03_Accessories - Equity and Trusts 03 Accessories PART III...

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Equity and Trusts 03 – Accessories © Jaani Riordan 2006 Page 1 of 42 http://www.jaani.net/ P ART III A CCESSORY L IABILITY I Introduction A Definition Accessory liability concerns the remedies available against parties who, although not the fiduciary, are connected in some way to a breach of fiduciary duty — whether by receiving property, participating in the breach itself, or both. The general rule is as follows: third parties who knowingly participate in the default of a fiduciary may themselves be accountable in equity to the principal ( Barnes v Addy ). The doctrine of accessory liability provides a way for these other defendants to be liable for their role in breaches of fiduciary duties owed by other, in some way related, parties. B Rationale It may well be puzzling to the naïve scholar why there is much concern for the liability of third parties when, plainly, a breaching fiduciary will herself be subject to all the remedial ferocity with which equity treats its villains. There are essentially three reasons why secondary participants in a breach may become important focal points in a dispute: 1 Insolvency of the primary defendant If the breaching fiduciary cannot satisfy a personal judgment against them, and has no assets against which to secure a primary remedy, there is little point (besides public condemnation) in pursuing that party; 2 The absconder–fiduciary Dealing, as it does, with depraved exhibits of human greed and frailty, the equitable doctrine of breach of duty must be prepared to deal with the breaching fiduciary who absconds to avoid incurring the wrath of his beneficiaries; 3 Piercing the corporate veil If the breaching fiduciary is a company, it might be possible to make an individual director liable as an accessory to the breach, ensuring equitable liability corresponds to the parties’ true measure of practical responsibility. Accessory liability will be of central interest when the primary defendant is insolvent or missing. It provides a means for the plaintiff to join third party defendants with deeper pockets and within the jurisdiction, where it may be necessary, desirable or convenient to do so. Importantly, however, it does not afford an avenue for double recovery by the plaintiff. It also provides a way to break through the corporate veil, as where the breaching party is a company. The individual director of that company might also be responsible in equity as an accessory to the breach.
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Equity and Trusts 03 – Accessories © Jaani Riordan 2006 Page 2 of 42 http://www.jaani.net/ C Categories of Accessory Liability The fundamental statement of the law of accessory liability was given by the Court of Chancery in Barnes v Addy . The subsequent authorities have, for over a century, made reference to ‘the rule in Barnes v Addy ’ or ‘liability under the first/second limb of Barnes v Addy’. These somewhat quixotic phrases are to be avoided, but will be explained shortly. Barnes v Addy
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This note was uploaded on 08/17/2010 for the course BUSLAW 730-462 taught by Professor N/a during the Three '10 term at Melbourne Business School.

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03_Accessories - Equity and Trusts 03 Accessories PART III...

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