THE MALAYSIAN BOYS

PRESENTING
 QUESTION 2

• George is the sole trustee of deceased Teo’s estate which

consists of two houses, one towing lorry, one car and
cash funds in a bank. The trust instrument provided that
the trustee would take steps to sell the towing lorry and
that all other property would be used for the benefit of
Teo’s two daughters, the beneficiaries. George sold the
car to Tommy for RM60,000 ( the market value for the car
now is not less than RM150,000) The two beneficiaries
file a suit against George for breach of trust and Tommy
for knowingly inter-meddling with trust property. Explain
Tommy’s position
 WHETHER GEORGE BREACH HIS DUTIES
AS THE SOLE TRUSTEE OF TEO?
• Fry v Fry (185() 28 LJ Ch 591
• Testamentary trust where the trustees were to sell some freehold land "so
soon as convenient after [testator] is deceased".
• After his death, trustees tried to sell land, but refused an offer from
prospective purchaser as there was depreciation of value at that time due
to railways being built nearby.
• Beneficiaries sued for loss to trust fund, alleging neglect by Trustees to sell inn
as trust terms required.
➔ Held: Trustees strictly to their duty, as laid out in the detailed terms of the
trust.
➔ liable to compensate for difference btw actual value at time of trial, and
offer received.
 APPLICATION
• The trust instrument provided that George would take steps to sell Teo’s
property for his daughters.
• George sold the Yeo’s car to Tommy undervalue. Supposedly above
RM150,000 but George sold at RM60,000 below its market price.
• Beneficiaries interest is paramount consideration, failure lead to breach of
trust.
• The interest of daughters are being disregarded. George fail to comply his
duty to benefit them.
 TOMMY AS CONSTRUCTIVE TRUSTEES
EVEN HE IS STRANGER TO TRUST?
• Person not appointed trustee, but meddles in trust by taking it upon himself
to administer trust may be subjected to same liability as express trustee.
• Mara v Browne
• Not having authority or not being trustee, meddles with the trust property.
Constructive trustee.
• Indeed, Tommy is a stranger who neither have authority nor being trustee
but still a constructive trustee meddle with Yeo’s car sold undervalue.
 GEN RULE: ESSENTIALS RECEIPT LIABILITY
International Sales & Agencies v Marcus, CO’s fund used to pay personal debt. The creditor knew money being
paid from the CO’s account, as cheque was drawn up. The creditor is liable as Ctee.
• Disposal P’s assets in breach of fiduciary duty.
• Beneficial receipt by D of the assets.
• D’s knowledge that the said assets traceable to breach.

Indeed, in consideration to the car, Tommy did pay for it and in return receive the property which is being
transferred by a known breach of fiduciary duty.
Tommy has committed knowing receipt if he have received trust property with the knowledge that the
property is being transferred in breach of fiduciary duty. Once it committed, then tracing allows the beneficiary
to assert a constructive trust over that trust property.
If Tommy have received trust property but haven't committed knowing receipt, then he is likely to be a bona
fide purchaser for value against whom there is no remedy at all.
Knowing receipt is a 'wrong', and tracing is a technique that allows Tommy to identify the car that can assert
proprietary rights over, and then constructive trust is the remedy that the beneficiary will receive.
 KNOWLEDGE??
• A person who takes the trust property must have at least a constructive
notice of the breach before can be held liable as constructive trustee in
knowing receipt situation.
• This is the position in International Sales and Agencies Ltd v. Marcus and Re
Montagu’s Settlement Trust.
• However in Eagle Trust Plc v. SBC Securities the court held that inferred
knowledge was required although the third party was not required to be
duly suspicious.
• Based on this, it is argued that if Tommy have the suspicion about the car
sold undervalue and the purpose of the transfer then he would be liable as
constructive trustee in knowing receipt of the fund.
 PERSONAL LIABILITY TO ACCOUNT ON THE BASIS OF
KNOWING ASSISTANCE OF TRUST PROPERTY APPLIES
TO STRANGERS WHO ASSISTED A NOMINATED TRUSTEE
IN COMMITTING A BREACH OF TRUST.

WITH REFERENCE TO DECIDED CASES ESPECIALLY THE

DECISION OF PRIVY COUNCIL IN THE CASE OF
ROYAL BRUNEI AIRLINES, COMMENT ON THE
IMPORTANCE OF THE ABOVE STATEMENT.
 STRANGER?
THIRD PARTY - not
appointed as trustee
= liable as constructive trustee

types
Knowing receipt
of dealing
No liability Trustee de son tort

Knowing
Innocent volunteer assistance

FIRST CASE:
IN GENERAL
Barnes v Addy
…strangers are not to be made
constructive trustees merely
because they act as agents of
trustees in transactions within their
legal powers: transactions, perhaps,
of which a ct of equity may
disapprove, unless those agent;
Receipt or dealing
a) receive and become chargeable with
some part of the trust property; or
The said person may not be able to escape
liability for the loss attributable to him/her
b) they assist with knowledge in a dishonest
or fraudulent design on the part of the
trustee
Knowing asistance
 KNOWING ASSISTANCE

Breach of trust is an essential

requirement for accessory
liability, must this be
dishonest/fraudulent? Four elements to established “knowing existance”
1) The existence of trust
2) Existence of dishonest and fraudulent design on
part of the trustee of the trust
3) Assistance by the stranger in that design
4) Knowledge of the stranger (MENTAL STATE)
SECOND CASE:
Baden Delvaux and Lecuit v
Societe Generale pour
Favouriser le Development du
Commerce et de I’industrie en
France SA THE ALLEGED CONSTRUCTIVE TRUSTEE WAS A PARTY /
PRIVY TO DISHONESTY ON PART OF THE TRUSTEE
 MENTAL STATE?
ACTUAL KNOWLEDGE
WILFULLY SHUTTING ONE’S EYES TO
THE OBVIOUS
WILFULLY AND RECKLESSLY FAILING
TO MAKE SUCH INQUIRIES AS AN
HONEST AND REASONABLE MAN
WOULD MAKE
KNOWLEDGE OF CIRCUMSTANCES;
PUT AN HONEST AND REASONABLE
MAN ON INQUIRY
KNOWLEDGE OF CIRCUMSTANCES;
INDICATE THE FACTS TO AN HONEST
AND REASONABLE MAN
Ct have will treat a person having a
constructive knowledge of the facts –
Nelsonian knowledge
 THIRD CASE: Eagle Trust plc v SBC Securities Ltd

The last types of Baden

knowledge are not
always necessary
 FOURTH CASE: ROYAL BRUNEI AIRLINES

• Tan: managing director & principal shareholder

• Wife: other director n shareholder
• BLT Sdn Bhd: travel co.
• BLT – agent of Brunei Airlines and was required (agreement) to be paid in a
separate account.
• This was not done – money was transferred into BLT’s personal account- used
for BLT’s business purposes
• Pursuant to an agreement with the bank, any balance in the current
account was to be transferred to a fixed deposit account of BLT / Tan
• Result: BLT failing into arrears in respect of its arrangement with the airline
 HELD

• Privy Council: the money paid to BLT was on trust in favour of the airline
• Tan was liable since HE HAD ACTED DISHONESTLY in that he caused or
permitted his BLT to utilise the money in a way he knew was not authorised
by the trust.
 Dishonesty on the part of the third
”DISHONEST”
party is a prerequisite for liability

Dishonesty is sufficient ingredient

The breach of trust by the trustee

need not itself be dishonest and
…”Knowingly” is better avoided fraudulent
as a defining ingredient of the
principle, and in the context of
this principle the Baden scale of
knowledge is best forgotten.”
 THE IMPORTANCE?

• Personal liability to account on the basis

of knowing assistance of trust property
applies to strangers who assisted a
nominated trustee in committing a
breach of trust.
 COMMENT(S)
• It is the best to consider the stranger’s act rather than relying on the
”knowledge” of the stranger

• This is because, when a stranger is said to be personal liable towards certain

conduct, their own conduct which is honest or other way around is matter.

• And it is easier and more objective to look into the dishonest conduct of the
stranger who assisted the nominated trustee in committing a breach of trust