## **Learning Outcomes**

This article explains remedies against third parties for breach of trust, including:

- the distinction between recipient liability (knowing receipt), accessory liability (dishonest assistance), and liability as a trustee de son tort;
- the precise elements and legal tests for knowing receipt, focusing on beneficial receipt, knowledge, and unconscionable retention of trust assets;
- the requirements for dishonest assistance, including the existence of a trust and breach, assistance, and the objective dishonesty standard;
- how personal and proprietary remedies operate against third parties, including equitable compensation, tracing, and strategic election between remedies;
- the scope and limits of key defences, such as bona fide purchaser for value without notice and change of position;
- when a party will be treated as a mere conduit or outside beneficial receipt, avoiding recipient liability despite involvement in the transaction;
- how limitation periods, the fraud exception, and equitable bars such as laches constrain or defeat claims against third-party defendants;
- common SQE1 examination pitfalls, including confusion between negligence and dishonesty, and between knowledge, notice, and unconscionability in recipient liability.

## **SQE1 Syllabus**

For SQE1, you are required to understand liability of strangers to a trust, including recipient and accessory liability, with a focus on the following syllabus points:

- distinction between recipient liability (knowing receipt) and accessory liability (dishonest assistance)
- elements of knowing receipt: disposal in breach, beneficial receipt, and knowledge making retention unconscionable (El Ajou v Dollar Land; BCCI v Akindele)
- elements of dishonest assistance: existence of trust/breach, assistance, objective dishonesty (Royal Brunei Airlines v Tan; Barlow Clowes v Eurotrust)
- personal vs proprietary remedies and election; tracing into substitutes and proceeds
- defences: bona fide purchaser for value without notice; change of position; lack of beneficial receipt; mere conduit
- limitation and equitable bars: Limitation Act 1980 s21, fraud exception, no limitation for proprietary recovery from trustees, laches
- role of intermeddling (trustee de son tort) and personal liability for wrongful interference
- interaction with unjust enrichment principles (e.g., Lipkin Gorman v Karpnale) in restitution of misapplied trust assets

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. What are the essential elements for establishing recipient liability against a third party who receives trust property?
2. Which of the following best describes the standard for dishonesty in accessory liability (dishonest assistance)?
   a) The defendant must personally believe their conduct is dishonest.  
   b) The defendant's conduct is judged by the standards of ordinary honest people.  
   c) The defendant must intend to defraud the beneficiaries.
3. True or false? A bona fide purchaser for value without notice can be liable for knowing receipt.
4. What is the main difference between a personal and a proprietary remedy against a third party in breach of trust?

## **Introduction**

When a breach of trust occurs, liability is not limited to the trustees. In some cases, third parties—known as "strangers to the trust"—may also be liable. This article explains the two main routes to liability for strangers: recipient liability (knowing receipt) and accessory liability (dishonest assistance). You will learn the requirements for each, the available remedies, and the main defences.

A "stranger" is any person who is not an appointed trustee but becomes involved in a breach of trust. Liability depends on clearly defined categories and tests. Recipient liability focuses on whether the third party received misapplied trust assets and their state of knowledge makes it unconscionable to retain them. Accessory liability targets those who assist the breach and do so dishonestly, judged objectively by the standards of ordinary decent people. In addition, someone who interferes without authority in trust administration may be treated as a trustee de son tort.

> **Key Term: stranger**  
> A person who is not an appointed trustee but becomes involved in a breach of trust, either by receiving trust property or by assisting in a breach.

## Liability of Strangers to the Trust

A "stranger" is any person who is not an appointed trustee but becomes involved in a breach of trust. There are two main ways a stranger can be liable:

- as a recipient of trust property (recipient liability)
- as an accessory who assists in a breach of trust (accessory liability)

Not every involvement creates liability. A person who acts as a mere conduit (for example, a bank processing transfers without beneficial receipt), or a bona fide purchaser for value without notice, will generally not be liable. By contrast, someone who self-appoints themselves into trust affairs and causes loss (for example, wrongly selling trust property) may be treated as a trustee de son tort.

> **Key Term: trustee de son tort**  
> A person who, without authority, intermeddles in trust administration causing loss; treated as if a trustee and personally liable.

## Recipient Liability (Knowing Receipt)

Recipient liability arises when a third party receives trust property in breach of trust and, in the circumstances, it would be unconscionable for them to retain it.

> **Key Term: recipient liability (knowing receipt)**  
> Liability imposed on a third party who receives trust property in breach of trust, where their knowledge makes it unconscionable to retain the benefit.

### Requirements for Recipient Liability

To establish recipient liability, the following must be shown:

1. **Disposal of trust property in breach of trust**: The property must have been transferred in breach of trust.
2. **Beneficial receipt by the third party**: The third party must have received the property for their own benefit.
3. **Knowledge making retention unconscionable**: The third party's knowledge must be such that it would be unconscionable for them to retain the property.

The core test is whether, in all the circumstances, the recipient’s state of knowledge makes retention unconscionable (BCCI v Akindele). This does not require proof of dishonesty. The claimant must show that the recipient had actual knowledge or turned a blind eye, or that the facts known to them would put an honest person on inquiry such that retention would be unfair. The standard is evaluative: the court assesses the recipient’s conscience at the time retention is questioned. The receipt must be beneficial—someone acting purely as agent or conduit is not liable.

Leading authority confirms the elements (El Ajou v Dollar Land Holdings plc): disposal in breach, receipt of assets traceable to the breach, and the recipient’s knowledge making retention unconscionable.

> **Key Term: unconscionable**  
> Conduct that is contrary to the standards of honest and reasonable people, making it unfair for a person to retain a benefit.

### **Worked Example 1.1**

A trustee transfers £40,000 of trust money to his friend, who uses it to buy a car. The friend later learns the money was misappropriated from the trust. Is the friend liable?

> **Answer:** Yes. Once the friend learns the money was trust property received in breach of trust, it is unconscionable for her to keep the car. She is liable as a knowing recipient.

Beneficial receipt covers receiving the asset or proceeds for one’s own account. If the recipient promptly segregates and returns the asset on learning the truth, liability may be avoided. Conversely, retaining the benefit or disposing of it in their own interest after knowledge will support liability.

### Defences to Recipient Liability

A recipient will not be liable if they are a bona fide purchaser for value without notice, or if they have changed their position in good faith before learning of the breach. Further, a person with no beneficial receipt (for example, a bare agent) is generally outside the scope.

> **Key Term: bona fide purchaser for value without notice**  
> A person who acquires property for value, in good faith, and without knowledge of any breach of trust. Such a person takes free of the beneficiaries' equitable interests.
>
> **Key Term: change of position**  
> A defence where a recipient, acting in good faith, has changed their circumstances in reliance on the receipt, making it unjust to require repayment.

A bona fide purchaser for value without notice cuts off equitable claims to the property. Change of position (derived from restitutionary principles and applied in trust contexts) can reduce or extinguish personal liability if the recipient has irreversibly altered their position in good faith, before gaining notice of the breach, and restoration would be inequitable. The defence is not available to recipients acting dishonestly or recklessly.

### **Worked Example 1.2**

A company, without notice, is paid trust funds in discharge of an invoice for services. It supplies the services and pays staff. Weeks later, it learns the funds were misapplied. Is it liable in knowing receipt?

> **Answer:** No proprietary claim lies against a bona fide purchaser for value without notice. Any personal claim would likely be defeated by change of position because the company acted in good faith, provided services, and irreversibly applied the funds before notice.

## Accessory Liability (Dishonest Assistance)

Accessory liability, also called dishonest assistance, arises when a third party assists in a breach of trust and acts dishonestly.

> **Key Term: accessory liability (dishonest assistance)**  
> Liability imposed on a third party who assists in a breach of trust, where their conduct is dishonest by the standards of ordinary honest people.

### Requirements for Accessory Liability

To establish accessory liability, the following must be shown:

1. **Existence of a trust and breach**: There must be a trust and a breach of trust (the trustee need not be dishonest).
2. **Assistance by the third party**: The third party must assist in the breach (by act; in some cases, wilful blindness or deliberate failure to act can constitute assistance).
3. **Dishonesty**: The third party must act dishonestly, judged objectively.

The standard for dishonesty is objective: would an honest person, knowing what the defendant knew, have acted as the defendant did? The leading test (Royal Brunei Airlines v Tan), affirmed in Barlow Clowes v Eurotrust, judges the defendant’s conduct against ordinary standards of honesty, taking into account the defendant’s actual knowledge and beliefs. Negligence or inadvertence is not enough; there must be dishonesty.

Assistance can include setting up transactions, routing funds, preparing documents, or aiding concealment. There must be a causal connection between the assistance and the breach.

### **Worked Example 1.3**

A solicitor helps a trustee transfer trust funds to a private account, knowing the trustee lacks authority. The solicitor believes the beneficiaries will not be harmed. Is the solicitor liable?

> **Answer:** Yes. The solicitor's conduct would be considered dishonest by ordinary honest people, regardless of his personal belief. He is liable for dishonest assistance.

### **Exam Warning**

> The standard for dishonesty is objective. A defendant cannot escape liability by claiming they personally thought their conduct was honest.

Accessory liability does not require the assistant to receive trust property. The remedy is generally a personal one for loss caused, though in exceptional cases gain-based relief may be ordered.

## Remedies Against Third Parties

Where recipient or accessory liability is established, the court may grant:

- **Personal remedies**: An order to pay compensation (equitable compensation) for the loss caused by the breach. In some contexts, an account of profits may be ordered (for example, where a fiduciary has made unauthorised profits), but for dishonest assistance the standard remedy is loss-based compensation.
- **Proprietary remedies**: If the trust property (or its traceable proceeds) is still in the recipient's hands, the beneficiaries may claim the property itself. Proprietary claims depend on the asset remaining identifiable in the recipient’s hands or its substitutes and give priority in insolvency.

> **Key Term: equitable compensation**  
> A monetary award to restore the trust fund to the position it would have been in but for the breach.
>
> **Key Term: proprietary remedy**  
> A remedy allowing the claimant to recover specific property or its traceable proceeds, rather than just compensation.

Election between remedies is strategic. Proprietary recovery secures the asset and any increase in value; personal compensation addresses shortfalls where proprietary tracing fails or the asset has been dissipated.

### **Worked Example 1.4**

A third party receives trust money and uses it to buy shares, which increase in value. The trust seeks a proprietary remedy. What can the trust claim?

> **Answer:** The trust can claim a proportionate share of the shares (reflecting the trust money used), including any increase in value.

If the property has been mixed, equitable tracing rules determine the claimant’s share and whether a charge or proportionate ownership arises. Where tracing fails due to dissipation, only personal compensation may be available (subject to defences).

## Defences and Limitations

Third parties may have defences, including:

- **Bona fide purchaser for value without notice**: Not liable for knowing receipt; proprietary claims are cut off.
- **Change of position**: May reduce or defeat liability if the recipient acted in good faith and changed their circumstances.
- **Lack of beneficial receipt**: A mere conduit without beneficial interest is outside knowing receipt.
- **Limitation periods**: Claims for breach of trust are generally subject to a six-year limitation period (Limitation Act 1980 s21), but not where there is fraud, nor for actions to recover trust property or its proceeds from a trustee. Equitable bars, such as laches, may affect discretionary equitable relief.

Limitation operates differently for trustees and strangers. For dishonest assistance and knowing receipt, the six-year period is commonly applied from the date the cause of action accrued. Where fraud is involved, or for proprietary recovery from trustees, time may not run. For equitable remedies like injunctions and declarations, the doctrine of laches (unreasonable delay causing prejudice) may bar relief.

> **Key Term: laches**  
> An equitable defence where undue delay makes it inequitable to grant relief.

### **Worked Example 1.5**

A bank executes a payment order from a trustee’s account to a third party but never benefits from the funds and charges no fee for the transfer. Later, it learns of a breach. Is the bank liable in knowing receipt?

> **Answer:** No. Without beneficial receipt, the bank acts as a conduit and is not a knowing recipient. A proprietary claim cannot be pursued against it for the transferred funds, and accessory liability is inapplicable absent dishonest assistance.

### **Revision Tip**

> Always check whether the third party received the property for value and without notice, or changed their position in good faith—these are common defences.

## Additional Considerations: Intermeddling (Trustee de son tort)

Where a stranger, without authority, deals with trust assets and causes loss (for example, selling trust property at an undervalue), the court may treat them as a trustee de son tort with personal liability to make good the loss and, where appropriate, proprietary obligations over property still held. This category does not require receipt of trust assets or assistance in another’s breach; it focuses on the stranger’s wrongful interference.

### **Worked Example 1.6**

A relative takes an antique belonging to the trust and sells it privately for £5,000. The antique was worth £10,000. Does the relative incur liability?

> **Answer:** Yes. As trustee de son tort, the relative is personally liable to make good the £5,000 shortfall. If the sale proceeds or property purchased with them remain identifiable, proprietary claims may also arise.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- The distinction between recipient liability (knowing receipt) and accessory liability (dishonest assistance).
- The elements of knowing receipt: breach disposal, beneficial receipt, and knowledge making retention unconscionable.
- The objective standard for dishonesty in accessory liability: Royal Brunei/Barlow Clowes test.
- The remedies available against third parties, including equitable compensation and proprietary claims, and how election operates.
- The main defences available to third parties, including bona fide purchaser, change of position, and lack of beneficial receipt.
- The role and liability of trustee de son tort and when intermeddling triggers personal liability.
- How limitation periods and laches affect claims against third parties.
- Common pitfalls: mere conduit vs beneficial receipt; negligence vs dishonesty; proving knowledge vs unconscionability.

## **Key Terms and Concepts**

- stranger
- recipient liability (knowing receipt)
- unconscionable
- bona fide purchaser for value without notice
- change of position
- accessory liability (dishonest assistance)
- equitable compensation
- proprietary remedy
- trustee de son tort
- laches

Remedies against third parties: recipient and accessory liability - Liability of strangers to the trust