Trust and Equity

Equity and Trust



Equity and Trust

A trust comes to be when a person, usually the trustee, keeps property in trust and for the well-being of the beneficiary under which the trustee comes under fiduciary obligations to that beneficiary. A trust imposes obligations enforceable in equity on a trustee, to hold and, in accordance with the terms of the trust, deal with and otherwise exercise rights in property, of which he has the legal or equitable title, for the benefit of another, known as the beneficiary, or for the accomplishment of a purpose (Yi 2015).Equity gives certain judgments regarding right and wrong in particular cases which erases any mistakes in fairness that would occur from the common law. (Hudson 2007).This paper will discuss and evaluate the arguments for and against making the recipients of bribes and secret profits liable to their principals under a proprietary rather than a merely personal claim. 

Various judges look at adjudicating constructive trust from the level of high theory while some academicians do not consider this approach and are more interested in practical considerations (Pains 2014). The following example is considered: One person owes fiduciary obligations to another, and he agrees to be bribed by a third person. He uses the bribe to acquire land whose value increases consistently. He is personally responsible to the second party for the value of the bribe. There are contrasting judgments and comments from academicians. They look at this scenario in various ways. Some are of the opinion that the owner is meant to receive an instant constructive trust over the property. Others hold onto the fact that the responsibility of the owner is to account for the amount of the bribe (Bryan 2012).

According to Carl (2011), a claim to whether secret profits or bribes are proprietary or personal is a big issue in equity. Until the 1990s, it appeared such a claim was merely personal. For example in the case of Lister v Stubbs, which concerned the receipt of bribes by an agent, it was held that the relationship was one of debtor and creditor, meaning it was personal only. It was ambiguous for some cases to fail to clearly specify if a proprietary or a personal claim was recognizable. As Lewison J noted in Sinclair v Versailles, opinions maybe different in whether the parties in Boardman v Phipps were the owners of the assets in Mr Boardman’s hands or if he just had to account personally to them. The most serious point is that, following Mr. Boardman’s solvency, it did not make any vivid differentiation in terms of recovery (Carl 2011).

According to (Carl 2011), the position changed in the mid1990s. In giving the advice of the Privy Council in Attorney General for Hong Kong v Reid, Lord Temple man expressly disapproved Lister v Stubbs and considered that a fiduciary was supposed to give an account to their principal for bribes as soon as they were received. His Lordship decided that, given that equity regards as done that which ought to be done, the proceeds of bribes still in the hands of the corrupt fiduciary were regarded as held on trust for the principal; this was on the basis it reflected the proprietary position that would have prevailed had the false fiduciary paid the bribes over as he should have done. Lord Temple man held that if the bribe consists of property which increases in value or if a cash bribe is invested advantageously, the false fiduciary will receive a benefit from his breach of duty unless he is accountable not only for the original amount or value of the bribe but also for the increased value of the property representing the bribe (Carl 2011).

Carl (2011), states that there is a fundamental distinction between a fiduciary enriching them by depriving a claimant of an asset and a fiduciary enriching them by doing a wrong to the claimant. The Master of the Rolls considered that Lewison J’s decision had been based on a consistent line of decisions that a beneficiary of a fiduciary is entitled to an equitable account rather than a proprietary interest in respect of any money or asset acquired by a fiduciary in breach of his duties, whether a bribe or a secret profit, unless the asset or money itself is or has been beneficially the property of the beneficiary or acquired by taking advantage of an opportunity or right that was the property of the beneficiary.

 Sinclair v Versailles seems to find a resolution on the position on secret profits and bribes. There is, however, a potential difficulty in applying the Paragon classification as the benchmark for the availability or no availability of proprietary remedies, which was identified by Professor Charles Mitchell and Stephen Watterson prior to Lewison J’s decision in Sinclair v Versailles. As is well established, a knowing-receipt claim requires a disposal of assets in breach of fiduciary duty, beneficial receipt by a third party of trust property or its traceable proceeds and knowledge concerning the source of those assets. Where the recipient is aware, he still has the trust property, and then the principal’s claim is a straight forward proprietary claim to the assets. It is only where the third party has dissipated the trust assets or their traceable proceeds that the personal duty to account becomes important. Any personal liability in knowing receipt depends on the third party’s receipt of assets to which the beneficiary would have had a proprietary claim if the recipient still had them. Lewison J considered that a beneficiary’s proprietary right to any surviving trust properties in the hands of an informed recipient result from the direct trust that has been breached, instead of a new constructive trust.

The case of Sinclair v Versailles was about bribes and secret profits and did not include the receipt of existing trust property. However, it is respectfully submitted that while the Paragon classification provides a useful rubric for thinking about different kinds of constructive trust, if it is to develop a further role as the point of departure between proprietary and exclusively personal claims, it requires at least a caveat to deal with knowing receipt claims where trust assets or their traceable proceeds remain in the third-party recipient’s hands. Despite the fact that the receiving individual had no duties that pre-dated the breach of trust, the benefiting person, has a proprietary claim to the properties.

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