strings to his bow (a) express trust with L as B (b) intended express trust but failure of
certainty of object hence money on RT for L (c) no express trust but nonetheless RT from lack of
intention to benefit borrower
Possible social value in justifying preference for lenders c.f. too easy to bypass
Summary of requirements on Quistclose trust essentially a question of whether the transfer is for
specific purpose such that the recipient cannot mix the assets with general funds
For Virgo (i) particular purpose (ii)exclusive use for that stated purpose (iii) separation of
property (iv) failure of purpose c.f. LH shouldnt be a req for QT arises from the start
1. Generally, only requires that S intends to enter into arrangements that have effect of creating
trust i.e. S possess the necessary intention as objectively assessed to create trust Twinsectra
c.f. mutual intention of the parties in Barclays v Quistclose
2. Will be impressed with QT if the transfer must be for an exclusive specific purpose test of
whether the payors objective intention is for the asset to be at recipients free disposal Tw,
affirmed in Re Goldcorp (* note sequence)
a. Requires more than just specific purpose; must be an exclusive purpose such that the
recipient cannot mix the assets with general funds or dispose of them freely
Requires a legal duty/ undertaking of segregation from general assets
Factual physical segregation neither sufficient nor necessary though it can be strong
evidence that the money is not at recipients free disposal
o In line with requirements for express trust for which there is only a duty to keep
separate account for trust assets
o Would however require strong evidence to show that the asset is not at the
borrowers free disposal if the assets are not segregated
o N.B. Would require separate accounts to identify trust $ (nb tracing)
Generally not satisfied for normal loan where B only owes contractual duty to return an
equivalent amount, deposit/ earnest money (to show sincerity in performing contract),
or payments in advance for goods or services
o Normally intended for the transfer to be absolute and at the free disposal of the
recipient as part of its general cashflow
b. In order to ascertain parties intention look at terms of the arrangement and circumstances
TW; eg loan used only and exclusively for payment of dividends in Quistclose; indication of
one specific purpose only in Tw
Page 65 of 118
Ls s intention is paramount mutual intention for (i) showing Ls intention and Ts
consent Hoffman, and (ii) only for scope/nature of duties Millett
Ultimately the same as obj assessment of Ss intention requires drawing inferences as a
reasonable person would from the circumstances and the agreement
3. This would give rise to a Quistclose trust, which is a resulting trust in favour of S, at the time of
payment and subject to borrowers duty/ right (depending on terms) to apply it for specific
purpose Twinsectra, Lord Millett c.f. Quistclose
RT for the absence of intention to transfer beneficial interest
Beneficial interest remains with L until and unless applied in acc with directions
B only with a mere power to apply money not a purpose trust
o Requires only that the power is stated with sufficient clarity to enable enforcement
B loses authority to use the money at all if uncertain
4. Where the purpose

a. Is satisfied the trust will come to an end and parties revert back to a contractual debtor/
creditor relationship
b. Fails money is to be returned to lender as it is no longer subject to borrowers power
Distinction from a breach of trust e.g. if A gives B $1 to buy drinks, B then steals it to buy
snack, or Twinsectra where purpose can be achieved so long as $ was used to purchase
property even if it was released prematurely in breach of trust
Failure of purpose would require that it is no longer possible to perform the trust which
happens on a frustrating event e.g. legal prohibition, insolvency
Twinsectra v Yardley [2002] HL

Facts Issue of whether the arrangements created a trust for T
T transferred $ to Sims as a loan to Y for buying property (solicitor but not acting for Y) who
undertook not to release the money save in accordance with the conditions
Sims breached undertaking in misapplying the trust fund by releasing the money to Ys solicitor
who then released it to Y; Y used it to pay off a debt i.e. breach of contract with T
T claimed breach of fiduciary duty by Sims, and dishonest assistance against Ys solicitor which
requires there to be a trust to have standing to sue in such
Analysis on the basis of express trust Lord Hoffman (majority support)

Found express trust for T subject to power of Sims as Ts to apply it for agreed purpose; issue on
(i) intention to create trust, and (ii) terms
(i) by construing Sims undertaking which represented mutual intention of the parties;
sufficiently certain so long as the court can determine whether the application is within terms
Ss intention is paramount but mutual intention relevant as evidence of (i) Ss own intention,
and (ii) Ts acceptance of office (ii) in Yardleys undertaking
Analysis on the basis of resulting trust Lord Millett **, adopted in Hong Kong
Requirements
1. Generally does requires necessary intention on the part of transferor to create a trust but subj.
intention is not relevant; merely requires that he intends to enter into a particular arrangement
with the effect of creating a trust
The fact that T relied for its security exclusively on Sims personal liability is merely subjective
Page 66 of 118
and therefore irrelevant, but in any case not inconsistent with QT since QT arrangements are
not intended to provide security for repayment of loan but rather to prevent money from
misapplication otherwise than in acc with Ls wishes
Mutual intention only relevant as to nature and scope of borrowers undertaking but the
incidence of trust arises purely from lenders lack of intention
o But here must consider borrowers undertaking to ascertain gap in the beneficial
ownership since its a case on failure to exhaust beneficial in.
2. Not only that money is paid for a particular purpose, but whether the transferor, objectively
assessed, intended the money to be at the free disposal of the recipient
Necessarily excluded by arrangements that money is to be exclusively used for specified
purpose here found in Sims undertaking
3. It is unconscionable to obtain money on terms as to app and then disregard them (Gibert v
Gonard, North J) therefore Sims breach is beyond mere breach of contract
Undertaking that the money is used solely for acquisition of property and not simply to the
order of Yardley release for any other purpose is breach of trust
A fiduciary duty (instead of contractual) to apply property on stipulated purpose and not for
any other purpose undertaking giving rise to fid duty for the lender places his trust and
confidence in the recipient to ensure that it is properly applied
o A classic situation in which a fiduciary relationship arises, and since it arises in
respect of a specific fund, it gives rise to a trust
Hence may exist despite absence of contractual relationship as in Rose v Rose, and binds
third parties as in Quistclose *not the other way round
Nature of the Quistclose trust - Money held on RT for the lender from the start (i.e. retains beneficial
interest), subject only to the borrowers right to apply it for the specific purpose
In response to arguments that (i) there lacks certainty of object, and (ii) no trust in favour of T
could arise prior to the failure of stated purpose
Rejecting all alternative analysis [held to be] an entirely orthodox example ofRT
o Doubting the two successive trust analysis by Lord Wilberforce problematic where the
specific purpose is abstract with no identifiable Bs
Beneficial interest remains with L pending application/ failure of purpose, rejecting
a. Borrower
Would defeat the whole purpose of QT in preventing the money from passing to borrowers
trustee in bankruptcy in the event of his insolvency
B only with minimal interest pending application of the money e.g. must keep the money
separated, not to apply it except for stated purpose, not to refuse to return to lender if
the purpose fails
b. Contemplated beneficiary of the loan rej.
re Northern Development (Holdings Ltd) $ was advanced for express purpose of payment
to unsecured creditors by co which was in financial difficulties; found purpose trust
enforceable by creditors as whom trust was created for
o Doubted for there the loan was intended to keep company trading by providing
working capital with which to incur fresh liabilities (c.f. to avoid bankruptcy by
paying off existing creditors) should not have been held a Quistclose trust at
all; moreover case there only concerned with negative injunction to restrain
improper application of the money rather than a mandatory order to compel
specific performance
o Only benefiting creditors indirectly; if its for purpose, should be void
Hence problem and potential distinction where the intended beneficiary is unspecified
or if the transfer is for abstract purpose
Questioned Wilberforce in Quistclose nature of primary trust was not at issue
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c. In suspense with entire ownership passed to B subject only to Ls contractual right enforceable
by injunction to prevent misapplication until and unless that purpose fails, in which case RT
springs into being CA, Chambers for latter; rejected by Millet
No scope for RT to arise if absolute title was intended and did pass at outset
Difficulty to reconcile with CAs grant of proprietary remedy, non-contractual payment
cases, fiduciary nature of borrowers obligations as held by Wilberforce in Quistclose
which necessitates status as B for otherwise cant enforce contract as TP even at equity,
the evidential significance of having to keep the money in a separate account, priority
over SCs (citing Ho and Smart)
In fact sit comfortably with Chambers theory that RT responds to lack of intention to
benefit RT fills the gap when beneficial interest is not exhausted and leaves no room
for suspense
Issues remain on (i) allowing lender to enforce not as B since there wont be secondary trust if
there is primary one, and not as S who does not retain beneficial interest (ii) explaining failure of
primary trust a trust would only fail if it becomes illegal or impossible to perform, which may not
be the case even if Ss purpose is frustrated (i.e. distinction Ss motives/ purpose of trust)
Milletts approach that beneficial interest remains with the lender from the start
(i) circumvented and (ii) Allowing S to revoke mandate and demand return of money which is
his so long as his object in advancing the loan is frustrated
Considered the only analysis consistent with orthodox trust law and commercial liability
simple commercial arrangement akin to retention of title clause enabling the borrower to have
recourse to lenders money for particular purpose
In line with his view that RT responds to an absence of intention to benefit recipient
Most importantly evaded the difficulty in reconciling Quistclose with the principle that a primary
trust for private purpose is unenforceable R Chambers, Swadling
Best in (i) no party can claim absolute interest to enable Saunders rule (ii) just the right amount of
legal principles all parties want is security for L which only needs contract principles to enforce;
the legal characterisation corresponds with the deal intended (iii) would require segregation of
funds upon transfer as intended and enforcement of the term on exclusive use by contract LH
o Minor problem: fits neither in automatic/presumed purchase money RT (better as latter)
but already least infringement with existing principles
Unjust enrichment (i) mistaken payment (ii) void payment (iii) voidable payment e..g undue
influence or fraudulent misrepresentation
Basis for invoking trust principles is always to get equitable proprietary right in the property
which will bind TPs except Equitys Darling and allow the asset to be taken out of the assets
available for distribution for unsecured creditors pari passu
Can be recovered under c/l claim in money had and received gives personal rights
Policy considerations significance highlighted in the case of Quistclose trusts

Often a contest between A and Bs creditors rather than A and B in which event both are
innocent parties
Neither sufficient but may be so if in addition Mitchell cf. only a stronger case LH (does not
believe there is sufficient justification for proprietary remedy)
A. A has never taken the risk of insolvency whereas Bs creditors have assumed such risk and fail to
take security as they are entitled to
C.f. (LH) taking of insolvency risks is a matter of fact and should be examined individually;
tort claimants cannot be said to have taken insolvency risks either
B. A has swollen Bs assets such that B appears to have more assets and Bs creditors would be
unjustly enriched
Page 68 of 118
C.f. (LH) argument that the property still belongs to A begs the question; and transfers are
often intended as outright absolute transfers
3 schools of thought
A. Swadlings view of no proprietary interest (minority)
Undue influence and mistake only affect the motive but intention remains valid
B. Birks/ Chambers view that an immediate RT arises (extreme view)
Might make sense to say that the trusts imposed to reverse UE are always RT given that RT
are always restitutionary in pattern c.f. CT Hayton & Mitchell
RT should arise when money is paid under a mistake for it vitiates the actual intention or
where money is paid on a condition which is not subsequently satisfied e.g. total failure of
consideration Birks
Criticised for (i) eliding rights in property into rights in the value transferred by applying
restitution principles contrary to the principle that there has to be defined trust
property (ii) presuming that trusts arise upon receipt irrespective of legal title holders
knowledge even when his conscience is not affected(iii) arbitrary distinction between
failure to perform contract and total failure of consid. (iv) injustice to third parties esp.
creditors in insolvency Lord B-W
RT to arise for there is no intention to benefit recipient (here intention is defective) hence
legal title is passed but the recipient holds it on RT upon payment Chambers
Remedy only withheld for policy reasons
C. Lord B-W in Westdeutsche preference for remedial CT (halfway house)
RT is not justified on the basis of unjust enrichment which would otherwise lead to unjust
results
No immediate beneficial interest but should only give rise to power to revest property e.g.
rescinding contract or making a claim upon which the trust arises
Remedial CT to protect innocent third parties
C.f. Institutional constructive trusts (C.f. remedial constructive trusts which operate
retrospectively at the courts discretion)
Imposing a trust not to give effect to purported intention but to prevent unconscionability
o C.f. resulting trust which gives effect to what the transferor must have intended which
may be ascertained or presumed eg where payor has done sth but there is a gap in
evidence on whether a trust should be raised
Will be treated as if he is an express trustee
A tool for reconveyance of legal title and simply refers to an order to pay money or reconvey
specific rights to the claimant; fictional Swadling
Desirable esp. in the commercial context for (i) priority in insolvency (ii) reaping of increase in
the property value, and (iii) better interest rates [with compound interest]
Unconscionability recognized as the underpinning principle in Westdeutsche (B-W)
Not possible to prescribe exhaustively the circumstances under which CT will be created (Cobbe
v Yeomans) broadly requires wrongs for being a means to capture profits from breach of
confidence and crime proceeds, detrimental reliance
o To prefect/ give effect to original intention that beneficial ownership of property should
pass c.f. arising not because of intention Virgo
Revoking constructive or resulting trusts

A. Void payments no trust except CT where recipient acquires knowledge at the time the
property remains identifiable (Westdeutsche)
Page 69 of 118
Sinclair v Brougham [1914] UKHL (took in deposits under ultra vires banking services and hence
debts owed to depositors were also void for ultra vires; on issue of priorities)
Criticised in Westdeutsche for the absence of ratio decidendi, objectionable reasoning,
intended to deal with cases with no trade creditors in competition
1. No personal claim (i) no recovery under express contract which is void (ii) no recovery
under implied contract for it would equally be void since the company had no authority to
enter into such a contract with the depositors
Unjust enrichment was not developed yet and court dismissed this claim on the basis of
claim in quasi contract
Bad reasoning LH; Overruled in Westdeutsche majority judgment
2. Found equitable proprietary rights - deposits held on trust
Not satisfactorily elaborated and could only be explained by the practical realities of the
case since depositors are innocent parties LH
Westdeutsche Landesbank Girozentrale v Islington HL, 1996 (sued for payment under an
interest rate swap agreement which was ultra vires of the Council hence void)
P wants to recover compound interest which is only available where it has proprietary
interest (otherwise only simple interest is granted for personal rights)
Ps argument immediate RT (Birks/ Chambers view); relied on Sinclair, Chase retains

equitable interest, Chambers argument that RT is based in absence of intention to benefit
1. Legal title of payment passed to D (by passing of possession)
2. But equitable title retained by P since the contract is void Sinclair
3. There must be a trust whenever there is a split in equitable and legal titles
4. It is an RT as the transferor has no intention to benefit transferee Chambers, Chase
Majority judgment (3:2) (i) C had personal claim to recover in a common law action but (ii)
there is no proprietary equitable right
Problems that (i) recipient may be personally liable for disbursement despite being ignorant
of existence of trust (ii) equitable proprietary right would bind TPs in tracing other than
Equitys darling
Concerns over proprietary overkill (i) lack of moral/ legal justification for giving priority
to transferors right to obtain restitution over TPs e.g. general creditors who have
themselves not been enriched at formers expense or dealt with him, and (ii) commercial
uncertainty from wholesale importation into the commercial law of equitable principles
inconsistent with certainty and speed
Here D had clear conscience; innocent third parties would be affected; strong reasons
are needed to justify the proprietary overkill
Issue of whether the recipient of money under contract subsequently found to be void for
mistake or ultra vires hold the money on trust even when he had no knowledge at any relevant
time that the contract was void
General principles A person would only be bound as trustee if (i) his conscience is affected at
the time when property remains identifiable
1. Equity operates at the conscience of the owner of the legal interest upon acceptance of
office for express trusts, and unconscionable act for CT
2. Holder of legal interest cant be T as long as he is ignorant of facts alleged to affect his
conscience/ until he is aware that he is intended to hold property for others benefit
RT only arising upon discovery of circumstances giving rise to a resulting trust i.e. when
the party brings an action against legal title holder where he gets title w/o his
Page 70 of 118
knowledge or intention to give as gift by transferor
3. There must be an identifiable trust property with only exception being DA
4. Interest would be binding on TP except Equitys Darling from the moment of establishment
of proprietary interest
Application there was no identifiable trust property when the bank acquired knowledge of the
invalidity of contract because the account the money was paid into was overdrawn and went
into overdraft i.e. no longer traceable (since its with negative balance and hence anything paid
into it would be gone) (Bishopsgate Investment Management v Homan)
N.B. no issue with identifiability so long as the account is not overdrawn [see tracing]
Step 2 rejected argument on retention of equitable interest for absence of intent

There is only unitary full ownership prior to creation of trust i.e. equitable title does not
exist prior to creation of trust which is until or unless there is a separation of the legal and
equitable estates which can only occur under recognized circumstances (Re Cook, Vandervell
v IRC)
Where trust is created, full title is passed to T and a new beneficial interest arises in favour
of B hence no title to retain for P as such
Step 3 rejected argument that the trust must exist on title split
Overruled Sinclair
Possible to have equitable rights in B but legal title in A e.g. mortgage where borrower has
equity of redemption and legal title whereas lender has equitable title
Step 4 rejected argument that RT arises for recipient was not intended to be benefited
Adopted Swadling approach that RT gives effect to common intention doubting Re
Vandervell in which it was held RT arises automatically irrespective of Ss intention
RT arises in two circumstances and both of which give effect to common intention (a) PRT
where A makes voluntary payment to B but does not intend to make such a gift (b) ART
where A transfers property on express trust which does not exhaust the interest neither
are applicable here (i) no PRT for the parties had paid/received payment intending for it to
become the absolute property of the recipient despite labouring under a misapprehension
on validity of the contract (ii) no transfer under express trusts i.e. no ART
o Given that presumption of RT can be rebutted by evidence of any intention
inconsistent with such a trust (William Swadling)
Remedy granted personal liability for payment under a void and ultra vires contract for total
failure of consideration (in counter payments) but no proprietary right
Overruled Sinclair v Brougham (where court found that claim for money paid under void
contracts at common law is one in quasi-contract and rejected the c/l claim for an implied
contract with the same effect would equally be ultra vires) held that the proper basis is in
unjust enrichment for recovery under total failure of consideration but no proprietary
interest
On mistaken payment rejecting Birks and Chambers argument on mistaken payment

Criticised reasoning based on absence of intention for D to receive the money (above)
Adopts the narrower view that a positive presumed intention is required to create a trust c.f.
Chambers view that presumption of RT applies where payer does not intend to benefit the
payee hence B-W reasons that one cannot presume intention to create trust in mistaken
payment
Should not develop proprietary restitutionary remedies not based on sound principles;
Page 71 of 118
unjust results e.g. prejudice TPs who are not enriched at Ts expense
o Instead proposed adoption of remedial CT to be applied to recipients who knowingly
retain property unjustly deprived of P which isnt part of UK law
Commentary on Westdeutsche
Ken Lee not universally accepted; on constructive trust and knowledge
Not necessarily require conscience to be affected for express trusts and even if conscience is
affected, it doesnt necessarily give rise to a trust
Absence of knowledge of mistake may be a defence for a claim of proprietary relief (bona
fide purchaser for value w/o notice of equitable interest of spouse in property will not be
bound) but the converse is not true i.e. that the fact he has knowledge only means he cannot
deny the beneficial owners interest but the trust is already there c.f. here knowledge of
mistake gives rise to the trust hence unconventional
A Burrows
Supports overruling of Sinclair for lack of justification for imposing proprietary restitution for
failure of consideration but noted exceptions e.g. Quistclose trust (an RT), a constructive trust
recognized in Neste Oy v Lloyds Bank plc
B. Mistaken payments CT arises when recipient retains transfer after conscience is affected
(Westdeutsche, applied in Re Farepak in rationalising Neste Oy v Lloyds Bank to find CT at
time of receipt; Chase Manhattan overruled on that point for no knowledge of mistake)
Note counter arguments in (i) time of notice/ verification (ii) knowledge of the payment
being for a particular purpose (e.g. only resolved to cease recruitment of members)
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch (paid the same sum
twice to the credit of a London bank due to clerical mistake; immediately informed recipient upon
discovery which was taken note of; recipient then went into liquidation)
Person paying under factual mistake retains equitable property in the asset and the
conscience of the recipient is subject to a FD in respect his proprietary right
o Expressed as the English law position which he equated with NY law
o Retention of beneficial interest suggesting that it occurs at point of payment
Appears to be talking about CT for that is the position under NY law though uncertain
Reasoning rejected by Westdeutsche

(i) Conscience not affected when the bank has no knowledge
(ii) No separation of title before money is paid so no retention of equitable title as such
(iii) Confusing English and US approach, the latter adopting principle of remedial constructive
trust unlike institutional CT which can only arise by operation of the law as from the date
of circumstances giving rise to it
(iv) But agreed with the outcome (i) no existing equitable interest to be retained at time of
payment (ii) but recipients conscience is affected when it becomes aware of the mistake
(i.e. subjective knowledge affecting conscience), (iii) which makes retention subsequent to
acquisition of knowledge inequitable (iv) CT would arise if property remains identifiable at
Page 72 of 118
that point in time
o Cf (LH): traditionally knowledge may not be required to impose trust
o However not clear as to when exactly conscience is affected whether notice is
sufficient or requires verification
N.B. may be justified on RT in that when money was paid over under factual mistake, there was
no valid intention to benefit transferee Birks/Chambers but note RT debate
Where it involves unconscionability or fraud e.g. theft, fraud, fraudulent misrep
Neste Oy v Lloyds Bank plc (1983) payment for discharge of function as shipowners agent was
made after company decided it should cease trading
Found constructive trusteeship arising at the time of receipt
1. Payment made under mistake since D had already resolved to cease trading and it is clear
that there would be total failure of consideration
2. Any reasonable and honest director wouldve arranged for immediate repayment; contrary
to fairness if recipients general creditors could profit
3. Hence inequitable and could not therefore in good conscience retain the payment
4. CT at the time of receipt
Lord Browne-Wilkinson criticised in Westdeutsche reasoning premised on remedial

constructive trust which prompted court in Box v Barclays Bank to criticise Neste Oy
reasoning as dangerous to rely on, and Shalson v Russo
English law doesnt act merely upon affecting of conscience but upon triggers
C.f. requires rescission of the contract Shalson v Russo
Re Farepak (2006, Ch) payments into before/ after directors of a Christmas savings scheme
decided to cease trading and went into administration
Didnt follow Neste Oy reasoning which suggests a remedial CT approach rejected by
Westdeutsche but reconciled its outcome with Westdeutsche reasoning
Basically that there would only be a CT at the time of receipt, adopting Westdeutsche
reasoning if (i) payment was made under a mistake for not knowing that the company had
ceased trading (ii) the company knew that it would not fulfil the contract and transferor
must understand otherwise at the time of receipt (iii) and its conscience was therefore
affected from that moment
o i.e. recipients conscience will be affected if knows of the mistaken payment
o Requiring more than mere pricking of the conscience
Distinction between the time of payment and receipt takes the latter and distinguished
from Neste Oy where payment and receipt were simultaneous; noted receipt by agent
constitutes receipt by principal
Hearing was expedited for being heard shortly before Christmas hence pressure on timing and
questionable status as good authority
C. Fraud and theft

a. Stolen goods constructive trust (Westdeutsche, obiter) c.f. Shalson v Russo
At common law
Only possessory title would pass; original owner has immediate right to possession,
which is stronger than thiefs factual possession
Can sue in conversion and recover the property/ monetary equivalent as damages
Page 73 of 118
Since legal title remains, can alternatively sue for proceeds of sale of the stolen property
even against the trustee for bankruptcy of the person holding the proceeds for T/B is not
a bona fide purchaser and would be bound by the claim
Traceable only if kept separate but not after being mixed with other assets
At equity [Canada CT; LH somehow odd for trustees by definition are subject to duties
arising from a relationship of trust and confidence]
Generally just dealt with in common law which is well-developed on this matter
Main benefit is that C can seek to recover stolen property/ assets even if mixed
Residuary legal title in the stolen property and equitable proprietary interest in the
thiefs possessory title by virtue of his unconscionable retention Virgo
Westdeutsche, obiter CT from receipt; criticised from every angle; nth cited
Agreed that it would be traceable at equity; Equated with obtaining property by fraud in
which case a CT will be imposed on the fraudulent recipient no authority though Potter
LJ in Twinsectra agreed that property obtained fraudulently without a contract should be
subject to CT from moment of transfer
Criticisms
Unnecessary to impose CT for an original owner to recover property for common law
principles can go quite far in relation to stolen properties Victim retains title to the
property anyways even though he no longer has possession and can sue thief in tort of
conversion i.e. wrongfully handling property
Victim retains legal and equitable title hence the thief has no title to the property to
become a trustee
Shalson v Russo
No trust arising immediately upon payment but only when, upon discovery of fraud,
transferor elects to rescind
Criticised Westdeutsche Thief does not obtain any proprietary right in the stolen good
hence difficult to see why there would be immediate trust on CT
Tracing at equity generally requires pre-existing fiduciary relationship and it would not
be right to say that stolen property must necessarily be trust property to satisfy that
precondition
b. Fraudulent misrepresentation rendering contract voidable (as with UI)

Remedy of rescission at the election of the innocent party
o Before which party only has a mere equity (right to rescind) but no proprietary
interest; but once rescinded, court treats equitable title as retrospectively vesting
back in the party to allow him to trace into the assets which is when proprietary
interest would arise
NB legal interest > equitable interest > mere equity which is unenforceable
against subsequent purchasers without notice
If one makes a rep that has a continuing effect on the other party, he will be under duty
to correct where facts change subsequently With v OFlanagan
Rescission in equity only occurs upon court order until and unless obtained the
equitable title will not be reverted to you
o Would further take into account bars of rescission before granting order hence
El Ajou is out of line with principles c.f. El Ajou only refers to tracing c.f. claiming
Unless the innocent party in a deliberate fraud situation has informed all
possible authorities available Universal Finance Co Ltd v Caldwell
Page 74 of 118
o C.f. c/l rescission is a self help remedy that does not depend on court order but
would require rescission in specie ie for the whole thing to be returned
Contractual concepts
Total failure of consideration where you would have a claim for money had and received
under the lwa of unjust enrichment
Breach of contract giving damages, consequential losses and replacement costs
Vitiating factors giving right to rescind contract to revert to original position
Go for TFC and vitiating factors if its a bad bargain; or breach of contract otherwise for
the expectation measure will give you the market price
Case authorities RT upon transfer under El Ajou c.f. no proprietary right under Re
Goldcorp c.f. CT upon receipt under Westdeutsche c.f. CT upon actual/ implied rescission
under Sharlson unless TP rights have accrued
N.B. El Ajou is only dictum whereas Goldcorp is orthodox hence of greater weight
essentially difference in that El Ajou suggests a right to rescind is sufficient for tracing
whereas Re Goldcorp requires exercise of it to give proprietary claim
El Ajou v Dolloar Land Holdings, Millett [1993] on fraudulent misrep right to rescind is
sufficient for tracing (dictum); RT at time of rescission
1. P has right to rescind from moment of receipt of money paid on fraudulent misrep and
revest equitable title to purchase money in themselves, at least to the extent necessary
to support an equitable tracing claim only followed in dictum
Seems to be suggesting that mere equity to rescind suffices to support tracing
which is normally available only to Bs with proprietary interest
C.f. Not an equitable interest; merely an in personam right hence illegitimate, or
at least questionable to say that mere equity can justify equitable tracing and
justify proprietary right c.f. traditional rules LH
Though Millett is not saying that the right is an equitable ownership itself only
that the right to rescind justifies a tracing claim [which possibly has a lower
threshold]
2. Upon rescission, the trust created is RT not remedial CT seems to fit with Chambers
c.f. would not be ART (no express trust) or PRT (transfer is not voluntary gift) and
should instead by CT operating on unconscionability Virgo
Re Goldcorp Exchange, Lord Mustill [1995] PC from NZ no trust (most orthodox)

Company operates like a bank and sells gold to investors takes deposits in return for
certificates of ownership; undertook to audit gold vaults from time to time to ensure
adequate stock of gold to satisfy investors demand of withdrawals
Appeared that the investors had an interest in the bulk until physical delivery
No segregation of gold from overall stock which was also under floating charge that
crystallised when co went bust; there wasnt enough gold to satisfy all claims
1. Contract for unascertained goods, pursuant to which no legal title/ equitable title by
virtue of the simple contract, could pass only possible upon appropriation
Here not even an ex-bulk case for there is no fixed or predetermined source for
supply of bullion wouldnt suffice so long as S has the freedom to fulfil contract
from other sources even if quantity matches with stock of company at that time
London Wine
Unless S takes steps after conclusion of contract in which case purchaser may be
Page 75 of 118
found a tenant in common for the entire bulk in proportionate share
2. No express trust based on collateral promises (i) no intention to do so D wouldnt

want to inhibit its trading and P couldnt have intended that his rights would be fixed by
ref to a combination of quantity of bullion of the relevant description at that particular
time; only promised to maintain a fund to meet commitments; (ii) no segregation and
certainty of SM (Re London Wine)
Also rejected argument on (i) estoppel cannot confer title on Cs against bank who
was innocent TP creditor (ii) trust when Goldcorp subsequently purchased bullion
3. No Quistclose trust from payment for the specific purpose of purchasing gold bullions
nothing limiting companys freedom to spend purchase money as it chose i.e.
requirement 2 in Twinsectra was not satisfied
4. Not a fiduciary relationship from Ps reposition of trust and confidence P needs to

show that the fiduciaries undertook to act on their behalf
5. No CT arising from the voidable contract P arguing that it was induced by fraudulent
misrepresentation for co knew there was not sufficient reserve
a. Here an absolute payment transferring absolute ownership over the money
Not total failure of consideration for the monies paid were not ineffectual from
the start [distinguished from Sinclair]; or mistake customers did intend to
make payments [cf Chase]
b. Only with a right to rescind contract but no proprietary right would be vested back
into the transferor before rescission (sufficient to have taken reasonable steps e.g.
indication of intention) factually no rescission before insolvency
Proprietary right is based on personal claim for return of price, which cannot
exist so long as the sale contract remains in existence and enforced
c. Even if there was rescission, it doesnt necessarily give rise to proprietary rights
superior to those of third party creditors entitlement otherwise would be too
extreme and not supported by authority (El Ajou was not cited)
o cf El Ajou equitable tracing is justified by existence of right to rescind
Same for all voidable contracts eg mistake, total failure of consideration
6. No remedial CT not recognized in UK law any in any case may not actually tilt the
balance against the innocent TP creditor in commercial setting
Imposition of interest over banks charge is not justified despite having commercial
bank up against private citizens
No retention of equitable interest no initial interest to be retained; retention cant
co-exist with contract performed by delivery of goods
Critique
Reasoning compatible with orthodox principles
Though read together with other authorities mistaken payor would be in a better
position under Westdeutsche obiter than payors in Re Goldcorp situations
Page 76 of 118
Shalson v Russo, Rimer J [2005] (fraudulently induced into loan contract) CT upon
rescission enabling tracing so long as TP rights have not accrued before rescission
1. No immediate trust arising upon transfer and criticised Westdeutsche obiter (i) thief
cant be holding property on CT for he only gets factual possession i.e. no property right
obtained (ii) no satisfactory authority that property transferred under fraudulent misrep
would be immediately held on trust
2. Reconciled El Ajou and Goldcorp El Ajou affirming that transfer under fraud would be
put under RT upon rescission whereas Goldcorp says only personal right
Found no actual difference between the views expressed (i) El Ajou was qualified in
that the effect of revesting was at least to entitle the claimant to set up a tracing
claim and (ii) Goldcorp concerned property transferred (purchase price) became
subject to a floating charge which crystallised before rescission which makes sense
for property is vested in transferee upon rescission and TPs in good faith could
obtain an impeachable tile
Note that where the company goes into compulsory liquidation before
rescission, the only right is also just in personal claim as in Goldcorp
El Ajou not involving any grant of preferential rights over creditors
Followed El Ajou in that upon rescission, you will have equitable proprietary right
revested in you giving you the right to trace into the property
3. Found (i) property passed legally and beneficially (ii) with chose in action only in form of
right to claim repayment to transferor i.e. rescission (iii) making of the claims evinced
sufficient intention to rescind to give rise to implied rescission here referring to claims in
court c.f. Re Goldcorp in which there was no factual rescission and (iv) upon (implied)
rescission, transferor would become entitled to assert proprietary interest that would
entitle tracing
4. However limited and will be defeated by TP rights must rescind before interests of
bona fide purchasers arise, and before liquidation for properties would otherwise have
gone into statutory distribution regime
5. May be referring to resulting trust by citing El Ajou c.f. not consistent with traditional
principles on RT which only arise in 2 situations; should be CT
Virgo CT arising upon rescission of contract following Ds unconscionable conduct

Cant be ART no intended express trust arrangement; Cant be PRT - property
transferred pursuant to voidable contract but not as purported/ apparent gift
May be explained by UE but UE triggering RT is inconsistent with fundamental principles
under Virgo/ Westdeutsche approach
Notes that the form of CT upon rescission is recognized in Lonhro plc v Fayed (No 2) by
Millett LJ
D. Involving breach by trustee/ fiduciary

a. Breach of trust or fiduciary duty involving misappropriation of trust fund CT
B had pre-existing proprietary right prior to the breach hence he can trace into the
property and substitute products
Foskett v McKeown [1998, HL] per Lord Millett

T using trust property to pay off insurance instalments; B wanted to claim proprietary
interest in the death benefit paid out to Ts family after his suicide arguing for 40% share
of the benefit for around 40% contribution to the insurance
Held that B is entitled at his option to claim proportionate share of the asset or enforce a
lien to secure personal claim for the amount of misapplied money
Page 77 of 118
b. Pure breach i.e. breach of fiduciary duty without misappropriation
1. Acquisition of property that should have been acquired on behalf of trust CT
Keech v Sandford (T renewed lease for himself)

Found interception with trust property i.e. acquiring property that B has keen
interest and should hold it on CT from the moment of acquisition
2. Usurpation of business opportunity or use of information CT

N.B. neither involving insolvency situation so not authority for situations where there is
a competition between innocent parties
Really the imposition of CT was used as an order to reconvey legal title to B
Boardman v Phipps (D buying shares in conflict of interest but in cos interest)

Liable to account as a constructive trustee though ambiguous
Confusing as to whether its personal/ proprietary claim and should instead refer to
accountable in equity Sinclair c.f. clear that its referring to proprietary remedy
from declaration of CT FHR European Ventures
Granted even though the property couldnt have been obtained by P without
sanction of the court for being unauthorised under the testators will
Case on liability rather than remedy hence not really good authority on this
Bhullar v Bhullar
Held the piece of land bought by the director was held on CT giving rise to duty to
reconvey the land to the company in exchange for purchase price paid
Whether or not P could have or would have obtained the opportunity
3. Bribes and profits involving neither of the above

Distinguished from corporate opportunities not something that B would want to
have acquired but intercepted by the fiduciary
o No infringement of trust property as in opportunity cases; no loss for B
Lister giving in personam right to recover sum as equitable debt, supported by
Sinclair c.f. Reid imposing CT from the date of receipt under maxim which is
supported in Grimaldi (despite on remedial RT) c.f. Lord Milletts LQR on the
different basis of disability rule c.f. Mankarious extending Sinclair exceptions
o N.B. HK free to follow either approach must explain reasons for adopting a
particular approach
Bribes in kind may be (i) harder to characterise as a lost opportunity to fit Sinclair
category 2 but (ii) possibly stronger proprietary claim for claimant can recover in
specie and have better claim in proprietary interest (see tracing)- though arbitrary
distinction
Lister v Stubbs (1890, HL) traditional orthodox position

Employee responsible for purchasing materials received bribes from a supplier
Held there was no proprietary interest but only liability to account for the bribe as
an equitable debt i.e. in personam duty from the moment of receipt
i.e. relationship of debtor/ creditor but not of trust
Should be the same position for unauthorised profits
If CT is imposed (i) in case defendant goes insolvent, interests of unsecured creditors
would be harmed, and (ii) enable principal to trace into the substitute assets and
obtain a windfall by way of claiming increase in value
Consequentialist reasoning
Page 78 of 118
AG for Hong Kong v Reid [1994] PC, per Lord Templeman

Bribes received to suppress criminal prosecution and spent on property abroad
Departing from Lister v Stubbs though cannot overrule it as a PC decision
Adopted in an HKCFI decision by Reyes J but unlikely to be followed (LH)
Courts reasoning
1. No pre-existing proprietary right for the bribes did not belong to B
2. Fiduciary owes duty to account for bribes from the date of receipt, which is an
equitable right
3. Equity treats as done what ought to be done
4. When the debt is incurred, equity treats it as already having been repaid even
though legal title was with F hence equitable title arises upon receipt
5. Hence bribes, whether in cash or kind, are held on CT upon receipt for B which
covers property here for being purchased with bribes
LH Apparent that court was motivated by the idea that bribery is an evil
practice that has rotten the foundations of civil societies and full disgorgement
of properties received is warranted
Critique
Appears to have decided the case on the basis of heavy policy reasons in deterring
bribery but arguably proprietary interest is not necessary
Proprietary overkill (Crilley) giving B too much proprietary protection over
general creditors if there is accrual of TPs right or insolvency subsequent to receipt
since first in time prevails
Problems concerning Step 2

The equitable maxim has always been used narrowly e.g. in Walsh v Lonsdale (where
formalities of a contract granting lease were not complied with) basically in the
context of land conveyance
Distinction between right to specific asset and debt in Reid, F is under an
obligation to account for the bribe in the form of debt which is not a right to specific
asset but merely right to paid a sum; but only assumed that F was under a duty to
hand over the specific money received as opposed to just monetary equivalent
o Should have dealt with the issue of whether F was under the duty to return
the specific property
Pushing it to the furthest, any equitable claim inc. that on equitable compensation
would give rise to proprietary interest by operation of maxim
Lord Milletts 1998 LQR article supporting the outcome in Reid but based on
disability rule
Constructive trust is only another way of saying vendors promise to convey the land
to purchase is specifically enforceable
An implied trust, whether C/RT, is a true trust; there cannot be one where there is
no trust and there cannot be a trust where there is no property
Hence there can be no C/RT unless property is identifiable in hands of
recipient and its not freely available to the recipient as general assets
Justified the duty to account for bribes in specie (which Templeman failed to do) F
under disability to make any gains from breach of FD so gains made ought to belong
to B hence obliged to account for bribes in specie for proprietary interest has always
been with B; precluded to defend otherwise
Page 79 of 118
Commented that Reid does not decide that a breach of FD would inevitably give rise
to CT here only held obligation to pay over bribe upon receipt for he has no
authority to receive the payments for his employers account at all hence no
authority to mix them with own money and use for own purposes subject only to
duty to account; basically not authorised despite having received it to retain/ use it
himself hence not at his free disposal similar to QT
Lord Milletts 2012 article in CLJ

Object of the law is to prevent F from placing himself in conflicts of interest and that
he would act in the best interests of P hence required to disgorge any gains
received i.e. object of the law is not compensatory
Can otherwise simply pass on the assets to family
It might seem unfair that creditors of F would be deprived of the asset but its never
the debtors and would e better to give P a windfall which is really irrelevant since
the purpose is for disgorgement
An honest T acting in Fs best interest would have to stand as CT (Boardman) c.f. a
corrupt F who would only have liability to personally account for gains
Good many theory under equity wouldnt be allowed to make any profits
unauthorised but any made would be treated as legitimate payment obtained for P
and cannot argue that it is a actually a bribe c.f. bad man theory at common law
Sinclair Investments v Versailles Trade Finance Ltd (2011, CA), per Neuberger
Operation of a Ponzi scheme with director transferring money received by B from investors
to VGP to inflate its share price and mask absence of genuine business carried out by VGP
which was in fact the directors alter ego; made a gain by selling his shares in VGP which
later collapsed and the director became bankrupt
P was one of the investors and took assignment of all claims by other relevant Ps
Issue of whether P can claim proprietary claim over the ultimate profit (a yacht) in
the absence of proprietary link (no property belonged to the principal and not
deriving from opportunity from the principal)
Issues and reasoning

1. Whether proceeds from sale of the shares are held on CT for the benefit of B given
that he has breached his fiduciary duties as director of B
2. If B does have proprietary interest in proceeds, whether banks and VGPs sub are
entitled to rely on defence of bona fide purchaser for value without notice
3. Bs proprietary claim to monies held by VGPs sub
1. Equated unauthorised secret profit with bribes both involving receipt of non-trust
asset deriving from fiduciary position and in breach of fiduciary duties
No distinction between profit taken out of trust and bribe Reid
2. Would follow Lister v Stubbs instead of AG v Reid

Its a PC case and in any case not preferred by academics and later rulings
Page 80 of 118
Reasoning of Templeman begs the question in asserting that a bribe paid to
fiduciary is vested in B though that is the issue of the case
Templeman Js concern that F would receive benefit from breach if the property
increases in value can be remedied by ordering equitable account
Bribe cannot be said to be an asset that D is under a duty to take for B
Insufficient weight given to the potential prejudice to creditors of B
3. Further reasoning
a. Distinguished between (i) F who deprives B of an asset e.g. Fossett, Keech, Phipps
and (ii) F who enriches himself by committing a wrong against B
b. No proprietary claim in gains acquired by fiduciary in breach of his duties unless
the property (a) is or has been beneficially Bs property, or (b) by taking
advantage of an opportunity/ right thats Bs
Even if the profit could not have been obtained if he wasnt fiduciary
would only give rise to a personal claim
Cited Phipps and Bhullar to support second exception
Implicit category (c) for all other cases in which theres no CT
4. Application Facts here fall within Milletts Paragon second category ; neither
category satisfied so only duty to account in personam because the gains obtained
were not subject to pre-existing fiduciary duties
5. Approach justified for (i) deterrence can be achieved by in personam remedies of
equitable compensation (ii) unnecessary to achieve deterrence at the expense of
general creditors unless the exceptions apply
6. Hence no proprietary claim/ CT on the proceeds of sale
Critique by LH
On policy
Deterrence is indeed quite irrelevant to the grant of proprietary rights but equitable
compensation would not be sufficient to deter either should instead have said
deterrence should be achieved by disgorgement of profits which focuses on Ds gain
rather than Ps loss and strip him of his gains
On exception (a) the language is not precise

Really means proprietary interest should be granted where the breach infringes
existing proprietary right of B
But his lang can potentially cover situations if F fraudulently misrepresents himself
and cheats B into paying him some money to buy a bad asset
Payment under contract (though voidable) is treated as an out and out payment,
and therefore no proprietary interest claim can be asserted
On exception (b)
a. Authorities cited do not support the categorisation
Boardman and Bhullar do not in fact provide justification for CT and in any case
no insolvency involved in the cases hence cannot be authority regarding grant of
proprietary rights when creditors interests are at stake
b. Imprecise scope as highlighted by Mankarious in re-characterising bribes as an
opportunity and arriving at a different result to give proprietary interest
c. Arbitrary distinction between certain types of bribes
E.g. bribes obtained in Reid cannot be reconstrued as opportunity belonging to
Page 81 of 118
the government for it cannot lawfully accept bribes for non-prosecution c.f.
Mankarious
If deterrence is the underlying policy, bribes should at least be of the same level
of blameworthiness, if not more, than normal commercial bribes
d. Opportunities dont properly belong to P (Bhullar) needs more justification
Critique in other academic opinions

Lord Millett supports the outcome but not reasoning and again base it on
disability whenever F makes profits, which fiduciaries are unable to do, equity
would treat those as legitimate payments received on behalf of B hence it is trust
property and belong to B
o To get round the need to find a proprietary basis
o Hayton agreed additionally made the deterrence argument
C.f. Richard Millett QC disabilities rule is a legal fiction based on old equitable
reasoning rather than policy grounds; and AG v Reid was wrong
o LH agrees should recognize that decisions in these cases should be based
on policy grounds; deterrence argument isnt relevant in insolvency
situations
C.f. Goode would affect TP creditors who may have given consideration
Grimaldi v Cahmeleon Mining (Aus Fed Court)

Director received secret commissions and misappropriated corporate trust funds in favour
of another company which used it for further investments
Recognizes remedial imposition of constructive trust upon proof of particular facts
and entitlement under contract to an expectancy after execution of consideration i.e.
discretionary
1. Advantage accrued in breach of fiduciary duties or misuse of fiduciary position is

presumptively accountable under a constructive trust
2. Considerations on granting CT e.g. an account of profits may be ordered if CT would
thrust parties into continuing business relationship despite absence of confidence or
comity; TPs interests; whether CT is necessary to protect the beneficiarys
legitimate interest
3. Refused to follow Sinclair but preferred Reid
May be that bribes are not what F should have obtained for B but approved
earlier judgment that neither principle nor authority provide support for
confining CT to situations only where the benefit obtained was one which it was
an incident of Fs duty to obtain for B
Would otherwise make CT unavailable in the very situations where deterrence is
likely most needed e.g. bribery
Criticised Lister as unsatisfactory and further not followed in e.g. Singapore for
inconsistency with property bribe cases; the money bribe exception favours
dishonest fiduciary over the honest one
Noted however that bribes may not necessarily be subject to CT under the
courts approach for discretion retained to order e.g. lien i.e. not right
Note distinction between secret commission and undisclosed personal interest
in making profits
4. Held undisclosed profit derived by director from the execution of his fiduciary duties
belongs in equity to the company subject to courts discretion on CT
Page 82 of 118
FHR European Venture LLP v Mankarious [2013] English CA (on appeal)
P hired agent to buy a hotel, agent received secret commission from seller of 10m
Etherton C (majority) basically its within exception (b)

1. (a) Felt bound by Sinclair though noting controversy and e.g. Grimaldi (b) Sinclair
drew 3 categories of (i) B having pre-existing interest (ii) F took advantage of an
opportunity that was property of B (iii) all others; (i) and (ii) giving rise to CT but
not (iii); here issue on ii/iii boundary
2. Difficulty in ascertaining the scope of the opportunities exception Bhullar, which

wasnt cited or overruled in Sinclair (i) rejected as irrelevant whether beneficiary
owns some kind of beneficial interest in the opportunity, and (ii) held unauthorised
personal profit made from fiduciary relationship in breach of duties would be held
on CT whether or not it could have been obtained or would have been obtained by
the trust
Sinclair implies Lister and Reid are within (iii); CF (ii) cases inc Keech, Phipps
(despite questioned on nature of remedies ordered by Sinclair) even though the
property couldnt have been obtained by P, so are cases where P eventually
succeeds in using the opp e.g. Tyrell
3. Hence determination as (ii) case not precluded by mere fact that F obtains a benefit
from TP or which could never be or would never be obtained by P, or that P had
obtained what he intended does not necessarily preclude CT
Which are all hallmarks of bribes and secret commission cases
4. Distinguished from Sinclair facts

It in fact wasnt a secret commission/ bribe case and hence Lister/Reid
discussion wasnt necessary; could have proceeded on the basis of lack of direct
precedent for imposing CT to profits made on sale of Fs own property
particularly where P had no beneficial interest in the invested co.
Here in both temporal and causative terms Fs receipt of the commission was the
direct and immediate consequence of its FD breach, and it was the duty of F to
negotiate the lowest possible price
Within exception (b) of Sinclair and hence imposed CT [note 2 limbs]
a. Had P known of the existence of the commission, they would have used it to
bargain for the purchase price, which is an opportunity belonging to P to
purchase the hotel at a lower price
b. Further they would have had an opportunity to rearrange commission
arrangement with the defendant hence further opportunity
c. Given that the commission was paid after payment of purchase price, the
money arguably came from the principal so in both temporal and causative
terms Fs receipt of the commission was from the principal
Essentially diverted opportunity for P to obtain the hotel at the lowest price and
pocketed the very thing he shouldve ensured to the benefit of P
5. Remarks (i) considerable difficulties to mark boundary of exception (b) (ii) should
revisit authorities and overhaul the entire area for a coherent legal framework
which can only be done by the SC bearing in mind competing policy concerns e.g.
stripping F of all gains inc. increase in value of benefits obtained vs. TP through
which the benefits may have channelled
Page 83 of 118
Lewison LJ (minority) applied Bhullar test
1. Felt bound by Sinclair and cases cited therein i.e. Heiron and Lister; but
distinguished the facts there profit was made from own property acquired before
breach of FD which only had value increased by reason of the breach
2. Categorised cases with health warning of Lord Upjohn in Phipps that equity can
only be stated in general terms
(i) P instructed agent to buy a specific property but A bought it for himself
o CT imposed established principle and not disputed
o Even though P had no pre-existing interest in the asset and A purchased
the asset with his own money
(ii) F acquired property which he knew would be of interest to P but the target is
not identified by P i.e. no pre-existing interest in the contract
o E.g. Bhullar F need not have carried out some improper dealing with
the property belonging to the principal to be accountable
o Should find proprietary interest
(iii) F made profit in breaching FD even though P did acquire the target property e.g.
present case
o Tyrell v Bank of London D was banks solicitor/ secretary; D
contracted with Read in which they would jointly have interest; did not
disclose to the bank and bank subsequently bought property from Read;
HL found lower court had gone too far in declaring T a trustee as regard
property that Bank didnt obtain
3. Do not consider Lord Neuberger to be creating 2 mutually exclusive categories i.e.

can be secret commission and lost opp; also didnt explain elusive concept
4. Prepared to accept that an opportunity to acquire property at reduced price cannot

belong to anyone cant be assigned or transferred
Recognizing that a relevant opp should have proprietary characteristics
But Bhullar held it was not necessary to identify ownership of opportunity
need not isolate the opportunity itself from the contract derived from
exploitation of the opportunity
5. Question merely on whether Fs exploitation of the opportunity is such as to attract

application of the no secret profits rule (Bhullar)
a. From the facts, the opportunity to gain the commission formed part of the
overall transaction in relation to the purchase of hotel hence broadly speaking
within the exception (2)
b. Imposed CT - not dependent on opportunity to buy at a lower price but merely
as part of the transaction of purchase
Possible counter-argument in application scope of duties

Boardman duty to give legal advice on buying shares and D bought the shares
himself; would not be able to give unprejudiced legal advice
Bhullar rejected the argument that the company had ceased trading; though the
property was still within the scope of business of the company
Though this is not actually used as a requirement for proprietary remedy
Policy arguments
Page 84 of 118
Bribes being an evil practice and fiduciaries should be discouraged from accepting
bribes for which full disgorgement may be deterrent (Reid) c.f. sufficiency for
personal liability to account (Sinclair)
Harm to general creditors c.f. they shouldnt have had the benefit of bribes in the
first place anyways c.f. its a competition between innocent parties
Difference between monetary and non-monetary bribes

N.B. Lister, Reid, Sinclair and FHR all relating to monetary bribes
A matter of valuation and tracing
Distinction appears to be drawn between money bribes and property bribes, with
the former being restricted on the imposition of CT by Lister whereas property bribe
cases would follow the traditional Keech approach of imposing a CT over profits
made in breach of FD Grimaldi
o Considered that in the latter situation, the CT did no more than to give back
to the company what was its own
o May be drawn on the basis that there is no degree of uniqueness for money
bribes which are fluid; May be easier to say youre holding property in
species rather than money though otherwise unclear
But in fact there shouldnt be distinction in the legal analysis e.g. detriment to
creditors, issue of windfall; In any case both a part of secret commission
Critique on secret profits
Hayton on Sinclair
a. Ignored the good man philosophy i.e. T obliged to act in accordance with core
fiduciary obligation to act in the best interests of the Bs to the exclusion of his own
and cannot deny such to retian unauthorised benefits under disability principle
Giving rise to primary duty for F to deliver it + any traceable product
Express or necessarily implied undertaking from the inherent core duty of F
which makes it impossible for Fs to assert beneficial interest
Lord Templeman in Reid in this regard influenced by Milletts LQR
b. Relied on doubtful authorities Gwembe and Halton did not disucss the Lister/ Reid
debate and in fact centred on the distinction between Paragon types of constructive
trusts which entail different limitation periods
c. Same rule should apply for properties which are not originally subject to fiduciary
obligations but acquired in the future by means of fiduciarys office
Case authorities e.g. Pullan show that anything purportedly acquired in Fs
interests will be held immediately for Bs
Hence there shouldnt be distinction between exploiting fiduciary office in
relation to properties/ mature opps subject to fiduciary obligations, or
exploitation so as to acquire property like bribe in the future
Distinciton on whehter it is already subject to fiduciary oblgiations
d. No injustice caused to creditors in their not sharing in an asset for which fiduciary
has not given value and which he shouldnt have had
e. Contrary to Lord Neubergers insistence that proprietary claim is based on property
law, equity permits property to be derived from an obligation affecting property,
existing or after-acquired
Page 85 of 118
Goode on Reid that its conceptually flawed and defensible as a matter of policy
Reid/ Sinclair similar for C has no pre-existing proprietary right to the profits
derived in fraud nor were they received on terms that they would be held for F (c.f.
receiving property for Bs account or which he ought to procure for B)
a. Use of equitable maxim presupposes the very question in issue i.e. whether bribe
does have duty to transfer bribe in specie
b. Arguments are against for such transfer (i) bribe was never destined for the C who
had neither bargained for or expected it (ii) no basis for elevating the personal
obligation to a proprietary right, considering that the beneficiary would never have
received the bribe in the first place and briber never intended to pass it to anyone
other than bribee (iii) Target held that claim for profits derived from breach of trust
is purely personal c.f. Keech
c. Argument that Fs creditors cannot be in a better position than F presupposes again
proprietary claim should look to policy for justifications but nothing from the
corrosive nature of bribery would justify preference of C to Ds general creditors; and
creditors are not in the shoes of F but independent third parties which claims are
based on the value given hence no justification for being subordinated to claimant
with no existing proprietary interest, who has given no value, suffered no loss or
even invoke reliance interest
o Policy on deterrence is not relevant to creditors
o Same applies to other benefits derived from fraudulent breach of duty
d. Overlooks the fact that institutional CT operates from the moment it arises i.e.
w=priority not only over unsecured creditors but also subsequent equitable interests
e.g. equitable charges (even if hes Equitys Darling)
Critique of FHR v Mankarios

May possibly distinguished Lister and Mankarious on the basis that in the latter,
there is discretion on the agent in getting a better price for P in which case you may
not be able to apply Man. if the nature of contract is such that price is fixed c.f.
matter of degree of fluctuation
Ethertons approach makes it very easy to find an opportunity c.f. Lewisons
approachs reliance on Bhullar test may be problematic in that the issue there was
not on remedies but on liability i.e. whether the fiduciaries were in breach of the no
profit rule hence once it would be very easy to have a CT under test
Cadogan Petroleum plc v Tolley considered by Lewison but predating FHR

Sinclair held that bribes cannot be seen as diversion of opportunity and not an asset F
was under duty to take for B hence cant circumvent by construing otherwise
Page 86 of 118
LHs comments Rebelling against Sinclair for not bound by it
Both judgments highlighting the unsatisfactory categorisation of exception (B) the
scope is too unstable
The court only applied Sinclair because it was bound but tried to circumvent it by
extending exception (B) to cover bribes by characterising it as a lost opportunity to
give C proprietary interest
Should look at the situation involved, policy reasons and whether as a matter of
policy in each situation proprietary remedy should be granted
a. Misappropriation of Ps property clear cut case for proprietary interest
b. P instructed agent to buy specific property who took it himself more reason for
D to account for it
c. P didnt ask D to buy a specific asset but it is one that P surely would be
interested had he known about it e.g. Bhullar stronger reason than pure secret
bribe
d. P may just be broadly interested in buying the property but D bought it himself
and sold to P at a profit
Proposition that the common thread is that the wrong involves interception of a
specific property that P would/ have wanted to get - which should require account
in specie of the property if the situation involves a specific piece
o Better distinction than that drawn by Neuberger
o C.f. Bhullar already ceased trading
Milletts comment
The money paid can in fact be considered part of the purchase price hence within
category 1 of Sinclair c.f. payment under sale is an out/out payment
Disability argument anything obtained would be received on behalf of B
Remedial constructive trusts

i.e. remedy/ equitable proprietary interest awarded by court in the exercise of its discretion
A judicial remedy giving rise to enforceable obligation the extent to which it operates
retrospectively to TPs prejudice lies in the discretion of court Lord BW, Westdeutsche
Distinctive in (i) taking effect only from date of judgment/ at courts discretion (ii) as long as the
court thinks just and involves a breach of an equitable duty regardless of infringement of
property right (iii) for court to determine the extent the trust can operate retrospectively to the
prejudice of TPs
C.f. institutional CT which arises by operation of law as from the date of occurrence of those
circumstances and for court to merely declare that such trust has arisen BW, West
o CT arises at the time of wrongdoing and not as a result of courts discretion
o Can bind TP for first in time prevails subject to rule on Equitys Darling
More flexible, and takes into account TP rights when making the order
Originating from the US as a tool to give remedy to unjust enrichment (CT under UE and RT
under trust in the US Restatements); adopted in NZ (Tipping J in Macintosh not to upset
insolvency rules except in exceptional circumstances) and Canada (Soulos v Karlontzilas where
agent negotiated purchase of commercial building on behalf of client, whose offer was rejected,
subsequent to which the building was sold to A; good conscience being a common concept
unifying the various instances where a CT can be found per McLachlin J)
Not recognized in the UK Re Polly Peck for upsetting statutory schemes for distribution in
insolvency i.e. Parliament had already decided the priority disputes; London Allied Holdings
Ltd v Allen Lee that court can develop guidelines for remedial CT just as for proprietary
estoppel
o C.f. Lord BW in Westdeutsche that it may be a more satisfactory way forward
Page 87 of 118
o Should in any case not impose it lightly despite customers seemingly being in a less
favourable position where the case involves commercial disputes Goldcorp
Noting that it was created as a measure of justice after the event and the balance
of justice may not always tilt towards private citizens
Goode on Property Gains

(i) Pre-existing proprietary basis - would give rise to ICT (ii) deemed agency gains i.e. supposed
to obtain for B and by operation of the maxim that equity treats as done what ought to be done
giving rise to RCT (iii) caused by equitable wrongs but not deemed agency gains e.g. bribes
giving rise to personal liability (iv) not breach of FD giving rise to personal liability
On bribes equated with gains unrelated to Ps business; P gave no consideration c.f. creditors;
should not distort insolvency rules for commercial certainty
Page 88 of 118
R Goode Property and Unjust Enrihcment
CT is neither exclusively institutional nor exclusive remedial certain types of events trigger the
creation of a substantial property right in P while others merely provide grounds for the
imposition of a constructive trust in the discretion of the court
o Fundamental difference between the two former means there is a proprietary base in
property c.f. latters a remedy for a wrong which results in Deemed agency gains
activity undertaken by D for his own benefit which he was under an equitable duty, if he
undertook it at all, to pursue for P, si D acted as Ps constructive agent, and resulting
gains will be treated in equity as if they had in fact been procured for P
Ds use of Ps asset, info, etc, has no relevance to the creation or conferment of a restitutionary
interest what triggers the CT is not use of Ps assets or resources, but in breach of equitable
duty D acquires for himself a benefit which, if he acquired it at all, he ought to have acquired for
P (Equity treats as done ought to be done)
o No resitutionary proprietary interest should be recognized if the assets/ gains in Ds
hands constitute neither enrichment by subtraction nor deemed agency gains here only
$ judgment (disgorgement of profit/ compensation)
Real Right two conditions

1. P suffered diminution in his estate
2. Diminution takes the form of payment of money or a transfer of property to D the transfer must
not be one under which P voluntarily and indefeasibly divested himself of the beneficial
ownership in favour of D
o If D has no right in property, then P has a proprietary interest in the fund, which D either
was from the outset or has become obligated to hold separate from his own moneys (in
rem right)
o C.f. ad rem right personal right to transfer/delivery of asset;or charge or lien
o C.f. personal right right to money by way of debt or damages, no right to transfer any
identified assets
Scenarios
1. Enrichment by subtraction where Ps claim has a proprietary Base
o D gain at the expense of P in the sense of total or partial loss of proprietary base, but
does not require a fiduciary relationship institutional constructive trust
2. Enrichment by an equitable wrong producing deemed agency gains
o Not about deprivation of assets, but on diversion to D of an asset which is his duty in
equity to obtain not for himself but for P (use of knowledge, info, etc itself cannot be said
to be deprived of, so P has no loss) remedial constructive trust
3. Enrichment by an equitable wrong producing gains other than deemed agency gains
o E.g. Bribes, gains received unconnected to Ps existing business personal order, as P
has no pre-existing restitutionary interest, why should he not accept the same risk of Ds
insolvency as Ds general creditors?
o P has furnished none value, but Ds creditor has gave value, why should Ds creditor be
subordinated to P
o So should not distort rules of insolvency, and certainty of commercial dealings
4. Enrichment by a Wrong Producing Gains not resulting from breach of equitable obligation
o Personal obligation
5. Barriers for restitution
o Where restitutionary interest is not automatic (where right of election is involved), only
a right of mere equity until election has been made
Page 89 of 118
Proprietary liability for breach of trust or fiduciary duty
Overview of remedies available
Liability of defaulting T/ fiduciary Liability of TP

Personal a. Disgorgement of gains irrespective of a. Knowing receipt - for enrichment
loss account of profits obtained knowingly
b. Compensation for loss equitable b. Dishonest assistance accessorial
compensation liability for interference with trust
c. Restoration of loss suffered by the
trust fund taking accounts
d. Non-monetary remedies of rescission,
injunction
Proprietary a. Constructive trust for enrichment obtained by fiduciaries as a result of pure
only available breaches e.g. bribes
upon tracing b. Lien or constructive trust established after tracing where (a) there is a fid
relationship between the original claimant and the defaulting T/ fiduciary (c.f.
D), (b) property remains identifiable and (iii) TP has no defence
Overview on Following, tracing and claiming must show that he has proprietary interest at
some point of time and that interest subsists to show that he has proprietary interest in the
property
Following i.e. follows the physical location of the misappropriated tangible asset, in whose hands it
has been held and has reached
T steals trust property/ vase, gives it to mistress who passes to son still the same vase
Not possible if the case is in the hands of a bona fide purchaser
Tracing i.e. tracking the product of the misappropriated asset

E.g. T steals a vase, exchanged for a watch with Harry, and then for an iPad with Dora
ID of value in the original asset in its changed form but not whose hands it is/ has been
Neither a claim nor a remedy but a process by which P traces what has happened to his
property, identifies persons who have handled/ received it and justify his claim that the money
received can properly be regarded as representing his property Boscawen v Bajwa (1996)
Distinct from claimingenables claimant to substitute traceable proceeds for original asset as
the subject matter of his claim but it does not affect or establish his claim [which would] depend
on a number of factors inc. nature of interest in original asset may also be exposed
todefences as a result of intervening transactions; the successful completion of tracing may be
preliminary to a personal claim or proprietary one, to the enforcement of a legal or equitable
right Foskett
Claiming i.e. establishing the right C can assert after following or tracing
Essentially to claim in rem (e.g. right in the iPad and asking for specific delivery) but not a claim
in personam against the person holding the iPad
Allows vindication of property i.e. this ipad is mine rather than you owe me an iPad hence
claim is extinguished when that specific property e.g. explodes
May claim (a) constructive trust or alternatively (b) a charge
a. Declaration of constructive trust over the property by T for B suitable for assets which
have risen in value e.g. vase to iPad which would give B a windfall
Page 90 of 118
Would get pro rata interest even if the assets are mixed with Ts property
b. Charge over the asset B has been deprived for suitable for devalued assets
E.g. vase worth $100 was stolen and now value at $50 would give a charge of $100
over the vase hence T would either have to pay $100 or sell the vase for $50 and further
personal debt for the shortfall of $50
Hence use the asset as security, and shortfall to be paid as personal debt
Rules of equitable tracing into substitute property

Will not be defeated by the irretrievable mixing of property (c.f. tracing at common law)- allows
court to assume that claimants property continues to exist in the mixture for an equitable
charge will be placed on the whole fund as security for the claim once claimant traces an
equitable proprietary interest into the mixed fund
Not because Cs interest is in it but rather the whole account is subject to a charge in favour of C
Requirements
1. Separate equitable title requiring a fiduciary relationship between claimant and the person
misappropriating the asset to establish that there is a separation between legal and equitable
title and that the claimant has equitable proprietary interest in the asset
C.f. Tracing has nothing to do with whether there is a fiduciary relationship (c.f. claiming)
and the inquiry should merely be whether there is sufficient proprietary basis to allow the
original owner to trace the property into other forms
Re Diplock (1948)
S executed will to donate almost all his fortune for charitable or benevolent objects as T in their
absolute discretion may select; next of kin challenged validity to recover payments to charities
Charitable purposes interpreted narrowly under 4 categories at equity of (i) advancement
to education (ii) advancement of religion (iii) public purposes (iv) alleviation of poverty
Found to be void for not exclusively charitable issue on recovering disbursement
Requires a fiduciary or quasi-fiduciary relationship of a continuing righ to fporperty
recognized in Equity note ambiguity
Virgo the key element should be whether the claimant has a right of property
recognized in Equity that is either a continuing right, or one created as a result of breach
of FD/ other duty i.e. that theres equitable proprietary base instead of focusing on fid
relationship
Diplock in fact recognizes that equity may operate on the conscience of volunteers
provided that as a result of what has gone before some equitable proprietary interest
ahs been created and attaches to the property in the hands of volunteer
Here satisfied from a prior fiduciary relationship between the next of kin and executors of
the will and executors had transferred the assets in breach of fiduciary duties i.e. entitled to
trace in equity into the charities hands
Despite absence of initial equitable interest in the undistributed property as potential Bs
hence the only way to create equitable proprietary interest is by treating the executors
as owing a fiduciary duty to the next of kin
Chase Manhattan imposed fiduciary relationship for conscience of recipient was affected
If there isnt clear fiduciary relationship, the court is willing to establish one to allow tracing
process to be initiated under equitable tracing rules [for common law tracing rules dont allow
tracing into mixed funds)
C.f. Foskett v McKeown (2001), Lord Millett (obiter) challenged this requirement
Page 91 of 118
Argued for abolition of this requirement for people will full property rights stolen can only
rely on common law tracing rules which were developed too long ago disallowing tracing
once funds are mixed and based on physical assets e.g. rice and barley c.f. money
No logical justification for insisting on the existence of fiduciary relationship
Doubted in Shalson v Russo (obiter) held it should not be treated as authority abolishing
the requirement for being only obiter and the court there recognized it was not necessary to
decide because the traditional approach would equally entitle recovery
Millett in Agip (Africa) v Jackson fiduciary relationship is required to invoke equitable
jurisdiction but no further; not necessary to show that the fund has been subject of fid
obligations before it goes into the wrong hands and sufficient if the transfer creates the
fiduciary relationship
2. Property remains identifiable
a. Clean substitutions unmixed funds

Only required to show is that each and every transaction/ substitution has gone through
b. Mixed substitutions with other properties but not in a running bank account
Allowed to trace into a mixed bank account as equity treats the money in the account as
charged with the repayment El Ajou
If its a mixed fund, can ask for equitable charge to be impoed on the whole fund as
security for the equitable proprietary claim
Mixed with properties of innocent party e.g. T steals $1 from Bs trust and $1 from As then
used $2 to buy an apple
Proportionate sharing/ pro-rata contribution i.e. each with 50% interest in the apple
Court will grant CT on apple for B on condition that B gives A the value of half of the
apple
Mixed with Ts own money eg T steals $10, add $5 of his own to buy a $15 bottle thats now
worth $30 recovery is not limited to the misappropriated amount Foskett v McKeown
Foskett v McKeown [2001] (HL)

Murphy in breach of trust used the trust money to pay final instalments amounting to 20,000
who then committed suicide and insurer paid out death benefit to Murphys children
Murphys children had no defence as Equitys Darling gave no value for what they
received and derived interest from Murphy by way of gift
Issue of whether the trust beneficiaries should be able to recover 20,000 or entitled to
trace into the death benefit and claim a proportionate part
Held B is entitled to either a lien to secure his personal claim against the trustee for the
amount of misapplied money or proportionate share of the asset at his election
wherever a trustee wrongfully uses the trust money to provide part of the cost of
acquiring an asset
Regardless of whether T mixed money with his own in a single trust fund before
acquisition, or made separate payments from differently owned funds
c. Mixing in a running bank account

The rules are only evidential presumptions to determine whether the mixed funds can
be seen as representing the original stolen money i.e. rebuttable
Page 92 of 118
Two general principles of (i) against the wrongdoing trustee (ii) the court will try to do
justice between the innocent parties if the mixed funds consist of trust property of
innocent parties only Bs allowed to pick either of the two rules since T is wrongdoer
Subject to the lowest intermediate balance rule - since rules of Re Hallets and Re
Oatway are designed to resolve evidential uncertainty, they are not applicable
when it is not evidentially uncertain
Trust fund + Ts own fund

Trustees are presumed to act lawfully i.e. to preserve trust fund hence losses would
be attributed to the trustee
Two considerations of (i) any increase in the value (ii) is there sufficient remaining
amount in the bank accounts
Regardless of order of payment for only needs to resolve all evidential gaps against T for
T committed the breach and give rise to the evidential gaps would have to decide
whether to apply Re Hallett or Re Oatway though in both the courts are making sure
that B could claim for the misappropriated fund; allowed to cherry pick
Re Halletts Estate (1880) T presumed to spend his own money first

$100 of trust fund paid into bank account first, $100 Ts fund then paid into the account, $150
withdrawn from the amount and dissipated; only $50 left in bank acc
Refused to follow traditional FIFO rule (Palletts case) held (a) assumed T would act
lawfully so (b) presumed that if T withdrew money, he would withdraw his own first
o i.e. balance of the money belonged to B allowing recovery in full
May be distinguished where the money has not dissipated Re Oatway
Re Oatway (1880) Bs money was spent first

$100 of trust fund paid into the bank account first, then $100 of Ts fund, $100 withdrawn from
the account and made profitable investment of $200; balance of account dissipated ie $0
Assume T would withdraw trust money first for the profitable investment - hence could
claim the exhausted funds and hence increase in value in the substitute assets
Note remaining asset has actually dissipated but subsequent to disbursement -
argument that it shouldnt matter whether the money has subsequently dissipated for
the issue on whose money is spent first (c.f. Turner v Jacob would otherwise give B a
windfall or create unfairness for unsecured creditors)
If withdrawals yield profits but account balance still exceeds the misappropriated amount
Page 93 of 118
Turner v Jacob [2006] English HC
$100 of trust fund paid into trust account, $100 of Ts fund then $100 withdrawn from the
account for profitable investment of $200; balance of account $100
1. Investments could be claimed in Re Oatway only since there was no remaining balance
2. If there is sufficient money in the remaining balance, Ps claim is limited to the balance in
the bank account but not profits from investment qualifying the earlier cases
3. Would not be able to claim a lien over the investment unless the sum expended is of
such a size that it must have included trust monies
4. If the exception is not satisfied, such as here where T maintains in the account an amount
equal to the remaining trust fund, the lien is only attached to the fund but not investment
Critique
The wrongdoing trustee may be able to benefit himself which is inconsistent with the
rationale of authorities Any inferences should be drawn against T and hence usually
plaintiff-friendly approach
HM prefers allowing the plaintiff to cherry-pick the best option, following Shalson v
Russo and approach taken in Foskett v McKeown
Doubtful if it would be followed; here claimant was going for double recovery hence
court didnt allow her to make a claim while there is sufficient remaining balance LH
Note do not apply where the funds belong to Bs rather than trustee
Subject to the lowest intermediate balance rule will be applied whenever money
withdrawn/ spent must contain some of the trust fund i.e. no evidential gap
Where the trust fund is mixed with other money and subsequently the balance of the
account is reduced to less than the amount of the claimants money that had been
deposited, the amount that can be recovered by C is limited to the maximum amount
that can be regarded as representing his;/ her money i.e.no more than the lowest
intermediate balance of the running account
James Roscoe Ltd v Winder (1915)

+ $455 misappropriated fund; withdrawal of -$430; lowest intermediate balance of $35; then +
$333 hence balance $358
a. Evidential rules are only evidential presumptions and hence inapplicable where there is
no evidential uncertainty
b. Where the account has gone down to a certain intermediate balance cant infer from
facts an intention to replenish the trust fund from subsequent payments into account
c. Absent payments with the intention of making good earlier depredations, tracing cannot
occur through a mixed account for any larger sum that is the lowest balance in the
account between the time Bs money goes in, and the time remedy is sought
d. Hence P limited only to the lowest intermediate balance i..e only up to $35 not $358
Real rationale is that T would usually have gone bankrupt hence claim by B of the final
balance would be at the expense of creditors
Affirmed in Bishopsgate Investment v Homan
Bishopsgate Investment Management v Homan [1995] CA

Bishopsgates pension money misappropriated and paid into MCCs acc who is now insolvent
Held that B couldnt trace beyond the lowest intermediate balance of the account for failure
to show clear intention to make good the depredations
Page 94 of 118
Trust fund + funds of innocent volunteer/ parties None would have the benefit of
evidential presumptions
Note innocent volunteer i.e. TP who mixes claimants money with his own, gave no
consideration for the claimants property and who had no reason to suspect that
someone else has proprietary interest in the money c.f. wrongdoer who knew or did
have reasons to suspect for which the normal tracing rules would apply
A. General presumption first in first out (Claytons case)

Only a presumption can be rebutted by showing contrary intention i.e. that D
intended to withdraw the claimants money from the account e.g. Barlow
Only applies to current account but not deposited account former is active hence
there could be a large number of transactions every day which makes it difficult to
establish which money was withdrawn first
Problems that the innocent party whose money is paid in first would have to bear
more/ whole of the loss which is arguably unfair and arbitrary and harsh when other
people dont have to bear any loss
Developed initially for a two-party accounting scenario which may produce unjust
results where there are more than one claimant practically obsolete now (LH)
B. Displacing the FIFO presumption

Barlow Clowes International v Vaughan (Funds in collective investment scheme
misapplied; issue on investors share)
Held that the FIFO rule can be displaced where
a. Contrary intention can be found
Found inferred intention of investors to share risk hence adopted the pari
passu rule to spread loss equally among investors
o But this can only be inferred where the investors pooled their funds
together c.f. T asking people separately
b. When its application can lead to inapplicable or unjust results approved by Russell
and Commerzbank AG v IMB Morgan (a fraud case money put into correspondents
account and the nature of the account is such that the money would not paid out in the
order it in the same way as it was paid in hence it was the nature of acc, rather than
mere involvement of innocent Bs, that displaced the first in first out rule)
Re Diplock to only apply it if its convenient and if application can do broad
justice
Page 95 of 118
Russell-Cooke Trust v Prentis (No 1) [2003] 3 approaches on distribution

a. First in first out often criticised and can be displaced even by a slight
counterweight/ contrary intention; should be an exception rather than a rule (but
remains good law)
b. Rolling charge method i.e. to look at the remaining account balance in stages and to
give contributors a share proportionate to their contributions at each stage
requires updating of figures of proportional contribution; complicated and
impractical when there are multiple Bs
c. Pari passu the preferred method for causing least unfairness in distribution and
noted adoption in Barlow Clowes; also because the payments out and into the fund
didnt quite match
C. Example collective investment scheme, with each investor contributing $10; A pays $10
into the fund, followed by B with $10, then $10 is spent (remaining balance of $10), then
$10 by C, then further $10 is spent (ie remaining balance of $10)
FIFO A and B get nothing, C gets the remaining $10
Rolling charge A and B get $5 each from the first stage, then a further $2.5
(reflecting share of contribution to final sum) from second stage, whereas C gets $5
Pari passu all three share $10
d. Payment of Ts debts tracing ends when the value traced is dissipated e.g. payment of
debt, payment into overdrawn bank account, money used to repay existing mortgage
Exceptions
A. Subrogation Boscawen v Baiwa i.e. B may be subrogated to the secured liability
discharged by misappropriated trust fund if it is used to discharge a secured liability
E.g. where if B repays As debts, B would step into the shoes of the creditor and
becomes As creditor; hence B can claim subrogation and charge over property for
mortgage situations
It can only be against secured creditor because theres no point in subrogating to the
claim of an unsecured one
B. Backward tracing i.e. tracing into property acquired before trust property is received
Generally not allowed unless C can prove sufficient connection between the
misappropriation and acquisition though nature of intention required is unclear
o From intention of T when the acquisition took place that it would be repaid
by misappropriated trust fund - Foskett
Page 96 of 118
Bishopsgate Investment Management v Homan [1995] Eng CA
Pension money misappropriated in breach of trust and placed into overdraft account;
issue on whehter it was possible to trace into assets purchased beforehand
N.B. overdraft account hence not traceable
Leggatt LJ no backward tracing, following the general position

The property was acquired beforehand without the assistance of the
misappropriated trust money hence no link can be identified between
misappropriation and the assets
In order to invoke tracing, the property to be traced must be identified at every
stage of the tracing process
Dillion LJ backward tracing was possible

a. Where theres intention on the part of T when the loan was incurred that the money
was to be repaid from misappropriated money
b. There will be sufficient connection between the misappropriation and acquisition
c. Traceable a difficult hurdle to overcome
Foskett v McKeown CA seemed to be open to BT but the point wasnt raised at HL

Order of events should not be critical if it can be shown that it was always the
intention to use that trust money to acquire the asset in creating a debt Scott VC
Seen by Virgo as evidence of pragmatism in the interpretation/ application of rules
Federal Republic of Brazil and the Municipality of Sao Paulo v Durant International
Corporation and Kildare Finance Limited [2013] Jersey Court
Consequence doesnt matter so long as there is sufficient link between credit and
debit and the chronological order of events does not matter
Other authorities cases seem to be against the idea on balance in line with the
traditional position is that debt payment would extinguish right in money
Lionel Smith The law of tracing

The law should take a more realistic view as a matter of policy
Modern day transactions are often settled by credit card as part of typical
commercial life which is just delaying payment of price but the convenience of
credit card should not stop one from being able to trace
Hence payment on credit should not be treated as having extinguished the right
M Conaglen The difficulties of backward tracing

Payment of debt is an extinguishment rather than acquisition subrogation is
possible where trust money is used to pay off debt incurred to acquire the car, in
which case Bs may be subrogated to the position of creditors by treating the debt as
still alive
Refers to Lord Milletts analysis that tracing is not into the physical asset itself but
the value inherent in it
Not conceptually impossible but found that there is only obiter dicta supporting
backward tracing with all other authorities against the idea; other principles e.g.
lowest intermediate value illustrate that the plaintiff friendly approach is not w/o
constraint
Page 97 of 118
Ultimately a question on policy justifications for backward tracing include (i) giving
a just result but even if trust monies are used to discharge debt, that is satisfaction
of debt rather than payment for the value of goods; further fails to take into account
fairness to creditors in insolvency situations (ii) fairness and intuition are not strong
reasons to overrule general principles
Even if adopted, should limit establishment of links e.g. by reference to intention of T
at the time of acquisition though entails evidential problems
LH Conaglens argument less persuasive for resting purely on technical grounds which
shouldnt be the only consideration
Continuing proprietary link, though required, is often not clear in reality e.g. there
was actual mixing in Re Hallett
Tracing is a set of rules resolving evidential difficulties in holding wrongdoer liable;
in fact there to help attribute assets to P/ Bs hence originally driven by policy
The use of presumptions to resolve ambiguous evidential difficulties is not
controversial and used at both common law and equity cases show that the court
is willing to compromise on strict evidential requirements to reach fair results
At c/l e.g. Armory v Delamire involved wrongdoer refusing to produce the
stone stolen, and court held that it would resolve the evidential gap strongly
against the wrongdoer and presume it is the stone of the best kind because
he was at fault in refusing to produce evidence at trial
At equity, Armory was relied on in e.g. Milletts judgment in Libertarian
3. Defences hence no automatic entitlement to maintaining claim on proprietary interest

a. Dissipation tracing will be impossible once this occurs
b. Equitys Darling i.e. bona fide purchaser for value without notice
Must not be a volunteer
c. Inequitable to trace a broad defence and unclear whether it can be raised in a situation
unlike Re Diplock
Re Diplock (wrongful distribution of Diplocks residual estates to charities who were innocent
volunteers, having received the money and used part of it to improve their land)
Held it would be inequitable to trace where the trust money has been used to improve
the innocent volunteers land would otherwise compel sale of houses on the land
It should not be inequitable to trace but inequitable to assert right against the
traceable asset at the claiming stage instead; should be treated as defence for claim
instead of judicial discretion on whether it is fair to award the remedy
d. Change of position available for c/l personal action for money had and received
Originally a defence for unjust enrichment claims (recognized in Lipkin Gorman)
E.g. If customer receives $10 of extra change by mistake, would be required to
make restitution unless he has spent the money on an extra meal
Requirements
1. Recipient must be in good faith mere negligence on the part of recipient is insufficient
to deprive him of the defence
2. Causal relationship i.e. mustve changed the recipients position in reliance on receipt
As a result of receipt, and but for it, he would not have incurred the expenditure
Lipkin Gorman v Karpnale Ltd [1991] HL, per Lord Goff

Solicitor embezzled clients trust money and used it for gambling at the Playboy Club which
made a net winning over the years
Page 98 of 118
Client has equitable title in the money while the law firm can only sue for legal title form
the Playboy club hence case on common law tracing despite mixing would often stop
tracing at common law, the parties here had agreed that the money held by the Club
came from the solicitors account i.e. agreed to resolve evidential difficulties
Law firm used in unjust enrichment claimed it had retained sufficient legal interest in
the money and it was ignorant on the embezzlement hence law firm should be entitled
to recover the value of money which the club was unjustly enriched at firms expense
Judgment recognized the bona fide change of position defence to UE claims

Where an innocent Ds position is so changed such that injustice suffered if asked to
repay (in full) would outweigh the injustice of denying plaintiff restitution
So long as the innocent person has relied on the fact that he is entitled to use the receipt
such that it has become inequitable to require payment in full
Unless the receipt is used to purchase an asset for which he would then be required to
return the asset
Policy concerns on fairness to the innocent recipient - idea of unjust enrichment is that
D should not be worse off as he was before the receipt hence it may be unfair to require
subsequent return after innocent party spends the receipt on which he has relied
Judge is an advocate for the recognition of the law of restitution being an area of law
allowing recovery of money without legal justifications to be retained by recipient
Authorities in the context of equitable tracing (and whether it was applied in Re Diplock)
Generally appears to be against the idea Foskett v McKeown though it depends on the
basis of the claim to traceable substitutes the defence should be available if its in UE
Debate on the basis of claims to traceable substitutes

a. Unjust enrichment Smith, Birks, HM; rejected by HL in Foskett v McKeown though
rejection is controversial
Hence the defence should be allowed
HM property itself cannot create rights in new assets (being the substitutes) and
the only possible ground is that its response to unjust enrichment
C.f. principles of unjust enrichment require causation between loss suffered and gain
obtained but tracing never requires but-for causation
b. Vindication of property rights; merely part of property law Virgo, Foskett

N.B. the basis for claim in original property in which B continues to have equitable right
Page 99 of 118
Foskett v McKeown
Issue of whether B was limited to a charge over the amount of misappropriated fund or
a proportionate amount in the death benefits court allowed pro-rata share of benefit
Beneficiaries had proprietary rights in the original trust money and the court was
just allowing the trust beneficiaries to vindicate their property rights
The transmission of a Cs property rights from one asset to its traceable proceed is
part of the law of property, not of the law of unjust enrichment Lord Millett
Operation of the rules may seem harsh or unjust and gives windfall to P but would
allow their full application if proprietary rights are established i.e. proprietary rights
are sufficient basis for tracing Lord BW
Not entirely convincing for being based on the assertion that this is property hence
part of property law and fails to explain why the application of rules cannot be
mitigated by rules of justice
Claiming at the end of tracing i.e. upon finding traceable product

May make a claim in respect of the property once shown that D has received that property in
which C has an equitable proprietary interest
Claims include those to (i) ownership of the property to have continuing proprietary interest
in the property which requires claim for CT (ii) security over property which may be by way of
lien or charge i.e. can enforce the charge and if its insufficient to cover the misappropriated
amount, then B may claim the difference by way of personal claims
o Cannot claim more than security interest in the substitute property where the claimant
only has security interest in the original property
o Election depends on whether the substitute has increased/ decreased in value to claim
CT for increase and lien otherwise to enable B to get back the original amount of trust
fund misappropriated
E.g. T uses $5000 trust money and $5000 own money to purchase a car worth $10,000 B can
choose to trace the value of the misappropriated money into the car by way of charge or claim half
of the interest in the car by way of CT
o Where the car then declines in value to $7000, it would be preferred for B to claim lien for
repayment of misappropriated funds i.e. $5000 (for pro rata measure would only give
$3500)
Page 100 of 118

Personal liability of third parties for breach of trust or fiduciary duties
Paragon Finance v Thakerar & Co (1991), per Lord Millett establishing 2 types of CT
a. Constructive trust arising because of pre-existing fiduciary relationship before the occurrence of
the impeached transaction (T becomes trustee breach CT imposed)
Not subject to limitation period for claim in breach of trust
b. Constructive trust arising in the absence of pre-existing fiduciary relationship, and only imposed
by wrongful behaviour not a proprietary type of trust
Generally subject to limitation period of 6y from classification as tort unless theres dishonesty
Stemming from Barnes v Addy if found making themselves trustees de son tort or participating
in fraudulent conduct of the trustee to the injury of the cestui qui trust, but not for mere agents
of the trustee in transactions within their legal powers unless they receive and become
chargeable with some part of the trust property, or assist with knowledge in a dishonest and
fraudulent design on the part of T
In personam action preferable where property is destroyed, or passed on to TP
Liability as constructive trustees only denoting that range of remedies available would
include those normally available against express T; here just personal
Three categories of wrongdoers subject to liability as constructive trustee

A. Trustee de son tort i.e. stranger taking upon himself to do acts characteristic of office of T
Based on the idea of estoppel i.e. representing oneself to the outside world as T e.g. receiving
payments and issuing receipts like a trustee
Primary liability as trustee subject to full range of trustee liability (Mara v Browne) and not
subject to limitation period
B. Knowing receipt of trust property or traceable proceeds Akindele

Receiving trust property in situations where you become chargeable with the property i.e.
no right to retain property received with requisite knowledge
Primary liability as trustees (i) personal + (ii) proprietary liability if still has assets
o Defence: BF purchaser for value w/o notice, and change of position (under SL)
Nature of liability not settled; possibly UE, wrongful interference with beneficial rights, graded
extension of express trusteeship; main debate on whether it is based in UE or knowledge
Basis in UE or wrongdoing (as suggested by Akai which imposes liability for equitable
compensation) problematic
Difference in (i) focus (ii) burden of proof (iii) measure of compensation

a. Basis in knowledge current model requiring some degree of fault and culpable knowledge
by the application of unconscionability test
Would be for the plaintiff to prove knowledge and unconscionablity
If knowing receipt is based in some kind of wrongdoing, the compensation would be for
loss rather than for D to account for whatever has been received but issue where
theres no loss
b. Basis in unjust enrichment the idea that it is a question of receipt

Arguing that it is to be analysed under the law of unjust enrichment subject to the
defence of change of position i.e. the equitable equivalent of unjust enrichment
Page 101 of 118

o Defence means if D hasnt received the money, he wouldnt have spent it, and as a
result he shouldnt have to give back as much
o Would shift burden to D to prove defence which may be harsh in the
commercial context for then banks would be under an onerous burden of
undertaking numerous inquiries
Note that Criterion is not authority on this point [appears to be an authority LH] note
that it was distinguished
o If looked at in isolation, there are the alternative interpretations on irrelevance
of unconscionability and it being a matter of unjust enrichment of (i) knowing
receipt is not knowledge based so unconscionability is inapplicable (ii) the
characterisation as knowing receipt in Akindele is wrong note its opinion that
Akindele is wrong may be relating to the adoption of the test of
unconsiconability, or characterisation as KR
o But in fact the case concerns a two party scenario i.e. contract between two
parties with one trying to set it aside for breach of trust or FD and issue was on
AA in that context Lord Nicholls was likely referring to the issue of
characterisation i.e. only with liability in unjust enrichment and not in knowing
receipt hence any comment on Akindele was obiter KL (c.f. LH)
o Hence Criterion is neither authority for that liability for knowing receipt is strict
or even obiter on that point; no property was passed under Criterion contract
should look at other authorities e.g. extra-judicial comment
Problems that remedy for gain may be problematic where TP has not gained anything
but original owner has suffered (consequential) loss (of property)
Birks did retract his opinion in 2002
Akai Holdings
Facts
Director of plaintiff company executing an ultra vires loan to pay off debt on which the
debtor/another subsidiary of Akais PC was about to default person executing the loan was
the director of both companies
Using forged minutes of executive committee
Share certificates transferred to D, which were worth 50m and D subsequently sold part of
the shares for 20m upon default of repayment; co then went bust
Issues
1. Apparent authority found belief irrational and hence no apparent authority
Basically issue of whether the agreements were executed with authority (i) applied test
of apparent authority for no express (ii) ie irrationality test (iii) application to facts (iv)
void contract hence no valid title passed (v) sale of shares amounted to act inconsistent
with owners title (vi) hence conversion
Applied the test on irrationality i.e. actual impropriety or dishonesty; whether the belief
in the directors authority was dishonest or irrational
o Constructive knowledge is not sufficient do not use being put on inquiry
Considered factors (i) it was a substantial amount (ii) it was a one-sided loan with
liability from the loan and pledge incurred solely by Akai Holdings but no apparent
benefit derived (iii) there was a clear conflict of interests for the director was also
director for the debtor (iv) bank relied on forged minutes not of the board (which was
normal procedure) but only an executive committee and failed to ask further for it (v)
failed to take other normal procedures Akai was new client
Hence the contract was void for want of authority
Page 102 of 118

2. Issue of whether P can pursue a claim in KR
a. Applicability distinguished from Criterion for it being an executory contract hence still
KR claim not barred by Criterion dictum
b. First element clearly satisfied disposing of shares
c. Second element: 2 arguments (i) depends on construction of the pledge agreement to
ascertain whether the recipient has sufficient control over the shares (ii) there may be a
moment in time before sale when he had sufficient degree of control over the shares
(interpreted as upon sale - KL c.f. upon execution of the agreement and transfer of
physical possession of the shares LH) did not decide on this but in any case would be
satisfied from the acquisition of proceeds
d. Third element (i) test of unconscionability, following BCCI v Akindele (ii) which is
equated with the test of apparent authority i.e. irrational reliance test requiring actual
knowledge (iii) and satisfied for AA already found to be absent
Distinguished from Criterion there involving an executory agreement
e. Remedy (i) equitable compensation for los suffered by P under application of Target
Holdings but for causation test (ii) would in any event refashion it to the same as that
awarded for common law conversion claim
i.e. liable for loss which would not have arisen but for Ds wrongdoing to be
assessed at the date of judgment rather than breach (Re Dawson)
Remoteness and foreseeability being irrelevant arguably adopting whole test
Rejected the analogy with unauthorised disbursement
Found here the company would have retained the shares anywyas had they not been
pledged loss capped at sale of shares i.e. 20m
Criticism on the second issue of knowing receipt [check RL/LH case note below]
a. /
b. On the issue of security interest giving rise to beneficial receipt
Underlying transaction is already void for want of authority hence there should be no
right to sell the shares; physical custody of share certificates doesnt suffice
On (i) looking at construction of the agreement c.f. it should fall out of the picture once
the contract is set aside for want of actual and apparent authority hence irrelevant LH/
RL (ii) possession does not give any legal or equitable interest in the shares hence all the
bank got was physical possession of share certificates with no interest in the shares
difficult to see therefore how there could be sufficient control LH/ RL
C.f. Gold v Rosenberg in which receipt of a contingent security interest over the trust
property would suffice for KR for encumbrance of trust property involves subtraction of
its value and conferment of corresponding benefit on TP c.f. the pledge was already void
Distinction from Criterion weak for there is similarly no valid transfer of assets under a
void contract Yap
o Should really be looking at the nature of arrangements or property and the
distinction on executed/ executor is not relevant
Gold v Rosenberg may give a higher yield (though may be capped at the value of the
loan) but in any case would be assessing it at date of judgment KL
c. On unconscionability The court considered (i) the irrationality test i.e. requires actual
misconduct or dishonesty and (ii) (traditional) unreasonableness test i.e. whether it was
unreasonable to rely on the authority i.e. what the bank should have known if it had
conducted inquiry
Difference between the tests

Main difference between the two tests being whether constructive knowledge would
Page 103 of 118

suffice not so under the irrationality test
o But no actual difference and irrationality only a fluid test for unreasonableness
entailing the same outcome once you take out consideration on constructive
knowledge LH/ RL; in any case remains the issue of to what extent can you say
someone is irrational Yap
CFA held that some recklessness or dishonesty is required i.e. constructive knowledge
not sufficient likely to give weight to the commercial context and undesirability in
placing the burden on banks to make inquiries
Note possible counterargument when it is not in the commercial context
Critique on the equation of the test of unconscionability for KR and that for AA
The two tests serve different functions apparent authority looking at contractual
formation and whether there is a contract c.f. knowing receipt considers whether TP
should be subject to liability hence dealing with different issues
Different weight (should be) accorded to subjective state of mind latter deals with an
objective issue on formation depending on factual circumstances and not really relevant
to look at intention of parties c.f. KR looking at whether a TP who is not in pre-existing
fiduciary relationship is justified hence subjective culpable state of mind should be more
important and given more weight
Noting that the irrationality test is defined here as no other reasonable person
would have believed in the authority assessed using the factors in Akai which arent
on culpable state of mind
i.e. arguably inappropriate for (i) the tests are designed for different purposes and (ii)
weight given to subjective intentions
May be that it makes sense that the two claims (ie that on AA and KR) give rise to the
same conclusion in the commercial context for commercial certainty but that only refers
to the application but not the context of the tests is the same
d. Remedy of equitable compensation N.B. depends on when receipt is found

C.f. the traditional approach that D in KR would be liable as a constructive trustee
which is really just a reference to personal liability
(i) Adoption of equitable compensation novel reference
Imposed for recovery of loss hence inconsistent with the idea of unjust enrichment
which should be assessed for gain at the time of receipt
o KR looks at receipt whereas equitable compensation looks at loss suffered by
the principal which may be equivalent but not necessarily
Could be relevant if KR is an extension of trustees liability but in which case
should consider whether the primary duty to reconstitute the trust fund had been
discharged because the mortgage there was ultimately executed so possible
argument where the agreement has not been executed that T ought to reconstitute
at the time of breach
Debate between (i) imposing constructive trusteeship (fault-based liability)
requiring restoration of value of misapplied asset c.f. unjust enrichment (receipt-
based liability) giving rise to liability to give up any benefit retained from receipt
and use of the trust assets to the extent of his current UE
(ii) Application of the but for test in Target
Arguably irrelevant for all you have to do is to account for what you have received,
which entails the question of assessing quantum on the date of judgment but doesnt
mean it is equitable compensation
Page 104 of 118

Approach issue of to what extent can P recover benefits conferred on TP
First to deal with dissatisfactory nature of common law remedy e.g. in Thanakharn v Akai
Holdings (Director acted ultra vires in executing loan from Thai bank in favour of a subsidiary
company by forging minutes of the Board of Directors and secured by pledge over shares;
Share certs worth $50m when passed to bank and (part of it) sold for $20m to a bona fide
purchaser i.e. not traceable
o CL claim on AA contract void and so action in tort of conversion (doing an act
inconsistent with the owners right over the property e.g. sale) and wrongful
detention (if one keeps/ fails to return sth over which he has no rights)
Damages for conversion assessed at the date shares are sold i.e. $20m
Note that generally for void(able) contracts, remedies lie in (i) conversion (ii) unjust
enrichment (iii) knowing receipt UE not discussed in Akai peculiarly
Requirements - Note criticisms on each step

1. Disposition of property in breach of trust or fiduciary duty e.g. misappropriation of
companys property by director
2. Beneficial receipt of property disposed or its traceable product as recipient (cf agent)
i.e. receiving the legal title for himself and for his use rather than ministerially to goods over
which claiamtn holds equitable proprietary interest
Bottom line that one can only validly transfer property that is his own/ which he has
authority to dispose of (as trustee [which means he has title] or agent)
BCCI v Akindele (B paying off debts of F under latters personal contract with the
recipient i.e. property not transferred pursuant to the contract)
Note even if interest is transferred at conclusion of security agreement, would not allow
claim for full value of the property but to be capped at amount of loan i.e. value
realisable from the security interest RL/LH
Hence (i) whether the contract is void (apparent or actual authority) Akai, or executor
Criterion (ii) has property nonetheless passed
Gold v Rosenberg contingent interest conferred under security contract suffices;
found guarantee supported by collateral mortgage on trust property was not void
Where the contract with defaulting fid as agent is void e.g. for want of authority referring to
situations where the agent transfers assets of the principal
But traceable product from property transferred can still be subject to KE
a. Only strict, personal liability in c/l unjust enrichment Criterion

Construed as no receipt so no LR hence no knowledge needed; in fact ambiguous and
another interpretation is that it goes to requisite knowledge LH; this proposition is
not preferred LH/ RL
Criterion Properties v Stratford (2004, HL) per Lord Nicholls

Held that liability for B to account for benefit received pursuant to contract with A
depends on whether the contract is binding on A
a. If valid no knowing receipt as there is no misapplication of assets
b. If set aside (i) proprietary claim if B still has assets, (ii) personal claim based in UE
and subject to defence of change of position giving rise to strict liability for UE
regardless of proof of fault/ unconscionability
Basically no tracing in equity so can only go fro common law UE
Proprietary claim arising from tracing rules unless a bona fide purchase
Considered Akindele erroneous likely to be referring to characterisation of
Page 105 of 118
claim as one in KR w/o considering UE for an invalid agreement
b. (i) Depends on nature of interest obtained by construing agreement and (ii) whether
there is nonetheless sufficient control over property Akai, Neuberger
Akai Holdings (2010, HKCFA) concerning a pledge over shares supplemented with
physical transfer of share certificates but without registration as new owner
No legal title passed since contracts void
1. If Bank only had contractual right to sell the shares, protected by the pledge of certs,
then there may have been no receipt until sale of shares would depend on
construction of the agreement to ascertain right conferred
Recognizes that a benefit is received from the holding of certificates but it is
merely a protection of alleged right to sell the shares
2. Found arguable w/o deciding that when the bank actually purports to exercise its
right of sale ,the bank may have sufficient degree of control over the shares during
scintilla temporis before sale
In any case satisfied when the shares were sold and proceeds retained
Distinguished Criterion for involving an executory contract distinction between
executory contract and void contract doubted by LH/ RL, Yap
c. Depends on the nature of property i.e. whether its nature is such that title can pass
regardless of validity of contract e.g. funds and money c.f. shares LH/ RL, Yap*
If the underlying property is such that title cannot pass under a void contract, then
no title should pass under contract conferring security interest over it
o Noting for shares, transfer of title requires (i) execution of form of transfer,
(ii) attachment of form and delivery to company (iii) registration at the
Company Registry (Pennington v Waine)
3. Requisite knowledge by recipient before or during receipt/ retention
a. Traditional approach of Baden scale distinguishing AK, which inc (i) wilfully shutting
ones eye to the obvious, (ii) wilfully and recklessly failing to make such inquiries as an
honest and reasonable person would make; and CK where one knows of facts/
circumstances which would give rise to a positive belief but honestly not having such
positive knowledge and failing the standard of a reasonable person in spotting the prob,
Inc. knowledge of circumstances which would indicate facts to an honest and reasonable
man, or put a reasonable man on inquiry
b. Alternative approach of Lord Nicholls in Tan (that it is restitution-based) and extra

judicially i.e. only strict liability for UE subject to change in position regardless of proof
of fault, unconscionable conduct
Supported by Birks before change of heart on the UE basis for KR
Page 106 of 118
C.f. Nourse LJ in Akindele (didnt cite Criterion) strict liability commercially
unworkable and contrary to Turquand (TPs should be entitled to assume compliance
with internal company rules) if proof of misapp can shift BOP to D
o Difficult to justify the equitable defence for change of position upon proof of
unconscionability suggesting at incompatibility
C.f. Say-Dee v Farah Constructions (2007, Australian High Court)

Concerning the liability of wife and children of defaulting fiduciary which obtained
property through misuse of information obtained from his position
Explained that strict liability argument (1) is derived from the idea that the first
limb is restitutionary and based on unjust enrichment e.g. Lord Nicholls in Tan
recipient liability is restitution-based, Birks (2) which means that notice is not
required
Rejected as the correct interpretation of Barnes v Addy first limb requiring that D
has knowledge the money is applied in a manner inconsistent with the trust not
consistent with authorities and only advanced as an attempt to harmonize cases;
would shift the burden to D upon showing that the enrichment is unjust on some
recognized grounds; no justification for changing the law; would lead to chaos and
unfairness
Rejected as a new ground would render Barnes first limb obliterate
In any case not actually argued by the parties hence discussion inappropriate
LH: conservative judges
c. Unconscionability i.e. you must know something which makes it unconscionable for
you to keep the property Akindele; criticised for lack of specificity
Must know enough of the surrounding facts if basis for liability is that he fails to
make reasonable enquiries Snells
Quite high a threshold hence some degree of suspicion alone may not suffice
Essentially a debate between unreasonableness test and unconscionability test
Note constructive knowledge may still be relevant for unconscionability test; Akai
only equated the test with the test of irrationality under apparent authority in the
commercial context and agency scenario note relevance
Also note relevance of commercial context and general reluctance to subject
contracting parties to onerous duty
BCCI v Akindele (2001, CA) BCCI officers promosing Akindele (investor) that he would get
high interest rate for investment with the bank under Ponzi scheme
Adopted single test of unconscionability (c.f. Snells on gratuitous transactions)
Which requires actual knowledge; constructive knowledge not sufficient
Further that court should give commonsense approach in commercial context
C.f. distinction on knowledge inconsistent with Akindele rejecting need to distinguish
despite it also recognizing that actual knowledge is required Yap
Akai Holdings (2010, HKCFA) applied w/o explaining/ deciding

Found that (a) B had no apparent authority to enter into the transaction (and any belief
in it is irrational) and (b) this suffices for the unconscionability test
1. Referred to Nourse LJs ref to single test of knowledge of unconscionability in

Akindele, affirmed in Charter v City Index (after Criterion)
In fact stated that Criterion Properties followed the same approach
Page 107 of 118
Note adoption of this test essentially rules out KR as based on UE
2. Equated test for apparent authority with that of unconscionability here i.e.
erroneous belief in validity must be so high as reaching irrationality
Satisfied here for nature of transaction one-sided, conflict of interest, didnt
follow established practices despite being well-trained professional
Suggesting that adoption of standard procedures is a factor Yap
Found the same test applies particularly in a commercial context (at arms
length) to give consistency and make commercial sense
N.B. not to be applied directly where lack of apparent authority is only found on
concession by counsels but not actually upon courts finding
Otkritie International Investment Management Ltd v Urumov (Ponzi scheme)

N.B. relevant paragraph only a quotation from Snails
Distinction between commercial transactions and gratuitous transactions
subjective knowledge required for former i.e. knowledge implying that D was in
some degree subjectively aware of the wrongful/ unauthorised source c.f.
knowledge that would put reasonable person on inquiry about origins in latter since
one should not assume that money comes from a lawful source
Policy reason for not too harsh in taking away a gift anyways
Considered same test applies for proprietary claim (ie for D to show he is bona fide
purchaser for value without notice) and knowing receipt
4. Giving rise to remedy in equitable compensation for loss suffered by P - Akai Holdings;
essentially liability to account on the footing of knowing receipt Peconic
Subject to limitation period discussion Central Bank of Nigeria
Proprietary remedy would only arise from tracing rules but not by virtue of KR
Akai Holdings
a. Equitable compensation to be subject to the Target/ Canson test i.e. remoteness and
foreseeability do not count
b. Should be assessed at the date of sale, even if a claim of knowing receipt arises at the
time of receipt, applying Target test
Always open to the owner to recover the certificates from the bank until sale and
found Akai would have retained those shares anyways hence loss would only have
occurred upon sale
c.f. LH/ RL receipt should be the sale proceeds so no question should arise on
valuation of shares
NB if its security interest, its value may be capped at outstanding loan amount
c. Should in any case to equate with c.l. damages for commercial certainty
Criticism by LH/ RL
Suggesting that liability is loss-based i.e. not grounded in UE note debate above on the
nature of KR liability
Would have been justified if court endorsed concept of KR as imposing trustee-like
liability but without which may give rise to misimpression that measure of recovery is
exactly the same, and not less than that of an express trustee
Reference to equitable compensation is new
No reason for confining equitable compensation by common law principles
Page 108 of 118

C. Assisting with knowledge in a dishonest and fraudulent design on part of T
Secondary liability dependent on proof of primary wrong to deter Royal Brunei
Discussion of its similarity with tortious claim Dubai Aluminium holding that partners of a
defaulting solicitor may be held vicariously liable
Requirements
1. Breach of trust/ FD by someone other than the defendant; a technical breach suffices and
need not be dishonest Royal Brunei v Tan c.f. apparent wording in Barnes v A
2. To which D assisted
Only requires minimal participation
Applying the but for test i.e. had D not helped, the fiduciary would not have been able to
commit the breach Brinks v Abu Saleh (No 3) (Issue of whether the wife of driver who
helped putting money misappropriated by fiduciary in the boot of a car and drove it across
the border was liable for merely accompanying him)
o May be distinguished where despite mere presence, it serves the purpose of
impliedly verifying authority of defaulting T/F
3. Dishonestly an objective test but taking into account the personal knowledge, experience
and circumstances of D without requiring subjective knowledge of the wrongful nature of
act Royal Brunei, Barlow Clowes
Need not know details of the trust or identify of the beneficiary so long as he knows that
the money is not at the free disposal of the principal Twinsectra
Suggesting that even if he did not know of the breach, there could be assistance if he
suspects that something was wrong, which does not depend on knowledge of the precise
involvement of the defaulting T in Bs affairs or existence of trust or facts giving rise to
the trust Barlow Clowes rejecting Brinks on this point
o Only that he knows the property is not at Ds free disposal Millett, Twin.
No longer based on mere knowledge for policy reasons since an onerous duty would be
imposed on professionals if standard for liability is low Royal Brunei
Basically requiring (i) actual knowledge of the wrongfulness or (ii) suspicion of it and
deliberately turning your eyes against it; and (iii) to determine latter, the court would
consider whether in light of Ds personal circumstances, he fails to act in compliance
with the objective standard; further (iv) D need not know full extent of the wrongful act
but mere knowledge of the wrongfulness suffices Barlow
Page 109 of 118

Nature of the test settled as an objective test taking into account subjective elements
N.B. factual circumstances may indicate a lack of honest belief + unreasonableness
Royal Brunei Airlines v Tan an objective test

(i) Measured against an objective standard i.e. what a reasonable and honest man should
do, (ii) Taking into account subjective elements of what he would have known or
appreciated; experience and intelligence
(iii) Subj knowledge of wrongdoing suffices for finding of obj dishonesty but D does not
necessarily have subjective knowledge
C.f. Twinsectra (majority in the HL) a subjective test

Solicitor released loan money placed in solicitors trust account in breach of the Quistclose
decision, thereby committing a breach of trust (c.f. failure of trust)
A combined test (Lord Hudson) of (i) what D did must be objectively dishonest, and D
must have realised that by those standards his conduct was dishonest
Based on a purported interpretation of Royal Brunei
Must know that what you are doing is dishonest and that you are transgressing the
objective standards of dishonesty Lord Hoffman
Bearing in mind the facts dishonesty, being a question of fact, was not found by trial
judge despite finding that the solicitor knew about the undertaking not to use the money
for other purposes and deliberately shutting his eyes to its implications in releasing the
funds; LH ruling perhaps out of desire to not disturb finding of fact
Reinterpreted as that taking into account his subjective knowledge of the law (in
believing that the undertaking didnt count), he was not dishonest
C.f. minority (Lord Millett) adopting the objective standard but account to be taken of
subjective considerations such as Ds experience and intelligence and actual state of
knowledge
Subj appreciation that hes acting dishonesty is sufficient but not necessary
consciousness of wrongdoing a matter for criminal liability not civil
Basically questionable authority for prompted by dissatisfactory finding of fact which
the majority didnt wish to disturb, and Milletts judgments powerful
Cf Barlow Clowes v Eurotrust, per Lord Hoffman (majority in PC) obj, the law
D allegedly assisted with operation of a fraudulent off-shore investment scheme by providing
services In forming offshore companies and dealing with payments
Dishonest state of mind inc (i) actual knowledge that the transaction is not one in which
can honestly participate, and (ii) suspicion combined with conscious decision not to
make inquiries which may result in knowledge adopting Millett
Need not have knowledge of the full details of the breach of trust e.g. need only know
that you are helping with a wrongful act and not necessarily that it involves a breach of
trust for money laundering (c.f. Rimer J in Brinks) here satisfied if D suspected
misappropriation and that money was held on trust/ belonged to co
Retracted from earlier position upon finding an element of ambiguity in Twinsectra
reinterpreted as only requiring consciousness of the elements that make the
transaction dishonest, rather than consciousness of dishonesty
Need not have reflected on the acceptable standards of honest conduct
His own judgment referring to consciousness that one is transgressing ordinary
standards of honest behaviour only requires consciousness of the elements that
would make participation transgress those standards
Found here consciously refrained from making inquiries
Page 110 of 118
Page 111 of 118

Application
A-G of Zambia v Meer Care (solicitor helped client launder money stolen from Zambian
government by helping with setting up accounts with money from dubious source)
Exonerated by taking into account subjective competence, experience and knowledge
here solicitor didnt have much experience/ competence with international transactions
and money laundering
Rejected the use of a hypothetical comparator i.e. whether an honest solicitor would
have done what D did, given his knowledge of facts which entails wrong assumption of
Ds competence
Bearing in mind the need for cogent evidence for finding of fraud
Affirm that you take into account the subjective competence of D and only compare him
against an honest person but not an honest and competent person
4. Liability as constructive trustees in personam liability subject to LP of 6 years

Generally only to restore the property immediately, unless he deals with the property in
a way inconsistent with Bs rights in which case he is required to restore the property in
specie (under falsification) or make substitutive performance i.e. current monetary
value of property
No proprietary remedy Twinsectra, Dubai; only personal liability to account on the
footing of dishonest assistance Williams v Bank of Nigeria Ltd which is
compensatory Twinsectra
Claimant will be able to elect between equitable compensation and disgorgement where
D has profited from the assistance Fyffes Group v Templeman
Would be personally liable to disgorge profits made but;
Generally equitable compensation for loss resulting from the breach of trust or fiduciary
duty that D procured, encouraged or assisted Grupo Torras SA v Al-Sabah (No 5)
o To be determined at the date of judgment
o For which he is jointly and severally liable with T/F Ultraframe (UK) v
Fielding; and liability being secondary to the primary wrongdoer, remedies
would be the same hence liable if wrongdoer incurs liability to pay money as a
form of substitutive performance of obligation to account for trust property
o Subject to the rules on double recovery
Liability is secondary i.e. same as that of the primary wrongdoer i.e, would be liable for
loss which B suffers from defaulting trustees breach
The defence of Limitation period subject to LP of 6 years
Limitation Ordinance s. 20
(1) No limitation period shall apply to an action by a beneficiary under a trust,
(a) In respect of fraud/fraudulent breach of trust to which Ts party/privy;
(b) OR To recover from the trustee trust property or traceable proceeds in Ts
possession, or previously received by the trustee and converted to his use.
(2) Otherwise limitation period of 6 years for an action by a beneficiary to recover trust
property from the date on which the right of action accrued
Provided that the right of action shall not be deemed to have accrued to any beneficiary
entitled to a future interest in the trust property, until the interest fell into possession.
N.B. trustees defined in TO s.2 to cover constructive trustees
Page 112 of 118

Interpretation of (1)(b)
Not referring to where a person having taken possession of property on his own behalf is
liable to be declared as a trustee but only where he originally takes possession upon trust i.e.
type 1 CT Taylor v Davies, cited in Peconic
Issue of whether DA can be treated as trustee for these purposes since the case does not
necessarily involve a dishonest breach of trust by original trustee
Falls within Type II constructive trust in the absence of pre-existing fiduciary
relationship before wrongful act hence does not fall within s.20(1)(a) Pragona, per
Lord Millett; affirmed in Peconic Industrial (2009) per Lord Hoffman in HKCFA, and
Central Bank of Nigeria, per Lord Sumption in UKSC
Also construed in respect of merely as claim against the trustee on the grounds that he
committed a fraudulent breach of trust Peconic, Nigeria i.e. would not be satisfied
even if the original trustee commits a dishonest breach
o The rule only to protect co-trustees acting in good faith
But LO s.26(1) applies where fraud is involved i.e. time only starts to click after P
discovers the fraud, or could with reasonable diligence have discovered it Peconic
(Ponzi scheme for purported investment in property development)
o Though leaving open the question of whether the objective reasonableness test
would nonetheless take into account personal characteristics of P
o Hence issue of whether/ when P can discover with reasonable diligence to be
proved by P
o Requires only knowledge of facts to make out a prima facie case but not
necessarily evidence beyond reasonable doubt; though does need to know that
(i) D participated (ii) in a fraudulent scheme
Basically (i) not a trustee, (ii) not applicable as a claim in respect of fraud by T
Paragon Finance v Thakerkar & Co [1999] Eng CA, Millett LJ (obiter)

Solicitor received funds from lender on bare trust with mandate to complete sale of land; Paragon
claimed that solicitors had participated knowingly in a scheme to defraud it
a. Distinguished between the two types of CT one with pre-exisitng trust relationship and D had
assumed that role regardless of whether he was expressly appointed c.f. trust arising by reason
of the impugned transaction
b. Former type is a true trust c.f. type 2 hence for type 2, the label of CT is only a way to impose
equitable obligation to account
c. S.20(1) should hence only apply to type 1 trusts for being similar to express trust
Peconic Industrial Development v Lau, [2009] CFA

Claim against solicitor who assisted with a fraudster in cheating bank into buying property from
Peconic at excessively inflated prices
Argued that the claim is subject to LO s.20(1) for solicitor is not in a pre-existing fiduciary
relationship
Issue of whether the claim in DA is time-barred under limitation period
Affirmed that (i) dishonest assister is not a fiduciary in a pre-existing fiduciary relationship
hence within category 2 of Paragon constructive trusts (ii) therefore s.20(1) is not applicable to
him.; (iii) s.20(1)(a) reference to claim in respect of trust by trustee refers to claim against the
trustee himself i..e primary wrongdoer hence wouldnt be satisfied even if the trustee committed
a dishonest breach (iv) may however take advantage of s.26(1) of LO
Page 113 of 118

William v Central Bank of Nigeria, per Lord Sumption [UKSC, 2014]
P defrauded and argued that bank was a party to the fraud in a claim for dishonest assistance; issue on
whether claim was time-barred under s.21 of English Limitation Act 1980 (equivalent to LO s.20(1) )
1. Whether D in a dishonest assistance or knowing receipt claim a trustee for the purpose of
s.21(1)(a) ? No
Bank argued that the legislative intent as seen from recommendations of Wright committee,
was to abolished distinction between true trustees and those liable to account as CT
rejected for construing the Act but not Wright publications; nothing suggested anyways on
abolishing the distinction and didnt discuss recent cases on the distinction; not apparent
from legislation for they would otherwise have defined trustee in the Act differently
Milletts obiter in Paragon Finance maintained the distinction and followed
Cited Lord Hoffman in Peconic that dishonesty doesnt matter in the context of limitation
for the principle is not that the limitation defence is denied to people who ere dishonest but
that its denied to fiduciaries and dishonest assisters are not fiduciaries
No difference for KR recipients possession is at all times adverse to the rights of B, no
trust reposed in him nor does he have powers or duties to T
o Whether limitation period applies depends on difference between true trustee and
liability that a stranger incur solely by reason of participation in the misapplication
o C.f. for true trustees, because anything received would be held for the beneficiary,
there is nothing that is done inconsistently with Bs rights hence no trigger for LP
2. Whether an action in respect of any fraud or fraudulent breach of trust includes an action
against a non-trustee liable in DA/ KR? No
Linguistically possible but would be mistaken under general principles of equity
Hence s.21(1)(a) only concerns action against Ts on account of their own fraud or
fraudulent breach of trust
Because (i) LP is to relieve trustees from harsh equitable rules except in the case of s.21(1)
cases; which were never applied to non-trustees Taylor v Davies, Peconic v Lau and (ii)
limited to fraud or fraudulent breach of trustee (c.f. good faith trustees) hence to which the
trustee was a party or privy would have no meaning if they were to apply against strangers
(iii) ancillary liability arises independently of trustees fraud (KR on account for own
dishonesty but not that of trustees Royal Brunei)
Note s.21(1)(b) on dealing with actions to recover trust property in possession of trustees is
unquestionably limited to actions against Ts
Page 114 of 118

Summary of articles
Ji Lian Yap on apparent authority and knowing receipt (Case note on Akai)
1. On finding of receipt
a. Would be contradictory to argue that the agent lacks authority and contract is void, while at
the same time there is receipt of shares for a claim in knowing receipt
Should depend on the nature of property e.g. fund transfers would not be affected by
issue on authority for there being merely a corresponding but separate adjustment of
choses in action (ie bank accounts); money is fully negotiable and good title would pass
if transferee receives in good faith and for value despite defect in title c.f. shares
b. Distinction on executed/ory for distinguishing Criterion is weak; Criterion may be
rationalised on basis that no KR for no receipt under contracts which are set aside hence
unconcioanbility is not relevant but this is not spelt out in Akai though noted this is not
necessarily the case
c. Adopted wider/more practical approach in finding receipt of proceeds nonetheless
2. On requisite knowledge
a. Unconscionability being criticised for lack of specificity, failing to ascertain standard
b. Irraitonality test may be misleading for TP acting opportunistically may be acting rationally
in a commercial sense
c. Rejection of constructive knowledge as being sufficient is not consistent with Akindeles
broad-brush rejection of the need to distinguish levels of knowledge
Lusina Ho and Rebecca Lee on knowing receipt and want of authority

1. Test of irrationality for apparent authority
Appears to require want of probity or even reckless in grouping irrationality with
dishonesty and contrasting them with constructive notice c.f. traditional reasonable reliance
test on the appearance of authority or notice of the lack of it
Not a new test but really just a fluid and variable standard of reasonable reliance that
accommodates commercial needs in taking into account actual/ imputed facts
Only means that no reasonable person would have relied on the appearance of
authority, as opposed to mere failure to make all inquires that a reasonable person with
the benefit of hindsight would have made
Challenged for AA is an objective issue of contract formation and where requirements on
dishonesty or recklessness are inapt though takes into account actual and imputed
knowledge to accommodate the commercial circumstances- should not be equated
2. Criterion refers to characterisation rather than requisite knowledge
3. On finding of receipt problematic where the asset disposed is not legally owned by T
a. Distinction from Criterion is weak
b. Availability of KR should depend on whether elements are made out in individual cases
registration being required for transfer of security interest in shares where certificates only
serve as prima facie evidence
Factual possession of certs without valid loan and pledge agreements cannot pass legal
title over the shares and if no valid title can be derived form a void contract to transfer
shares, it should equally be so if the void contract purports to confer a security interest
in favour of TP i.e. if void agreement on security over shares , no valid security interest
Should not depend on construction of contract for it has already been found void
c. Further distinguished from Akindele for there payment is not made pursuant to contract
between defaulting trustee and TP
Page 115 of 118
d. Receipt took place instead at the time of acquisition of sale proceeds (i) proceeds are
traceable products of trust property, and (ii) as cash/ funds, they are freely negotiable and
legal title would pass notwithstanding invalidity of the contract
4. On equating uncosncionability test with that for AA
Objective issue of contractual formation militates in favour of an objective test of reasonable
reliance that is sensitive to individual circumstances c.f. KR
Noted that there is no consequential loss here hence basis of KR is not material despite
implicit ruling out of UE as basis by applying unconscionability
Fault may be justified for recipient will not only be required to make restoration but also
compensation for loss incurred
5. On equitable compensation
Novel and further suggests that KR is a loss-based equitable wrong ie not UE
Would have been justified if court endorsed concept of KR as imposing trustee-like liability
inc. restoration of property in specie which involves payment of monetary value at time of
receipt or current value, whichever is higher
o Without which may give rise to misimpression that measure of recovery is exactly
the same, and not less than that of an express trustee
Noted capping of the amount at amount of loan
No reason for limiting equitable compensation with common law principles
Matthew Congalen and Amy Goymour (Case note on Barlow Clowes)

Agreed with the view that civil liability doesnt normally depend on consciousness of moral
wrongdoing
Noted that Barlow Clowes is in fact PC authority which under English law is of inferior status to
Twinsectra but nonetheless recognizes in the UK as the settled law
The tests on assistance make sense in the context of dishonesty which means simply not acting
as an honest person would in the circumstances (Tan)
Charles Mitchell & Watterson

N.B. difference in terms substitutive performance claim for misapplication where primary
obligation to account in specie is not possible// reparation which is based on misconduct and loss
(of opportunity to make profits) suffered
B retains equitable proprietary interest in the property if misappropriated and given to third
party, but that third party wouldnt be under personal duty to return the property or account for
it as constructive trustee unless and until he has knowledge of the breach Citing Millett in Agip,
Westdeutsche
Ts liability to account is akin to equitable debt rather than damages for not premised on
wrongdoing or loss as such (disabilities rules)
Noting that the liability to account for wrongful disbursement is either for the market value plus
interest at date of misapplication, or market value at the date of judgment, whichever is higher
o Possibility of claiming the highest intermediate value if T has power of sale?
*** where Ts negligently buy an unauthorised investment that declines in value, no issue on
adopting or rejecting the transaction for its part of the trust estate but may be personally liable
to pay compensation for the loss suffered by negligence
o Noting that surcharging on the basis of willful default covers any form of breach including
negligence; hence possible to go for surcharging where its breach of duty of care in making
investments!
Knowing receipt
Rather liability is custodial and similar to that of express trustee (c.f. for unjust enrichment or
primary equitable wrongdoing similar to conversion)
Page 116 of 118
o Liable to return the property immediately rather than on demand or substitutive
payment for his possession of that property is illegitimate and unauthorized (though
in fact its to restore the trustees to allow reconstitution of the trust rather than the Bs
unless its a bare trust)
o Should even be covered by TO s.60 allowing court to grant relief for Ts liability
Liable to further account for and disgorge any profits made Lord Walker extra-judicially,
Ultraframe v Fielding
o Rationalised on the basis of express Ts duty not to place himself in conflict of interest;
or primary liability to account for profits from duty to account for trust property (though
this doesnt explain why theres duty to disgorge non-traceable proceeds of trust
property)
On similarity with unjust enrichment similarly giving rise to liability to perform restorative
duty and not dependent on allegation of breach of duty c.f. UE claim means measure of liability
at value of property at time of receipt/ disposal but KR claim allows assessment at current
market value
On treating it as wrong based (i) argument that con neg should be an available defence c.f. not
available for every wrong case and would undermine fiduciarys core obligations, but the true
reason is because theres no room to argue such for need not allege breach of duty to claim
liability
On construing it as KR based e.g. Birks, Gold v Rosenberg

Rejected the Canadian approach that its essentially liability in UE which requires proof of fault;
Jersey approach that it is not itself a liability in UE but KR owes strict liability in UE independent
of fault is also weak
Would also be confusing to classify as receipt-based if used in a sense in opposition to fault-
based (Lord Millett in Agip for former and Twinsectra)
Liability for KR is not because D must have unjustly enriched but because he owes custodial
duties as T
o Where KR of shares sells them and spends the cash on a holiday, shares then triple in
value, UE liability would be for the value of shares/ cash upon receipt c.f. KR liability for
current value of shares
Dishonest assistance
Distinguished from KRw which is not a secondary liability/ liability for a secondary wrongdoing;
rather owe primary duties and incur liabilities for such
o Example given T misappropriating shares, converted to cash and hands it to D who
knows transfers made in breach and value of shares then doubles; DA liable for the
money substitute of the shares but KR only liable for the cash received
Secondary/ attributed liability that duplicates the liability of primary wrongdoer hence (i)
same liability to account for the trust property and substitutive performance, (ii) reparation of
loss caused by the breach of duty (w/o need of proof on causation between the loss and DAs
act) (iii) duty to account for profits
o Which are attributed by a fiction
Liability for disgorgement of profits may be justified by (a) Dual characterization (Elliot and
Mitchell) interpreting DA as (i) a secondary civil liability and (ii) independent civil wrong
exposing him to primary obligation to pay over profits (b) DA gives rise to liability for wrong
(Ridge)
o Rejected (b) and re-formulated (a) as being liable for own wrongdoing (as if procuring
breach of contract) but with secondary wrong by reference to commission of a wrong by
another person
Page 117 of 118

Secondary in being parasitic on the wrong of trustee but doesnt mean DA is
not liable for own wrong
o In short an equitable secondary wrong attracting both duplicative liability (of T) and
liability for own gains driven by policy reasons
Criticized Ridge approach that there is no duplicative liability but only to compensate for loss
caused by own wrong and gain-based liability only a liability for own gains; additionally liability
for loss and gains made by Ts would be justified by good policy reasons
o insufficient regard on the basis for imposition of liability and doesnt explain liability for
substitutive performance of Ts duties
Page 118 of 118

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Equity & Trusts Revision Notes

Equity and Trusts

Types of express disposition

Fixed trust Discretionary trust Fiduciary/ Bare power

Constitution of express trust

N.B. possibility of having a nominal settlor

A. Declaration of trust (i) formal validity (ii) substantive validity

1. Intention to create trust as opposed to other relationships otherwise outright gift

2. Certainty of subject matter must be ascertainable

a. Traditional rule requires segregation from general mass Re London Wines

On Hunter v Moss seriously criticised CAs reasoning but not conclusion

3. Certainty of object i.e. beneficiaries clearly defined

T Choithram International SA v Pagarani, Lord Browne-Wilkinson in PC (executed deed to

Saving Failed transfers

Exceptions Equity will not strive officiously to defeat a gift

Clarke LJ voluntary transfer of equitable property

In criticising Arden LJs judgment creating uncertainty in the area

b. Whether Choithram is correct in itself see above

In criticising Clarke LJs reasoning

Note difference between Ts and donors

a. Equitys intervention in voluntary assignments of legal rights is that equity looks to

Comment willing to use benevolent construction to satisfy Re Rose despite prohibited

d. Where consideration is given for a covenant to create a trust

Where the covenant relates to after-acquired property

e. Where the covenant to transfer property is intended to be held on trust

Fletcher v Flectcher (S covenanted absolutely to pay Ts a sum to be held on trust for J)

Trust of a covenant to transfer future property

Duties and powers of trustees

Duty to provide information to allow monitoring of enforcement of trust

B. Access to trust deeds

C.f. inherent jurisdiction for court to supervise Schmidt, Breakspear

Criticism on proprietary basis

2. Re Londonderry confidentiality principle remains good law as noted in Breakspear v

It is in the interests of beneficiaries of family discretionary trusts, and advantageous to the

Enables discreet but thorough inquiries on Bs competing claims, reduces scope of

3. Where it falls outside Re Londonderry scope/ overriding discretion Breakspear

Case authorities on duty to provide access to trust docs

Re Londonderrys Settlement [1965] (protection of Ts deliberation)

Kirby J held discloseable

Sheller J.A. held not discloseable for confidentiality

Breakspear & Ors v Ackland & Anr [2009], per Briggs J

a. Proprietary basis firmly rejected; a matter of discretion for the court

Tam Mei Kam v HSBC International Trust Ltd (2011, CFA)

Criticisms Undermines the strict liability of fiduciary duties

Duty to exercise reasonable prudence trust terms prevail

Speight v Gaunt (1883) instructed broker, appointed at Bs request, to invest in corporation

Bartlett v Barclays Bank Trust Co [1980] higher standard for professional Ts

A. Exemption clauses from compensation/duty; so long as S knows and approves it

Citibank v MBIA (2007)

Hong Kong statutory control TO s.41W **

B. Statutory relief of Ts liability discretionary

C. Doctrines of concurrence, release or acquiescence Re Paulings Settlement Trusts (No 1)

Recurring theme of what T, as a reasonable T, should/ wouldve considered/ intendedPH

Interpreting Re Hastings bass rule

3. Which amounts to a breach of duty duty of reasonable prudence

5. Rendering the disposition voidable

Approach on trustees duties

1. Defining fiduciary in the context of relationships of trust and confidence

a. Status based trustees, directors, liquidators, solicitors; c.f. accountants

Employees Canadian Aero Services v O Malley

2. Scope and nature of fiduciary duties

For potential conflicts duty of good faith rule i.e.

Boardman v Phipps [1967] HL n.b. did give allowance