Equity&Trusts 118

Equity & Trusts Revision Notes
Equity and Trusts

Revision Notes
Page 1 of 142
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

Trustee Must distribute the Duty to distribute the No duty to distribute
s trust property In property; survey the field; on the part of the
duties the specified seek out the beneficiaries trustee
predetermined
manner
Bs proprietary No in rem right by individual No in rem right, or
rights interest of his B in the underlying assets personam right against
share in the trust only a personam right the trustee
property against the trustee to
exercise the discretion No right even as a
class to require
Class as a whole would be trustee to transfer
able to require trustee to property
transfer 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)
Page 2 of 142
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
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
Page 3 of 142
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
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
Page 4 of 142
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
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
Page 5 of 142
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. 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
Page 6 of 142
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
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
Page 7 of 142
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)
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
Page 8 of 142
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

Page 9 of 142
(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 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
Page 10 of 142
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 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
Page 11 of 142
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
Page 12 of 142
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)
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
Page 13 of 142
(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
Page 14 of 142
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
Page 15 of 142
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
Page 16 of 142
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 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
Page 17 of 142
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
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
Page 18 of 142
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 19 of 142
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
Page 20 of 142
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

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
Page 21 of 142
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
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 22 of 142
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 23 of 142
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
Page 24 of 142
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
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
Page 25 of 142
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 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
Page 26 of 142
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
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
Page 27 of 142
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 28 of 142
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
Page 29 of 142
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)
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)
Page 30 of 142
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.
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 31 of 142
Page 32 of 142
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
Page 33 of 142
Generally upheld for freedom of contract c.f. limiting liability to
Bs disadvantage
Alternatively indemnity insurance i.e. S paying premiums using
trust assets
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
Page 34 of 142
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
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
Page 35 of 142
(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
(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
Page 36 of 142
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
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)
Page 37 of 142
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 38 of 142
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
Page 39 of 142
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, 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
Page 40 of 142
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
Page 41 of 142
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
Page 42 of 142
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)
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
Page 43 of 142
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
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
Page 44 of 142
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
Page 45 of 142
fiduciary position and 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
Page 46 of 142
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 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.
Page 47 of 142
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
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
Page 48 of 142
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 49 of 142
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
Page 50 of 142
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
Page 51 of 142
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 52 of 142
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
Proprietar a. If the value of the property has gone up
y 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
Page 53 of 142
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
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
Page 54 of 142
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 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 55 of 142
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 When taking accounts becomes unfruitful as a
compensation 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
Page 56 of 142
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
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
Page 57 of 142
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
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
Page 58 of 142
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)

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
Page 59 of 142
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
Page 60 of 142
B. Causation is irrelevant under the traditional approach of falsification which is only
admin and enforcement of primary obligation
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
Page 61 of 142
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
Remotenes Irrelevant Dawson, Target, Millett LQR (principles have no place
s/ given that you only perform your primary duty to account for trust
foreseeabil property)
ity
NAI Irrelevant Dawson
Con neg Irrelevant by extension of logic in Dawson
Mitigation Irrelevant by extension of logic in Dawson
Approach
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
Page 62 of 142
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]
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
Page 63 of 142
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
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
Page 64 of 142
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
Remotenes Relevant Millett LQR (noting diff from falsification)
s/ For breach of duty of care and skill yes - Bristol, Bank of NZ
foreseeabil (Canadian), Liberatarian (obiter) c.f. Irrelevant Youyang (obiter,
ity citing Canson Enterprise) c.f. criticism on it;
For misapplication irrelevant Libertarian (obiter, citing Target,
BNZ)
Fiduciary duty Irrelevant if its deliberate wilful default
Page 65 of 142
Libertarian
NAI For breach of duty of care may be relevant by extension of
reasoning in Millett LQR, Libertarian (obiter)
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 66 of 142
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)
Page 67 of 142
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
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 68 of 142
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
Page 69 of 142
Orthodox types of resulting trust
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
Page 70 of 142
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
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
Page 71 of 142
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)
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
Page 72 of 142
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
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
Page 73 of 142
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
If B had gone spend it on paying his university fees
bankrupt, A only has a B cannot used it for other purposes
personal remedy against and cannot mix it with his general funds
B, and rank pari passu A has legally segregated the $100
with other creditors from general funds (though not physically)
No proprietary It is common to what one can get a
interest no right over a trust
specific asset of B
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
Page 74 of 142
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 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
Page 75 of 142
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
Page 76 of 142
separate, explanation on conjuring proprietary rights out of contractual
relationship
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 77 of 142
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)
Page 78 of 142
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
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
Page 79 of 142
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 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
Page 80 of 142
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
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-
Page 81 of 142
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
Page 82 of 142
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
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]
Page 83 of 142
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)
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
Page 84 of 142
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 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
Page 85 of 142
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; 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
Page 86 of 142
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
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
Page 87 of 142
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
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
Page 88 of 142
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
Page 89 of 142
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
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
Page 90 of 142
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 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
Page 91 of 142
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
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
Page 92 of 142
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
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
Page 93 of 142
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 94 of 142
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
Page 95 of 142
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
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
Page 96 of 142
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
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
Page 97 of 142
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 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;
Page 98 of 142
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
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
Page 99 of 142
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
Page 100 of 142

through which the benefits may have channelled
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
Page 101 of 142

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
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
Page 102 of 142

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
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
Page 103 of 142

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 104 of 142

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)
Page 105 of 142

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
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 106 of 142

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
Page 107 of 142

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 108 of 142

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 a. Knowing receipt - for
irrespective of loss account of enrichment obtained
profits knowingly
b. Compensation for loss b. Dishonest assistance
equitable compensation accessorial liability for
c. Restoration of loss suffered by interference with trust
the trust fund taking accounts
d. Non-monetary remedies of
rescission, injunction
Proprietary a. Constructive trust for enrichment obtained by fiduciaries as a result
only of pure breaches e.g. bribes
available b. Lien or constructive trust established after tracing where (a) there
upon is a fid relationship between the original claimant and the
tracing 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
Page 109 of 142

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
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
Page 110 of 142

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
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
Page 111 of 142

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
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
Page 112 of 142

$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
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
Page 113 of 142

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
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
Page 114 of 142
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 115 of 142

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 116 of 142

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
Page 117 of 142

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
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;
Page 118 of 142

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
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
Page 119 of 142

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
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
Page 120 of 142

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 121 of 142

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
Page 122 of 142

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
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
Page 123 of 142

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
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
Page 124 of 142

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 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
Page 125 of 142

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
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
Page 126 of 142

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
Page 127 of 142

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 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
Page 128 of 142

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
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
Page 129 of 142

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
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
Page 130 of 142

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
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
Page 131 of 142

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 132 of 142

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
Page 133 of 142

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 134 of 142

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
Page 135 of 142

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
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
Page 136 of 142
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
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
Page 137 of 142

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 138 of 142

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
Page 139 of 142

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
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
Page 140 of 142

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)
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
Page 141 of 142

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
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 142 of 142

Equity&amp;Trusts 118

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Equity&amp;Trusts 118

Încărcat de

Drepturi de autor:

Formate disponibile

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

1. Certainty of intention (a) whether he intends to create trust (cf other

2. Certainty of subject matter must be ascertainable

a. Traditional rule requires segregation from general mass Re

Hunter v Moss (trust over 50 of 950 shares)

White v Shortall (Aus SC of NSW, 2006) ( declared trust over x of 1.5m

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

Milroy v Lord (S purported to transfer shares by deed to be held on trust

Exceptions Equity will not strive officiously to defeat a gift

b. Where S does everything necessary in his power for him to

Re Rose (1952, CA) (purported to transfer shares with one intended as

Re Rose (Midland Bank Executor and Trustee v Rose; 1949)

Applied in the context of gift of house Mascall v

c. D had done enough to effect transfer that its unconscionable to

Arden LJ applied all 3 exceptions but ruled on the basis of exception to

Clarke LJ voluntary transfer of equitable property

Critique on the courts reasoning issue not on whether the equitable

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

Case note Re Rose Revisited Tjio and Yeo

a. Equitys intervention in voluntary assignments of legal rights

Comment willing to use benevolent construction to satisfy Re Rose

Curtis v Pullbrook (purported to transfer shares by issuing share

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

Marriage consideration (i) B falls within marriage consideration i.e.

Re Kays Settlement (executed settlement when unmarried over her

Where the covenant relates to after-acquired property

Pullan v Koe (wife covenanted to settle on trust property acquired after

Beswick v Beswick (coal merchant covenanted with nephew to

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

Fletcher v Flectcher (S covenanted absolutely to pay Ts a sum to be held

Trust of a covenant to transfer future property

Rejected also in Re Kay future property cannot be the

" Where a legacy is directed to accumulate for a period, or if payment is postponed,

Would result in termination of the trust; fund may be transferred to TP if so

Duties and powers of trustees

Duty to provide information to allow monitoring of enforcement of trust

A. Duty to notify sui juris (legally competent) beneficiary that he is a beneficiary

B. Access to trust deeds

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

Criticism on proprietary basis

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

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

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

Case authorities on duty to provide access to trust docs

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

Hartigan Nominees Pty v Rydge (Australian CA) majority rejected disclosure of

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

For discovery in civil proceedings if a genuine issue as to construction of trust deed

a. No self dealing honesty, fair price and open market sale

Equity&Trusts 118

Equity&Trusts 118