Exposing Third-Party Liability in Equity: Lessons from the Limitation Rules

Abstract

This article provides a re-examination of third-party liability in equity. The exercise was prompted by a difficult case on limitation periods in equity, but the conclusions – if correct – have far wider significance. Three major points are made. First, it has long been conceded that the language of constructive trusts and constructive trustees is confusing. It is suggested here that the language disguises a relatively straightforward search for situations where there are property splits (trusts) or property management responsibilities (fiduciary responsibilities). Secondly, accessory liability in equity looks to be something of a misnomer, since it appears that the drive is not to find individuals with particular associations with the wrongdoer and shared liability for the primary wrong, but instead to find individuals who are themselves trustees or fiduciaries because of their particular association with the original managed property. Liability follows accordingly, and is primary not secondary liability. Finally, where there are fiduciary responsibilities for property management, liability is in two forms: compensation for loss to the managed assets; and disgorgement of disloyal gains. The former is distinguishable from common law compensation in its focus on remedying loss to the property fund, not the loss to individuals interested in the fund. These insights – in particular the fiduciary characteristics of third parties in equity, and the workings of equitable compensation – have significant practical consequences.

Keywords: Third party liability in equity, dishonest assistance, knowing receipt, fiduciary law, constructive trustees, constructive trusts, UK Limitation Act 1980 s 21, Williams v Central Bank of Nigeria

JEL Classification: K1, K10, K3, K30, K4