The rule in **_Barnes v Addy_** - Application to actions against persons participating in breaches of duty by an administrator - First and second limbs of the rule in **_Barnes_** - [2008] WASC 51 - WASC 2008 case summary

The rule in **_Barnes v Addy_** - Application to actions against persons participating in breaches of duty by an administrator - First and second limbs of the rule in **_Barnes_** - [2008] WASC 51 - WASC 2008 case summary — Zoe

[89]

asset registers pertaining to each of the third defendant, GA and Waller & Son which disclose the assets held by them for the period 1959 to 1974;
share registers pertaining to each of the third defendant, GA and Waller & Son for the period 1959 to 1974;
the taxation returns and financial statements for:
1. a. the third defendant for the period 1959 to 1974 inclusive;
2. b. GA and Waller & Son for the period 1959 to the date they were deregistered;
all valuations in respect of assets owned by the third defendant, GA and Waller & Son that were undertaken in the period 1959 to 1974;
all valuations obtained in respect of the value of the shares of those companies having regard to the net asset backing of those shares;
all valuations with respect to the shares owned by the deceased in the third defendant, GA and Waller & Son;
all documentation or correspondence or notes prepared by the first defendant or exchanged between him and Mary Stevens relating to the affairs of the third defendant, GA and Waller & Son and the distribution of the estate of the deceased, including communications with the companies' accountants for the period 1959 to 1974;
any documentation held by the first defendant evidencing distributions from Mary Stevens in respect of the estate of the deceased for the period 1959 to 30 November 1973;
any documentation or correspondence prepared by the first defendant or Mary relating to the distribution of the estate of the deceased or in the dealing of the assets of the companies the third defendant, GA and Waller & Son 'in which significant share holdings' were held by the estate of the deceased;
an offer and acceptance document for the purchase of certain shares in the companies third defendant, GA and Waller & Son between the second defendant and Mary made 23 July 1973;
the original of a deed of family arrangement made between the plaintiffs, Mary and the first and second defendants dated 30 November 1973; and
all documentation or correspondence passing between the first defendant and Parker & Parker concerning the entry into the deed of family arrangement referred to in [11] and the offer and acceptance document referred to in [10].

[129]

The form of liability referred to in the first part of the last sentence is often called the 'first limb' of Barnes, and the form of liability referred to in the second part of the last sentence is often called the 'second limb'. In Barnes itself, the Court of Appeal in Chancery (Lord Selborne LC, James and Mellish LJJ) upheld the decision of Wickens VC [Barnes v Addy (1873) 28 LT (NS) 398] that two solicitors, Mr Preston and Mr Duffield, had not received any trust property and had no knowledge of any dishonest and fraudulent design to make them parties to the breach of trust by the sole trustee. It was insufficient that Mr Preston had been alive to the danger of the course of appointing a sole trustee and that Mr Duffield had prepared the appointment of that trustee.

It has become common to describe the first limb as involving 'knowing receipt' and the second limb as involving 'knowing assistance'. Lord Selborne LC did not use the expression 'knowing receipt'. It seems to have been employed first in 1966 by the editors of Snell's Principles of Equity. [R E Megarry and P V Baker (eds), Snell's Principles of Equity, 26th ed, Sweet & Maxwell, London, 1966, p 202; cf 25th ed (same editors), 1960, p 173] Even then, it was only introduced by inserting under the pre-existing heading 'Receipt of Trust Property by Stranger to Trust' a new subheading, 'Knowing Receipt or Dealing'. However, in 1972 Brightman J adopted the expression in Karak Rubber Co Ltd v Burden (No 2). [[1972] 1 WLR 602 at 632-3; [1972] 1 All ER 1210 at 1234-5 (Karak Rubber)]. He said that the labels 'knowing receipt or dealing' and 'knowing assistance' employed by Snell were 'an admirable shorthand description of their different natures'. Those labels have been commonly used since then. In contrast, Lord Selborne LC's expression was 'receive and become chargeable'. [Barnes at 251]. Persons who receive trust property become chargeable if it is established that they received it with notice of the trust.

In recent times it has been assumed, but rarely if at all decided, that the first limb applies not only to persons dealing with trustees, but also to persons dealing with at least some other types of fiduciary. [For example, in DPC Estates Pty Ltd v Grey and Consul Development Pty Ltd [1974] 1 NSWLR 443 at 459-60 (DPC Estates), Jacobs P assumed that if property were received by a stranger from a fiduciary in breach of fiduciary duty, the first limb applied. See also El Ajou v Dollar Land Holdings Plc [1993] EWCA Civ 4; [1994] 2 All ER 685 at 700 (El Ajou) per Hoffmann LJ. Since the appellants did not contend that the first limb was incapable of applying on the ground that neither Farah nor Mr Elias was a trustee, the correctness of this assumption need not be examined.

[161]

The other principle referred to ... by the learned authors there expressed is that 'no-one should be permitted, by refraining from taking out probate or administration, to obtain possession of the deceased's property free from his liabilities'. In many of the cases, essentially those decided before probate jurisdiction was taken from the ecclesiastical courts, the estate was relatively small and no attempt had been made by any person to obtain probate or letters of administration. In the absence of such an application and grant, dealing with the deceased's property might fairly lead creditors to infer that the intermeddler had indeed obtained an appropriate grant, a matter which was, until jurisdiction was given to non-ecclesiastical courts, often difficult to establish because of the large number of diocesan courts which might exercise jurisdiction: see FC Hutley, 'The Executor De Son Tort in the Law of New South Wales'. ...

The essence of a claim against such a person was, and I believe still is (subject to s 28 of the Administration of Estates Act), that the person has purported to act as an executor or administrator of a deceased's estate, thereby leading others to believe that he or she has the power to deal with the estate and its assets. As is said in Bacon's Abridgment ..., even apparently slight acts 'are the only indicia by which creditors can know against whom to bring their actions'. Any action had necessarily to be brought against such a person as ostensible personal representative of the relevant estate who was then liable, but only to the extent of the assets with which he or she had purported to deal. As the authorities demonstrate, even minor acts of dealing with property interests were sufficient to constitute a person an executor de son tort, but only if it could be inferred that the person was purporting to act in that role. Some of the language of the earlier cases and textbooks was not always entirely clear in this respect, largely, I believe, because it was well known that liability would attach only if the person could be seen as holding himself out in one way or another as an executor or administrator. Careful examination of those authorities, nevertheless, emphasises the necessary connection, howsoever slight the dealing with actual property might be in the first instance. Moreover the authorities made clear that if there had been in fact a grant of probate or letters of administration, then a mere attempt later to obtain the property of a deceased and even purporting to act as executor or administrator, would not ordinarily clothe that person with the responsibilities of an executor de son tort, because there was then a person who might be sued properly in that role as liable for the debts and other liabilities of the estate. Likewise it was seen that that person might sue in the ordinary way for recovery of any property over which some other person might seek to exercise control.

The rule in _Barnes v Addy_ - Application to actions against persons participating in breaches of duty by an administrator - First and second limbs of the rule in _Barnes_

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (293 paragraphs)

WALLER -v- WALLER [2008] WASC 51 (10 April 2008)

Parties

Legislation Cited (4)

Cases Cited (12)