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Trust Property and Conversion: an Equitable Confusion

Published online by Cambridge University Press:  16 January 2009

Andrew Tettenborn
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Suppose a collection of ictures is held by a trustee T on trust for beneficiary B. A picture is stolen by X, a thief; or alternatively, it is wrongfully sold by T to Y. What causes of action are open to B? At first sight this looks an easy question, involving straightforward application of the principles of equity and personal property. In the former situation (the theft example), T, who has the legal title, can clearly sue X in conversion. As for B, he in his capacity of equitable owner can no doubt force T to do so, if necessary by himself bringing proceedings against X and joining T as a party. In the second case, that of wrongful sale, T is clearly guilty of a breach of trust and liable to compensate B accordingly. As to the liability of Y, B will be able in equity to recover the picture from him in specie he has it, or its value if he does not (assuming Y's acts were sufficient to make him liable on the basis of “knowing receipt” of trust property).

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Shorter Articles
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The Cambridge Law Journal , Volume 55 , Issue 1 , March 1996, pp. 36 - 42
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Copyright © Cambridge Law Journal and Contributors 1996

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References

1 Or, for that matter, bearer securities (which may in practice make the subject of this article a good deal more significant). But pictures satisfactorily simplify the argument.

2 Barker v. Furlong [1891] 2 Ch. 172, 179.Google Scholar Similarly for trespass to goods, even though—anomalously—the trustee is not in actual possession: White v. Morris (1852)Google Scholar 11 C.B. 1015. Conceivably since Three Rivers DC. v. Bank ofEngland [1995]Google Scholar 3 W.L.R. 650 the defendant in such a case would be entitled to insist that the cestui que trust be joined as a party to the action.

3 As in the case of an equitable assignee of a debt; although he cannot insist on suing the debtor in his own name alone, his action will lie if the assignor is joined as a party to the action. It is not necessary for the assignor to take any active part in the proceedings, provided he is technically party thereto, and hence bound by the result: see Three Rivers D. C. v. Bank of England [1995]Google Scholar 3 W.L.R. 650.

4 Assuming he is not an innocent purchaser, or otherwise able to rely on some equitable defence.

5 On which see, e.g., Hanbury & Martin, Modern Equity, 13th ed., pp. 304 et seq.

6 Unless, perhaps, B is in actual possession: see the discussion of Healey v. Healey [1915]Google Scholar 1 K.B. 938, below.

7 Compare Joseph v. Lyons (1884) 15 Q.B.D. 280, 284–285Google Scholar, per Brett M.R.: “ … the plaintiff has only an equitable title, and the defendant a legal interest. The plaintiff cannot maintain a legal remedy like conversion or detinue.”

8 Now re–christened “dishonest assistance”: Royal Brunei Airlines Sdn. Bhd. v. Tan [1995]Google Scholar 2 A.C. 378.

9 Compare the position in negligence, where it seems clear that equitable ownership, though in a sense a proprietary interest, will not of itself give title to sue: Leigh & Sillavan Ltd. v. “The Aliakmon” [1986]Google Scholar 1 A.C. 785, 812, per Lord Brandon.

10 [1979]Google Scholar Q.B. 351.

11 Since the agreement involved future debts, no question of statutory assignment under s. 136 of the Law of Property Act 1925 could arise.

12 The plaintiffs would seem to have had an unanswerable case against R for dishonest complicity in a breach of trust: Royal Brunei Airlines Sdn. Bhd. v. Tan [1995]Google Scholar 2 A.C. 378 (where the facts were very similar). Why did they not sue for this? The only answer that seems plausible is that lawyers' perceptions of the possibilities of this equitable jurisdiction were not as fully developed in 1979 as today.

13 Which is entirely orthodox: see Jarvis v. Williams [1955]Google Scholar 1 W.L.R. 71

14 See Campofina Bank v. Maynegrain P/L [1984]Google Scholar 1 N.S. W.R. 258 (P.C.). A bank sued for conversion of a quantity of wheat stored in the defendant's warehouse and later released to a third party. Although arguably the bank was merely an equitable pledgee, no serious argument took place as to whether this of itself deprived it of title to sue; instead, the New South Wales Court of Appeal and the Privy Council were content to dismiss the action on other grounds. Note also The Future Express [1993]Google Scholar 2 Lloyds Rep. 542, 547, where Lloyd L.J. mentioned in passing the possibility of an equitable pledgee suing in conversion, only to reject it as not arising on the facts of the case concerned.

15 [1994] 2 B.C.L.C. 276 (John Newey Q.C. sitting as a deputy High Court judge).

16 It seems a clear example of the “fusion fallacy” excoriated in Meagher, Gummow & Lehane, Equity: Doctrines and Remedies (3rd ed.), §§ 220 et seq. (But it is apparently supported in Sackville & Neave, Property Law: Cases & Materials (5th ed.), § 6.31.)

17 Leigh & Sillavan Ltd. v. The “Aliakmon” [1986”Google Scholar 1 A.C. 785, 812, per Lord Brandon (note 9 above). Cf. Downsview Nominees v. First City Corp'n. [1993]Google Scholar A.C. 295 (mortgagee's duty to subsequent incumbrancer not susceptible to common law remedies).

18 Bank of Boston Connecticut v. European Grain and Shipping Ltd. [1989]Google Scholar A.C. 1056, 1109. See further Joseph v. Lyons (1884) 15 Q.B.D. 280, 284–285Google Scholar above, and the cases cited in Meagher, Gummow & Lehane, Equity: Doctrines & Remedies (3rd ed.), § 220 et seq. as embodying aspects of the “fusion fallacy”.

19 [1915]Google Scholar 1 K.B. 938.

20 6th ed. (1924), p. 389. Unfortunately, the reference to Healey v. Healey was dropped by a later editor when International Factors v. Rodriguez was reported. See too Meagher, Gummow & Lehane, Equity: Doctrines & Remedies (3rd ed.), § 143.

21 [1961] AC. 1. Note that this case was specifically given the imprimatur by the House of Lords in Lipkin Gorman v. Karpnale: see per Lord Goff at [1991]Google Scholar 2 A.C. 548, 584 et seq.

22 Only if they had been drawn in favour of the partnership would M have been able to sue, since then he would have had legal title. This was effectively the position in Lipkin Gorman v. Karpnale [1991] 2 A.C. 548; as a result, in the latter case the plaintiff's claim in conversion succeeded.

23 [1955] I Q.B. 202. Significantly, this case was also relied on in International Factors v. Rodriguez.

24 The Bank having by negligence lost the protection of s. 82 if the Bills of Exchange Act 1882 (as it then was).

25 See Royal Brunei Airlines Sdn. Bhd. v. Tan, above.

26 Cf. the decision of the House of Lords in Target Holdings Ltd. v. Redferns [1995]Google Scholar 3 W.L.R. 352, which does a good deal to assimilate the two measures.

27 Which would have arisen in the Stroud Architectural Systems case, above, had the claim not failed in limine for other reasons. This may be important since, although the defendants there pleaded the “buyer in possession” provision in s. 25(1) of the Sale of Goods Act 1979, there must be some doubt as to whether the transfer to them of the glazing units was a delivery under a contract of sale and hence within the section (cf. The Saetta [1993] 2 Lloyd's Rep. 268).

28 Just as the defendant in an ordinary conversion action can always plead an exception to nemo dat, e.g., a good title under s. 2 of the Factors Act 1889. Cf. the brief discussion of this point by Professor Palmer at [1986] L.M & C.L.Q. 218, 225 et seq.

29 E.g. by way of gambling: Lipkin Gorman v. Karpnale [1991]Google Scholar 2 A.C. 548.

30 E.g., International Sales v. Marcus [1982]Google Scholar 3 All E.R. 551.

31 E.g., Re Montagu's Settlement Trusts [1987]Google Scholar Ch. 264, 285 (Megarry V-C.).

32 And even then there is a difficulty, at least in the present state of the law. Strict liability is defensible only when conjoined with a defence of change of position (which may of course include innocent alienation of the property concerned). But Lord Goff in Lipkin Gorman v. Karpnale clearly thought that such a defence was unavailable to the wrongdoer (see [1991] 2 A.C. 548, 580).

33 See Royal Brunei Airlines Sdn. Bhd. v. Tan [1995]Google Scholar 2 A.C. 378.

34 See, e.g., R.H. Willis v. British Car Auctions [1978]Google Scholar 1 W.L.R. 438 (innocent auctioneer).

35 Thus contrast with s. 61 the much wider terms of the Companies Act 1985, s. 727, providing analogous protection to company directors and others. While generally following s. 61 in its wording, this specifically covers not simply breach of trust but “negligence, default, breach of duty or breach of trust”.

36 Cf. Palmer [1986] L.M & C.L.Q. 218, 228.