Categories of Accessory Liability

There are a number of categories of accessory liability.

  • (i) Persons who knowingly assist fiduciaries (eg Trustees) to act in breach of their fiduciary duties, receive trust (or company) property purportedly for their own benefit1;
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  • (ii) Persons who knowingly assist fiduciaries (eg Trustees) to act in breach of their fiduciary duties, receive trust (or company) property purportedly as trustees only, instead for their own benefit2;
  •  
  • (iii) Persons who knowingly assist fiduciaries (eg Trustees) to act in breach of their fiduciary duties, obtain benefits for themselves without, however, receiving any trust (or company) property (whether purportedly for their own benefit or purportedly as trustees only by virtue of their giving such assistance3;
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  • (iv) Persons who knowingly assist fiduciaries (eg Trustees) to act in breach of their fiduciary duties;
  • (a) do not receive any trust (or company) property (whether purportedly for their own benefit or purportedly as trustees only) by virtue of giving such assistance; and
  • (b) do not obtain any benefit for themselves by virtue of giving such assistance; and,
  • (c) do cause loss (by virtue of giving such assistance) to the persons to whom the fiduciary duty was owed4.
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  • (v) Persons who knowingly assist fiduciaries (eg Trustees) to act in breach of their fiduciary duties:,
  • (a) do not receive any trust (or company) property (whether purportedly for their own benefit or purportedly as trustees only) by virtue of giving such assistance; and
  • (b) do obtain a benefit for themselves by virtue of giving such assistance; and,
  • (c) do cause loss (by virtue of giving such assistance) to the persons to whom the fiduciary duty was owed5.
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    The accessories under categories (i) and (ii) receives trust property by virtue of their giving knowing assistance to the fiduciaries in the latter’s breach of fiduciary duty.

    Notes:(1) Selengor United Rubber Estates Ltd v Braddock (No. 3) [1968] 1 WRL 1555

    (2) Twinsectra Ltd v Yardley [2002] 1 AC 164

    (3) Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373

    (4) Royal Brunei Airlines Sdn Bnd v Tan [19995] 2 AC 378

    (5) Warman international Ltd v Dwyer (1995) 182 CLR 544

    Professional advisers to Trustees such as Fund Auditors and Fund Actuaries to knowingly assist a Trustee in a “dishonest and fraudulent design” fall into category (v) since they receive payment from the Trustee for their professional services.

    Where another Trustee receives the Trust Estate of another trust knowing the transfer to be in breach of trust then this would be an example of category (ii).

    The Victorian Court of Appeal considered “knowing receipt” in relation to a superannuation fund in Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2015] VSCA 9 {Link}.

    The Court of Appeal noted at [58] to [59]:

    58 As a result of that fiduciary relationship a director owes a number of separate, though intertwined duties, including a duty to act in good faith and in the interests of the company 1, a duty to avoid conflicts of interest Sup>2 and a duty not to exercise powers for an improper purpose 3.

    59 The fiduciary duty owed by a director to a company is somewhat expanded when the company is a trustee company. This was explained by Robson J in Re S & D International Pty Ltd (No 4)(2010) ACSR 595. where his Honour stated: The basic common law duty of a director is that he or she must act bona fide in what he or she believes is in the best interests of the company as a whole. This duty is encompassed in s 181[of the Corporations Act 2001 (Cth)]. In this instance, S&D acted as a trustee of the unit trust and the best interests of the company were clearly to act properly in accordance with the trust deed and in the interests of the unit trust. In other words to ensure that the trustee exercised its powers honestly and in the best interests of the beneficiaries of the trust{Ibid 657}.

    Notes

    [1] Re Smith & Fawcett Ltd [1942] Ch 304, 306; Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1, 182.

    [2] Hospital Products [1984] HCA 64; (1984) 156 CLR 41, 103; Chan v Zachariah [1984] HCA 36; (1984) 154 CLR 178, 198; Boardman v Phipps [1966] UKHL 2 ; (1967) 2 AC 46 , 124.

    [3] Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187, 218.

    The Court of Appeal noted at [228] to [229]:

    228…..It is not in the best interests of the company for it to act in breach of its duties of a trustee, for the company has assumed the responsibilities of that office and must see to it that they are fulfilled 4.

    229 The obligation of a director of a corporate trustee is the same whether the trust is a unit trust or a discretionary trust viz. to act in good faith to ensure that the company acts properly in accordance with the trust deed in administering the business, assets and liabilities of the trust. Although in the case of a discretionary trust, a member does not have any present entitlement to the trust assets, the member does have standing to compel the proper administration by the corporate trustee of the trust5 This is not disputed. The director should act in good faith to ensure that there is no cause for legitimate complaint by a beneficiary about the administration of a trust for which the company is responsible.

    Notes

    [4] See Hurley v BGH Nominees Pty Ltd (No 2) (1984) 37 SASR 499, 510 (Walters J); Re S & D International Pty Ltd (2010) ACSR 595, 657 [283] (Robson J); Bell Group v Westpac (2008) 39 WAR 1, 1194 [4619] (Owen J). [5] Kennon v Spry (2008) 238 CLR 366 [74]; Gartside v Inland Revenue Commissioners [1967] UKHL 6; [1968] AC 553.

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    This tab updated on 25 July 2015