Content area
Full Text
Introduction
One of the great difficulties in seeking compensation from those who, in breach of a fiduciary duty, have wrongfully deprived others of funds or property is that the defaulter is insolvent and the funds or property have been dissipated or transferred to jurisdictions where they have become unavailable. This has led the court to look to others generally referred to as strangers who did not owe a duty to those who suffered loss but may have benefited from or assisted in the perpetration of the breach of duty.
In doing so the courts have recognised the tension between the need to compensate those who have suffered loss and the need to circumscribe the liability of others so that the imposition of liability is not unreasonable or inequitable. The seminal decision is Barnes v Addy(1) and in particular the judgment of Lord Selborne LC. There the court recognised two circumstances in which a stranger would be made liable for a breach of trust. They were:
(a) if the stranger was an agent who received and became chargeable with some part of the trust property; or
(b) if the stranger assisted with knowledge in a dishonest and fraudulent design on the part of the trustee.
The distinction between the two is that the stranger in the first case holds or has received the property whereas the stranger in the second case has not (although he or she may have benefited indirectly, for example, by the receipt of fees). Despite the difference the courts have imposed liability by way of constructive trust in both cases. Thus the constructive trust has been employed in its character as a substantive institution as well as a remedy by which restitution may be compelled. In the first instance it has been employed as a means in itself for property held by the stranger is fixed with the trust whilst in the second case it has been employed as a means to an end for it imposes a liability on the stranger to compensate. The touchstone of impropriety upon which the courts have applied constructive trusts, especially in the second case but also increasingly in the first case, is knowledge, but in recognising the different roles of the constructive trust the...