Barnes v Addy

Barnes v Addy
Court	Court of Appeal in Chancery
Decided	12 February 1874
Citation(s)	(1874) LR 9 Ch App 244
Case opinions
Lord Selborne LC
Court membership
Judge(s) sitting	Lord Selborne LC, Sir W M James LJ, Sir G Mellish LJ
Keywords
Breach of trust

Barnes v Addy (1873–74) LR 9 Ch App 244 is an English trusts law case of the Court of Appeal in Chancery before it was abolished. It concerns breach of trust and receipt of trust property. It stated some general principles in relation to liability for receipt of property that was misapplied in breach of trust, and liability of people who assist a breach of trust. It required that people receive property for their own use and benefit before they could be liable for receipt. However, the principles it stated, though still applied in some common law courts, have been significantly revised in House of Lords cases such as Royal Brunei Airlines v Tan and Dubai Aluminium Co Ltd v Salaam.

Facts

Henry Barnes appointed William Crush, John Lugar and John Addy to be testators and executors of his will. His money would be invested and then used as a £100 annuity for his widow, Ann, and his three daughters and son. John Addy, the sole remaining trustee, appointed another trustee, with an indemnity. Addy’s solicitors, including Mr William Duffield, had advised against appointing a sole trustee, but drew up the deeds of appointment and indemnity, introduced him to a stockbroker, and the broker transferred the trustee money. This trustee misapplied the trust property and became bankrupt. The children sued Addy and the solicitors.

Mr Lindley QC appeared for Mr Duffield. Wickens VC held the trustee and solicitors were not liable.

Judgment

Lord Selborne LC held that neither of the solicitors had any knowledge of or reason to suspect dishonesty in the transaction. Neither had money passed into their hands. He said the following.

All these circumstances, and his own honest advice to his client, pointing out the risk and the dangers, and recommending that the transaction should not proceed, prove that he thought that was all which he, as solicitor, was bound to do. He did not think he incurred responsibility by settling the form of the deed, which, after all, did not increase the power of Mr. Addy , who was then sole trustee, to commit a breach of trust. We cannot consistently with the evidence, or with justice, or reason, disbelieve Mr. Duffield, when he says he never knew nor suspected any dishonest purpose, or believed that any actual fraud would result from what was done; and if that be a true interpretation of the facts, I certainly, for one, am unable to hold him responsible. With respect to the receipt of the money, he received nothing except two sums, one which belonged to the Barlow family, and on which nothing turns, and the other a part of the aggregate trust fund, before division, of which a third came from the Barnes' share, representing £65; and it is said he is to be charged with that (though he did not retain or use for his own benefit a single shilling of that money) because the authority of the trustees to apply that money in the payment of certain costs of a previous suit, which had been compromised, was not obtained from this Court. Now the trustee, Mr. Addy , was, as I have said, at that time, beyond question, the legal owner of the fund. He and Mr. Clark , the deceased trustee, had a right, by the terms of the will, to be indemnified against all costs properly or reasonably incurred in connection with the trust. These costs had been incurred in a suit brought against them in the name of the present Plaintiffs, the Barnes children, by a next friend under the advice of Mr. Parker , the family solicitor, which suit, having proceeded to a certain extent, had been compromised on the terms that all three shares of this fund, the Barlow share, the Barnes share, and the Addy share, should bear their proportion of the trustees' costs. The trustee, Addy , authorized the sale for that purpose and that application of the money, and it was so applied; and I am most clearly of opinion, first of all, that there is nothing before us to shew that such an application was improper on the part of Mr. Addy , the trustee; but, secondly, that if it had been, the solicitor could not possibly have been held on that account responsible.

Sir WM James LJ and Sir G Mellish LJ concurred.

Significance

In Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [111] the High Court of Australia interpreted the following part of Lord Selborne LC's judgment as the statement of the "rule in Barnes v Addy":

Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, 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.

These principles had, however, been significantly altered in the UK. It has been stated in the House of Lords, notably by Lord Nicholls and Lord Millett, that liability for receipt of trust property is strict, based on unjust enrichment. A change of position defence can then be available, unless the recipient - or any other assistant in the trust breach - has acted in an objectively dishonest fashion. This approach remains controversial in Australia, where some senior judiciary, who specialised in writing equity textbooks, did not view the principle of unjust enrichment as being part of the law.

See also

• English trusts law