Equity and succession

Breach of trust - solicitor acting as trustee - whether acting dishonestly - partnership not vicariously liable for breaches of trust committed by partnerWalker v Stones: CA (Nourse, Mantell LJJ and Sir Christopher Slade): 19 July 2000

The beneficiaries of a discretionary trust alleged that the two trustees had committed breaches of trust which caused the value of the main trust shareholding to be diminished.

The first trustee, who the beneficiaries alleged had acted dishonestly, claimed that he had acted in the belief that what he was doing was for their benefit.

The beneficiaries argued that the firm of solicitors in which the trustees were partners was vicariously liable for their breaches of trust.

Rattee J refused the beneficiaries' application to re-amend their statement of claim to allege dishonesty against one of the first trustees, and to join the firm and another individual as defendants, and struck out the statement of claim.

The beneficiaries appealed.

Trevor Philipson QC and Thomas Lowe (instructed by Harkvays) for the beneficiaries; Charles Purle QC and Guy Newey (instructed by Lovell White Durrant) for the trustees; Andrew Simmonds QC and Anna Clarke (instructed by Wiggin & Co) for the solicitors' firm; David Oliver QC and Paul Girolami (instructed by Richards Butler) for the prospective fourth defendant.

Held, allowing the appeal in part, that where the defendant's conduct had constituted a breach of some legal duty owed to the claimant personally (whether under the law of contract, torts, trusts or any other branch of the law) and that breach of duty had caused him personal loss, separate and distinct from any loss that may have been occasioned to any corporate body in which he may be financially interested, the mere fact that the defendant's conduct might also have given rise to a cause of action at the suit of a company in which the claimant was financially interested (whether directly or indirectly) would not deprive the claimant of his cause of action; that where a trustee who was also a solicitor honestly believed that a breach of trust committed by him was in the interests of the beneficiaries, if that belief was so unreasonable that, by any objective standard, no reasonable solicitor-trustee could have thought that what he did or agreed to do was for the benefit of the beneficiaries, then he had acted dishonestly; that no reasonable solicitor-trustee would regard as honest the conduct of a solicitor-trustee who acted with the specific intention of benefiting persons whom he knew not to be objects of the trust, knowing that this would be at the expense of the financial interests of the beneficiaries; that ss.10, 11(1) and 13 of the Partnership Act 1890 were all drafted on the assumption that individual trusteeships which a partner may undertake were not undertaken 'in the ordinary course of the business of the firm', so a firm could not be held vicariously liable for breaches of trust committed by a partner acting as a trustee; and that, accordingly, permission would be given to amend the statement of claim to allege dishonesty against the first trustee, but the claim against the second trustee would be dismissed, and the solicitors' firm and the prospective fourth defendant would not be joined as defendants.