Working Paper Series No.030
EQUITABLE ACCESSORIAL AND RECIPIENT LIABILITY IN SINGAPORE
PAULINE RIDGE
Australian National University, Australia
ASLI Visiting Fellow (5 March 2013 to 3 April 2013)
July 2013 The ASLI Working Paper Series is published electronically by the Asia Law Institute, whose Secretariat is based at the Faculty of Law, National University of Singapore.
© Copyright is held by the author or authors of each Working Paper. ASLI Working Papers cannot be republished, reprinted, or reproduced in any format without the permission of the paper’s author or authors.
Note: The views expressed in each paper are those of the author or authors of the paper. They do not necessarily represent or reflect the views of the Asia Law Institute or of the National University of Singapore.
Citations of this electronic publication should be made in the following manner: Author, “Title,” ASLI Working Paper, No. #, Date, www.law.nus.sg/asli/pub/wps.htm. For instance, Chan, Bala, “A Legal History of Asia,” ASLI Working Paper, No. 101, December 2010, www.law.nus.sg/asli/pub/wps.htm.
Asia Law Institute c/o Faculty of Law, National University of Singapore Eu Tong Sen Building 469G Bukit Timah Road, Singapore 259776 Tel: (65) 6516 7499 Fax: (65) 6779 0979 Website: http://law.nus.edu.sg/asli Email:[email protected]
The Asian Law Institute (ASLI) was established in March 2003 by a group of leading law schools in Asia. Its goal is to facilitate academic exchanges as well as research and teaching collaboration among colleagues from the thirteen founding institutions. The establishment of ASLI stems from the recognition that the diversity of legal traditions in Asia creates an imperative for Asian legal scholars to foster greater engagement with each other through collaborative research and teaching. The acronym "ASLI", which means "indigenous" in the Malay and Indonesian languages, represents the commitment of the founding institutions to establish a truly home-grown law institute in Asia. The ASLI membership has grown beyond the founding members and includes 36 new member institutions.
EQUITABLE ACCESSORIAL AND RECIPIENT LIABILITY IN SINGAPORE
PAULINE RIDGE1
ABSTRACT:
This paper considers the current scope and operation in Singapore of equitable accessorial liability including whether it includes equitable recipient liability. The exercise is undertaken as a first step in considering future possible directions for this area of law in Singapore and other common law jurisdictions.
I. INTRODUCTION
Equitable accessorial liability attaches to a defendant, D, who is involved in equitable wrongdoing committed against a claimant, C, by the principal wrongdoer, PW. D is liable to provide some redress to C because of D’s involvement in, or association with, the principal wrong, although D has not committed the principal wrong itself. The core of equitable accessorial liability concerns where a non-trustee participates in, or assists, or procures, a breach of trust by a trustee and thereby becomes liable to provide redress to the victim of the breach of trust. Such liability was established in Chancery cases by the mid-nineteenth century2 and entered Singapore law by virtue of the application of the Second Charter of Justice of 1826.3 In this working paper I consider the current scope and operation of equitable accessorial liability in Singapore, including whether it encompasses equitable recipient liability.
The law in Singapore is of interest to common lawyers outside Singapore for several reasons. First, the volume and size of commercial dealings in Singapore has helped to generate important cases. Secondly, the courts in Singapore, whilst drawing primarily on English law,
1 Australian National University. This working paper is the product of my fellowship at the Asian Law Institute, National University of Singapore during March 2013. I thank the Institute for its generous hospitality, Assistant Professor Sundram Soosay, National University of Singapore, for discussing civil and criminal accessorial liability with me and Professor Tang Hang Wu, Singapore Management University. I also thank Michael Tarlowski for research assistance. 2 In relation to procurement of breach of trust, see Fyler v Fyler, (1841) 3 Beav 550, 49 ER 216; Alleyne v Darcy, (1854) 4 I Ch R 199; Eaves v Hickson, (1861) 30 Beav 136, 54 ER 840; and Attorney-General v Corporation of Leicester, (1844) 7 Beav 176, 49 ER 1031. In relation to participation, assistance and receipt of trust property see, M’Gachen v Dew, (1851) 15 Beav 84, 51 ER 468; Lockwood v Abdy, (1845) 14 Sim 440, 441, 60 ER 428, 429; Barnes v Addy, (1874) LR 9 Ch App 244 (CA) [Barnes v Addy]. Interestingly the same concepts of procurement, participation and assistance were present in the Indian Penal Code originally drafted by the Indian Law Commission under the leadership of Lord Macaulay in 1837, adopted in India in 1860 and which came into force in what is now Singapore in 1872. See Stanley Yeo, Neil Morgan & Chan Wing Cheong, Criminal Law in Malaysia and Singapore (2012) (LexisNexis) at 9-10. 3 On the complex question of the application of English common law to Singapore before the Application of English Law Act (Cap 7A 1993 Rev Ed Sing), see generally, Walter Woon, ‘The Applicability of English Law in Singapore’ in Kevin YL Tan, The Singapore Legal System, 2nd ed (Singapore University Press, 1999) at Ch 6. appear very willing to consider and draw upon the jurisprudence in other common law jurisdictions and appear receptive to the scholarly literature and debates in this area of law. This reflects the evident desire to develop an autochthonous legal system4 and makes Singapore an interesting case study in which to explore the principles concerning equitable accessorial liability.
II. THE ROLE OF BARNES V ADDY
By the mid-twentieth century, a part of Lord Selborne’s 1874 statement of principle in Barnes v Addy in relation to the professional agents of trustees became widely accepted as the template of liability for third party liability for breach of trust and in relation to breach of fiduciary duty generally:
[S]trangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal power, transactions, perhaps of which a court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.5
Although contemporaneous cases encompassed a wider range of participatory conduct and Lord Selborne himself also referred to those ‘actually participating in any fraudulent conduct of the trustee’,6 the modern popularity of this section of the judgment in Barnes v Addy meant that the focus narrowed to claims for what became known as ‘knowing receipt’ and ‘knowing assistance’. Following Lord Selborne’s formulation, D’s culpability turned on whether D had acted with ‘knowledge’ of the breach of trust or, now, breach of fiduciary duty.
Actual knowledge clearly sufficed for D to be liable and, for these purposes, was taken to include ‘willfully shutting one’s eyes to the obvious and willfully and recklessly failing to make such inquiries as an honest and reasonable man would make’.7 But during the 20th century, the question arose whether the equitable concept of notice that was used to determine priority of interests in the context of land transactions, more specifically, ‘constructive notice’ or some variation thereon, could suffice. Constructive notice in the context of priorities rules means the notice that the defendant would have obtained had he or she made reasonable and proper enquiries.8 In the Barnes v Addy context, however, constructive notice took on a slightly different meaning. The question was whether D could
4 See especially Andrew Phang Boon Leong, The Development of Singapore Law (Singapore: Butterworths, 1990). 5 Barnes v Addy, supra note 2 at 251-252. 6 Ibid at 251. 7 The descriptions are taken from the ‘Baden scale’ of knowledge: Baden v Société Générale pour Favoriser le Developpement de l’Industrie en France SA, [1993] 1 WLR 509. The Baden scale has fallen into disfavour in Singapore: see Public Prosecutor v Tan Kiam Peng, [2007] 1 SLR (R) 522 [22], [2006] SGHC 207 (VK Rajah J). 8 Macmillan Inc v Bishopsgate Investment trust plc (No 3), [1995] 3 All ER 747 at 769 (Millett J). be liable if D had ‘knowledge of circumstances that would indicate the facts to an honest and reasonable [person]’ (so-called ‘constructive knowledge’) or ‘knowledge of circumstances which will put an honest and reasonable [person] on inquiry’ (so-called ‘constructive notice’).9 That is, could D be liable if all that could fairly be said was that D had been either obtuse or careless in the circumstances? Further complicating case law discussions of this question was whether the same standard of ‘knowledge’ applied to both ‘limbs’ of Barnes v Addy, namely, knowing assistance and knowing receipt.
III. THE CURRENT LAW IN SINGAPORE CONCERNING ACCESSORIAL LIABILITY FOR BREACH OF TRUST OR FIDUCIARY DUTY
A. Accessorial Liability: Royal Brunei Airlines
The leading modern case on accessorial liability for breach of trust and breach of fiduciary duty is the Privy Council decision of Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming10 decided in 1995 on appeal from the Court of Appeal of Brunei Durassalam. The judgment of Lord Nicholls on behalf of the Privy Council was widely lauded for bringing certainty and consistency to a confused area of law. The case was followed in Singapore, although not technically binding.11
In Royal Brunei Airlines a company conducting business as a travel agency and holding money received for airline tickets on trust for the appellant airline committed breaches of the trust through careless mismanagement of the trust fund. The airline claimed against the company’s controlling director for the breach of trust by his corporate alter ego. The case went to the Privy Council on the question whether the trustee’s breach of trust must be ‘dishonest and fraudulent’, as per the wording in Barnes v Addy, in order for an assistant to be liable.
Lord Nicholls criticised the attention that had been given to the specific wording of Lord Selborne’s judgment at the expense of principled reasoning. Instead, he drew from nineteenth century cases, including Barnes v Addy, a general principle that liability attached to:
a person who dishonestly procures or assists in a breach of trust or fiduciary obligation.12
In so doing, he switched the focus of liability from the nature of the trustee’s breach, which no longer needed to be dishonest and fraudulent, to the culpability of the accessory which was now to be measured against a standard of dishonesty.
9 See generally, Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming, [1995] 2 AC 378 at 387-388 [Royal Brunei Airlines]. 10 Ibid. 11 See e.g. Banque Nationale de Paris v Hew Keong Chan Gary, [2000] 3 SLR (R) 686 at [137] (Lai Kew Chai J) [Banque Nationale]; Caltong (Australia) Pty Ltd v Tong Tien See Construction Pte Ltd (in liq), [2002] 2 SLR (R) 94 at [33] [Caltong]; Bansal Hemant Govindprasad v Central Bank of India, [2003] 2 SLR (R) 33 [Bansal Hemant]. See also, Judicial Committee (Repeal) Act 1994 (No 2 of 1994). 12 Royal Brunei Airlines, supra note 9 at 392. Dishonesty was preferred to ‘unconscionability’ in this context even though ‘unconscionability’ is the traditional moniker of equitable liability.13 D’s state of knowledge was relevant in determining whether he or she had acted dishonestly, but was not the sole determinant of liability. Furthermore, there was no longer to be consideration of ‘levels’ of knowledge. Thus, the so-called ‘Baden scale’ of five levels of knowledge ranging from actual knowledge to constructive notice was rejected.14 Finally, separate conceptual bases were attributed to the two limbs of Barnes v Addy. Recipient liability was differentiated from the reformulated ‘knowing assistance’ liability, now to be known as ‘accessory liability’, on the basis that ‘[r]ecipient liability is restitution-based, accessory liability is not.’15 Applying the principle of accessory liability to the facts, the company director was found to have dishonestly assisted in the breaches of trust by the corporate trustee that he controlled and was thus personally liable to Royal Brunei Airlines.
B. Questions Following Royal Brunei Airlines
Although widely praised, Lord Nicholls’ judgment was not comprehensive16 and left a number of questions of principle unclear. One question concerned whether Lord Nicholls’ reformulated accessory liability principle extended to breach of fiduciary duty generally or was limited to where there had been a misappropriation of property. This may have been because the judgment was framed in terms of the specific facts which involved an express trust, rather than a non-trust breach of fiduciary duty. Although Lord Nicholls referred to ‘breach of fiduciary duty’ as well as breach of trust in formulating his general principle, statements in subsequent English Court of Appeal decisions raised the question of whether there still had to be a misappropriation of property involved.17
The better view is that equitable accessorial liability extends to breach of fiduciary duty generally; that is, there need not be any misappropriation of property for liability to arise.18 But the question is still open in Singapore. In Banque Nationale De Paris v Hew Keong Chan Gary, Lai Kew Chai J concluded that as a matter of principle as well as according to the wording of Lord Nicholls’ judgment in Royal Brunei Airlines, dishonest accessory liability was not premised upon the misappropriation of trust property or its proceeds, but upon D’s dishonest involvement in a breach of fiduciary duty.19 Therefore, it was not necessary for there to be any misappropriation of property. Nonetheless, in Caltong (Australia) Pty Ltd v
13 Ibid. 14 Ibid. 15 Ibid at 386. 16 For example, his Lordship does not refer to the situation of a joint participant in a breach of trust, yet clearly such a third party would be liable. See Barnes v Addy, supra note 2 at 251. 17 C.f. Satnam Investments Ltd v Dunlop Heywood & Co Ltd, [1999] 3 All ER 652 at 671 (Nourse LJ); Goose v Wilson Sandford & Co, [2001] Lloyd’s Rep PN 189 at [88] (Morritt LJ). The dicta of Nourse LJ which appears to limit accessorial liability to where there is a misappropriation of property was clarified by the Court of Appeal in the latter case, although the point was left open. 18 See e.g. Dubai Aluminium Co Ltd v Salaam, [2003] 2 AC 366 at 381 where Lord Nicholls does not question the application of accessory liability to such a case. 19 Banque Nationale, supra note 11 at [151]-[157]. This went further than the English Court of Appeal which had left the matter open in Goose v Wilson Sandford & Co, [2001] Lloyd’s Rep PN 189 at [88] (Morritt LJ). See Tan Sook Yee and Tang Hang Wu, “Equity and Trust” in Teo Keang Sood, ed, Annual Review of Singapore Cases 2000 (Singapore Academy of Law, 2000) 165 at 166-167. Tong Tien See Construction Pte Ltd on facts involving breach of fiduciary duty by company directors, rather than breach of an express trust, the Singapore Court of Appeal explicitly stated as a requirement of dishonest assistance that:
‘there has been a disposal of [C’s] assets in breach of trust or fiduciary duty…’.20
There was, however, no substantive consideration of the issue and on the particular facts this requirement did not present an obstacle to liability. Subsequent formulations of the liability by the Singapore Court of Appeal have been framed solely in terms of breach of trust, but equally the particular issue has not been raised.21 The danger of such formulations is that a trust will be artificially manufactured in order to meet this unprincipled requirement.22
A further difficulty following Royal Brunei Airlines was that the apparent clarity of the new test of ‘dishonesty’ was clouded by its subsequent interpretation in the House of Lords23 and reinterpretation by the Privy Council.24 It is now clear that the test of dishonesty in Royal Brunei Airlines is objective in the sense that the defendant is to be judged by the standards of ‘ordinary honest people’ with knowledge of the same facts. The Singapore courts followed the progression of the law in England on this issue. The current law is as stated by VK Rajah JA for the Court of Appeal in George Raymond Zage III v Ho Chi Kwong:
[F]or a defendant to be liable for knowing assistance, he must have such knowledge of the irregular shortcomings of the transaction that ordinary honest people would consider it to be a breach of standards of honest conduct if he failed to adequately query them.25
The remedies for equitable accessorial liability have not been discussed in Singapore. As in Royal Brunei Airlines, it is generally assumed that the remedy for accessory liability is loss- based.26 In Australia, gain-based personal remedies are also available for knowing assistance
20 Caltong, supra note 11 at [33]. 21 George Raymond Zage III v Ho Chi Kwong, [2010] 2 SLR 589 at [20] [Zage]; Yong Kheng Leong v Panweld Trading Pte Ltd, [2012] SGCA 59 at [79] [Yong Kheng Leong]. 22 This is similar to what appears to have occurred in Bansal Hemant, supra note 11. The Court of Appeal found that when the defendant bank handed letter of credit documents to the seller of goods without having received payment for the documents, an ‘implied’ or ‘resulting’ trust arose over the documents. The bank was presumably acting under a mistake, although this is not made clear in the court’s judgment. The finding of a trust enabled the court to hold that a prima facie case could be made that the appellants dishonestly assisted in a subsequent breach of the trust by the company which they controlled. It is questionable whether a trust arises in such circumstances and, hence, whether there could be dishonest assistance. In any event, on the particular facts there was no fiduciary duty and thus no claim of dishonest assistance in breach of fiduciary duty, with or without misappropriation of property, could be made. See further, Tan Sook Yee & Kelvin Low Fatt Kin, “Equity and Trust” in Teo Keang Sood, ed, Annual Review of Singapore Cases 2003 (Singapore Academy of Law, 2003) 225 at 233. 23 Twinsectra Ltd v Yardley, [2002] 2 AC 164 [Twinsectra]. Followed in Singapore in Malaysian International Trading Corp Sdn Bhd v Interamerica Asia Pte Ltd, [2002] 2 SLR (R) 896. 24 Barlow Clowes International Ltd (in liquidation) v Eurotrust International Ltd, [2005] UKPC 37, [2006] 1 WLR 1476. Followed in Singapore in Zage, supra note 21. 25 Zage, supra note 21 at [22]. 26 In Royal Brunei Airlines, supra note 9, Lord Nicholls simply reinstated the order of Roberts CJ at first instance. Roberts CJ held that the accessory to the breach of trust was ‘liable, as constructive trustee, for the debts which [the trustee] owes to [the airline]’ (Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming (Unreported, 4 October 1993, High Court of Brunei Durassalam)). liability and this would seem to be the case in England as well, although there are few case examples.27 The possibility of gain-based proprietary relief has, however, been raised in Singapore. In Sumitomo Bank Ltd v Thahir Kartika Ratna, decided a few years before Royal Brunei Airlines, Lai Kew Chai J, at the end of a long judgment, briefly mentioned equitable accessorial liability. Specifically, he referred to knowing assistance liability pursuant to Barnes v Addy as an alternative route by which the wife of a defaulting fiduciary could be subjected to a constructive trust over assets she held with her husband.28 His Honour’s view that a gain based proprietary remedy was available on the facts would be considered erroneous in England, but the issue remains open in Singapore.
IV. ACCESSORIAL LIABILITY FOR OTHER EQUITABLE WRONGS
In principle, accessorial liability should apply to other equitable wrongs besides breach of trust and breach of fiduciary duty, although it may not often be necessary. An example is the equitable wrong of breach of confidence. If D procures or participates in, or facilitates, a breach of the duty of confidentiality owed to C by PW, does D become liable as an accessory or does D become subject to the obligation of confidentiality itself and, hence, a principal wrongdoer as well?
If D receives the confidential information from an initial wrongdoer, knowing of its confidential nature, then D should become subject to the same principal obligation. So, for example, if D, the new employer of PW who has taken confidential information from his former employer, C, receives that information knowing of the circumstances in which it was obtained, D becomes bound by the same obligation of confidence as PW.29 On the other hand, circumstances can be envisaged in which D is involved in the breach of confidence without becoming privy to the confidential information and such that D should be subject to accessorial liability.
But it is not always simple to distinguish accessorial liability from primary liability with respect to breach of confidence as is illustrated by an application for summary judgment in the Singapore High Court where accessorial liability was pleaded. In Vestwin Trading Pte Ltd v Obegi Melissa a judgment creditor seeking to execute judgment against the judgment debtor’s Singapore assets engaged a private investigator to search for material linking the debtor to the assets of Vestwin Trading Pte Ltd.30 The private investigator retrieved and searched through bags of rubbish that were left by Vestwin Trading’s cleaners at the base of
27 In Australia, see e.g. Michael Wilson & Partners Ltd v Nicholls, [2011] HCA 48, (2011) 244 CLR 427; Grimaldi v Chameleon Mining NL (No 2), [2012] FCA 1129 at [555]. In England, see e.g. Fyffes Group Ltd v Templeman, [2000] 2 Lloyd’s Rep 643; Pauline Ridge, “Justifying the Remedies for Dishonest Assistance” (2008) 124 Law Q Rev 445. 28 [1992] 3 SLR (R) 638, [1992] SGHC 301 at [244] [Sumitomo Bank]. 29 See e.g. PH Hydraulics & Engineering Pte Ltd v Intrepid Offshore Construction Pte Ltd, [2012] 4 SLR 36. 30 [2006] 3 SLR (R) 573, [2006] SGHC 107 [Vestwin Trading]. The summary judgment was overturned on appeal and the appellants were given leave to defend the matter: Obegi Melissa v Vestwin Trading Pte Ltd, [2008] 2 SLR 540, [2008] SGCA 4. VK Rajah JA held that summary judgment should not have been awarded below because, inter alia, the case raises ‘issues of considerable public importance’. There were also novel questions of law with respect to breach of confidence that required full consideration of the facts through a trial. the building containing its office premises over a seven month period. Vestwin successfully sought an injunction to prevent the judgment creditor using information gleaned in this way.
On these facts, the private investigator clearly was subject to an obligation of confidentiality (and is a ‘principal wrongdoer’), but is the judgment creditor liable as an accessory to the investigator’s breach of confidence (having procured it) or is it liable because it has come under its own duty of confidence (having known of the circumstances in which it was obtained)? Confusion between these alternatives is apparent in the parties’ arguments. Vestwin argued that the circumstances in which the judgment creditors ‘received the documents imposed on them an obligation under the law of confidence not to use or disclose the same.’31 That is, they were arguing for a primary wrong analysis.32 But the judgment creditors claimed ‘they received the documents in good faith with no knowledge of the means by which the ninth and tenth defendants obtained the information.’ Hence, their argument went, they could not be liable as an accessory to the breach of confidence because they had not been dishonest (relying on the analogy of dishonest assistance in breach of trust). This confusion between primary liability and accessorial liability was pointed out by counsel for the plaintiffs.33 Andrew Ang J held that the judgment creditors owed an obligation of confidence in their own right to the plaintiffs and had breached it. That is, their liability was not accessorial.
The question of whether there can be equitable accessorial liability for breach of confidence has also arisen in England34 and Australia.35 A further complication is that a duty of confidence can arise in equity or pursuant to contract. If the duty arises in relation to contract, the obvious form of accessorial liability is the tort of inducing breach of contract, yet this raises the prospect of very different liability regimes arising depending upon whether the principal wrong arose in equity or at common law.36
V. THE OVERLAP WITH PROPERTY CLAIMS AND THE NATURE OF THE RECIPIENT LIABILITY CLAIM
A final question in describing equitable accessorial liability in Singapore is the need to distinguish it from equity’s jurisdiction in relation to the recognition and enforcement of equitable proprietary rights. If we assume that C is the beneficiary of a fixed trust and that D has participated in a breach of the trust by receiving trust property from the trustee, there are at least three potential equitable claims. First, depending on the nature of D’s involvement, C may have a procurement, participation or assistance claim as discussed above. Secondly, C, as the beneficiary of the trust, has an equitable interest in the trust property which can be asserted against anyone who subsequently receives the trust property except for a bona fides
31 Vestwin Trading, supra note 30 at [32]. 32 Ibid at [61]. 33 Ibid. 34 Thomas v Pearce, [2000] FSR 718; Force India Formula One Team Limited v Malaysia Racing Team Sdn Bhd, [2012] EWHC 616 (Ch). 35 City of Sydney v Streetscape Projects (Australia) Pty Ltd, [2011] NSWSC 1214; Streetscape Projects (Australia) Pty Ltd v City of Sydney, [2013] NSWCA 2. 36 See Force India Formula One Team Limited v Malaysia Racing Team Sdn Bhd, [2012] EWHC 616 (Ch). purchaser of the legal interest for value without notice, over whom equity has no jurisdiction. C can use the tracing rules as necessary to identify what has happened to C’s equitable interest. This has been described as a ‘persisting property claim’37 based upon the priorities and tracing rules. It is not accessorial in nature as it does not depend on D being at fault except in the negative sense of D not being a bona fide purchaser without notice. Rather, it recognizes and enforces C’s pre-existing property-related rights.38
Interposed between these two distinct forms of liability is a fault-based equitable claim against D for receiving for personal benefit ‘trust property’ in breach of a trust or fiduciary duty and irrespective of whether D still holds that property or its traceable form. This is the recipient liability claim referred by Lord Selborne in Barnes v Addy. Recipient liability extends to C’s property that is under the control of a fiduciary, although not held on trust. An example is company assets under the control of a director.39 That is, ‘trust property’ for the purposes of recipient liability, means either trust property or other property that is subject to a fiduciary duty. According to the Singapore Court of Appeal in Zage recipient liability requires:
(a) a disposal of the plaintiff’s assets in breach of fiduciary duty; (b) the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and (c) knowledge on the part of the defendant that the assets received are traceable to a breach of fiduciary duty…40
The courts in Singapore have adopted as the test for D’s recipient liability Nourse LJ’s formulation in Bank of Credit and Commerce International (Overseas) Ltd v Akindele (Akindele), namely, that D’s ‘state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt.’41
So far, courts have rejected arguments that recipient liability should either be recast as a strict liability unjust enrichment claim or that such a claim should exist alongside an equitable fault-based claim. The former argument was originally made by Professor Birks and has been supported extra-judicially by influential judges such as Lord Nicholls, who made the latter argument, and Lord Millett.42 On this approach, there is a fundamental difference between
37 Charles Mitchell & Stephen Watterson, “Remedies for Knowing Receipt” in Charles Mitchell, ed, Constructive and Resulting Trusts (Hart Publishing, 2010) 115 [Mitchell & Watterson]. 38 Such a claim is also available in relation to property subject to a constructive trust as a result of a breach of fiduciary duty and which is now in the hands of any third party who is not a bona fide purchaser for value without notice: Sumitomo Bank, supra note 28 at [191]. 39 See e.g. Caltong, supra note 11; Relfo Ltd v Bhimji Velji Jadva Varsani, [2008] 4 SLR(R) 657, [2008] SGHC 105. 40 Zage, supra note 21 at [23] citing Caltong, supra note 11 at [31] and El Ajou v Dollar Land Holdings plc, [1994] 2 All ER 685 at 700. It seems unclear whether ‘trust property’ includes property subject to a constructive trust in Singapore: see Sumitomo Bank, supra note 28 where Lai Kew Chai J found that the widow of a fiduciary who had accepted bribes in breach of duty was subject to a persisting property claim in relation to the bribe proceeds held by her as a volunteer and was liable as a knowing assistant, but did not consider whether she was also liable as a knowing recipient. 41 Bank of Credit and Commerce International (Overseas) Ltd v Akindele, [2001] Ch 437 at 455 [Akindele]; Zage, supra note 21 at [23]. 42 See e.g. Peter Birks, “Misdirected Funds: Restitution from the Recipient” (1989) Llyod’s MCLQ 296 at 334 (cited with approval by Lai Kew Chai J in Banque Nationale, supra note 11 at [157]); Lord Nicholls of dishonest accessorial liability, based upon D’s fault, and recipient liability, which should be grounded in D’s enrichment, through the receipt of the trust property, at C’s expense. The courts in England, Singapore, Hong Kong and Australia have rejected to a greater or lesser degree the unjust enrichment explanation of recipient liability as placing too great a burden on recipients of trust property in commercial settings.43 Nonetheless, the idea that recipient liability is somehow different in nature to dishonest accessorial liability, being receipt-based rather than fault-based, persists. For example, Lord Nicholls’ statement in Royal Brunei Airlines has been enormously influential:
The issue on this appeal concerns only the accessory liability principle. Different considerations apply to the two heads of liability. Recipient liability is restitution- based; accessory liability is not.44
This view is also present in the Singapore case law on recipient liability, even though the courts have followed Akindele and confirmed that recipient liability is fault-based.45 Thus, there continues to be a strong division drawn between accessorial liability and recipient liability even though both continue to be grounded in D’s equitable wrongdoing.
The requisite nature of D’s awareness of the breach of trust or fiduciary duty has been the main focus of recipient liability cases in Singapore. Although Nourse LJ in Akindele framed the question in terms of D’s unconscionability, as will be discussed below, the courts continue to debate what level of knowledge suffices for unconscionability and, in particular, whether constructive notice (knowledge of circumstances that would put a reasonable and honest person on inquiry) can ever suffice.46
Once recipient liability is shown, D is personally liable to account for the property as though he or she were a trustee. That is, unlike accessorial liability where D is liable for all the consequences flowing from the equitable wrong by PW, the focus of the remedy for recipient liability is on accounting for the property actually received by D.47 Generally D will no longer hold the property and only a personal, loss-based remedy is given. An account of
Birkenhead, “Knowing Receipt: The Need for a New Landmark” in WR Cornish et al, eds, Restitution: Past, Present and Future: Essays in Honour of Gareth Jones (Hart Publishing, 1998) 231; Twinsectra supra note 23 at 194 (Lord Millett); Criterion Properties plc v Stratford UK Properties LLC, [2004] 1 WLR 1846 at 1849 (Lord Nicholls). 43 Akindele, supra note 41 at 455-456 (Nourse LJ); Zage, supra note 21 at [27] (the Court of Appeal noted Lord Nicholls’ extra-judicial arguments in favour of strict liability, but applied the fault-based test in Akindele); Akai Holdings Limited (in liquidation) v Thanakharn Kasikorn Thai Chamkat (Mahachon) also known as Kasikornbank Public Company Limited, HCCL 59/2004 [463]-[468] (Stone J) [Kasikornbank]; Thanakharn Kasikorn Thai Chamkat (Mahachon) also known as Kasikornbank Public Company Limited v Akai Holdings Limited (in liquidation), [2012] HKCU 2362 [128] (Lord Neuberger of Abbotsbury NPJ); Farah Constructions Pty Ltd v Say-Dee Pty Ltd, (2007) 230 CLR 89, [148]-[155]. 44 Royal Brueni Airlines, supra note 9 at 386. 45 See e.g. Banque Nationale, supra note 11 at [157]. 46 Interestingly the Court of Appeal in Zage, supra note 21 at [51] queried whether there could be liability on a recipient who became aware of the misappropriation of trust property after the receipt of that property. There should not be any equitable personal liability here as equity has no jurisdiction over the bona fide purchaser for value without notice. See also, Yeo Tiong Min, “Restitution” in Teo Keang Sood, ed, Annual Review of Singapore Cases 2010 (Singapore Academy of Law, 2010) 517 [Yeo Tiong Min], who makes the same point and suggests that therefore the answer depends on whether the facts are construes as one or two transactions. 47 Mitchell & Watterson, supra note 37. profits should be available in principle.48 As with accessorial liability, the nature and significance of the remedy for recipient liability are contested, but such issues have not yet arisen in the Singaporean cases.49
The discussion so far suggests that, irrespective of the difference in nomenclature between dishonest assistance and unconscionable receipt, the nature of the court’s inquiry is the same. This suggests that the conceptual basis of the two claims may be – or could be – the same. For example, although Singapore courts have accepted the English courts’ reformulation of liability for dishonest assistance and recipient liability as dishonesty and unconscionability respectively, the state of D’s knowledge continues to be an essential consideration for both liabilities. Secondly, the policy concerns in relation to the two claims are very similar. For example, there is a clear concern not to penalise innocent third parties who were also duped by a fraudulent trustee or fiduciary.50 There is also a concern not to unduly hamper commercial dealings by imposing unrealistic standards of conduct on strangers to a trust or fiduciary relationship. This must be balanced on the other hand with a concern to deter money laundering. Both liabilities are seen as a useful means for going beyond corporate entities to attach liability to the controllers of companies and their family members.51 Finally, both liabilities on the current law are undeniably fault-based; that is, they involve contextual inquiries into whether D acted against good conscience.
On the other hand, the Singapore courts overwhelmingly acknowledge a conceptual distinction between accessorial liability and recipient liability.52 Furthermore, respected academic commentary supports the different natures of the two claims.53 Despite this, it is suggested tentatively that one possible direction for the law in Singapore concerning recipient liability is to treat it as a subset of accessorial liability generally.
VI. CONCLUSION
The Singapore courts have overwhelmingly followed the Privy Council and the English courts in relation to accessorial and recipient liability. However, there has been little or no discussion of the subtleties of the requirements of the two forms of liability and of their remedial outcomes. As to the relationship of accessorial and recipient liability, the dominant view in case law and commentary in Singapore is that these are conceptually distinct liabilities, however, this appears inconsistent with the methodology adopted in Zage, policy concerns apparent in the cases and the fault-based nature of the liability.
48 Charter plc v City Index Ltd, [2007] EWCA 1382, [2008] CH 313 at 337, 339 (Arden LJ); Grimaldi v Chameleon Mining NL (No 2), [2012] FCA 1129. 49 See e.g. Mitchell & Watterson, supra note 37 and the discussion of Kasikornbank, supra note 43 in Yeo Tiong Min, supra note 46. 50 See e.g. Banque Nationale, supra note 11 and Zage, supra note 21. 51 See e.g. Caltong, supra note 11 and Yong Kheng Leong, supra note 21. 52 I have found only one judgment in Singapore that expressly states that recipient liability is accessorial: Zim Integrated Shipping Services Ltd v Dafni Igal, [2010] 2 SLR 426 at 438. With respect, the discussion by Lai Siu Chiu as to whether there should be a tort of procuring breach of fiduciary duty overlooks the existing liability in equity for procuring breach of trust. 53 Yeo Tiong Min, “The Right and Wrong of “Knowing Receipt” in the Law of Restitution” (delivered at the Fourth Yong Pung How Professorship of Law Lecture, Singapore Management University, 19 May 2011).