ABSTRACT
The two limbs of liability as laid down by Lord Selborne in Barnes v Addy relate to strangers who:
(a) receive and become chargeable with some part of the trust property; or (b) assist with knowledge in a dishonest or fraudulent design on the part of the
trustees. The rationale behind the trustee’s liability under the first head is based on the premise that the stranger or agent has received the trust property with knowledge of the same before he or she acts, or fails to act, for his or her own benefit in a manner inconsistent with the trust. The stranger to the trust claims a proprietary interest in the subject matter of the trust and thus competes with the interests of the beneficiaries. Under the second limb, although the stranger does not receive the property for his or her own benefit, he or she becomes accountable by virtue of his or her participation in a dishonest scheme, with knowledge of the dishonest design. Some judges have loosely classified this liability as arising under a constructive trust. But strictly, it is a liability only to account. The dishonest stranger who participates in a fraudulent scheme does not receive the trust property and ought not to be treated as a constructive trustee (see Millett LJ’s view in Paragon Finance v Thakerar [1999] 1 All ER 410, CA, p 298 below). Thus, the basis of liability under the two limbs is dissimilar. Equally, the extent of the knowledge of the stranger under each limb ought to be different. There has been a conflict of judicial views as to the types of knowledge which the stranger is required to possess under each head in order to found liability as a constructive trustee. Within the last two decades, there has been renewed judicial interest in this area of the law.
