Private banks, custodians, trust companies and family offices act on trustees’ instructions every day. Occasionally an instruction is improper: a payment to a family member the deed does not allow, a transfer ordered by a trustee who has already been removed, or trust assets offered as security for a beneficiary’s own borrowing.
Under Australian law, a third party who handles trust property or helps a trustee can sometimes become personally liable to the beneficiaries, even though it owed them no duty and took no benefit. For institutions in Singapore, Hong Kong, Labuan or the BVI that deal with Australian trusts or Australian beneficiaries, the exposure may be decided under Australian equitable principles, which differ in important ways from English law.
This article outlines the issues for gatekeepers. Our separate articles cover AML/CTF Tranche 2 from the client’s side and source-of-wealth checks.
Barnes v Addy: the two limbs
Third-party liability for a trustee’s breach is still described in Australia by reference to Barnes v Addy (1874), which has two “limbs”.
- Knowing receipt. A person who receives trust property, or property subject to a fiduciary obligation, for their own benefit, with the requisite knowledge that it was transferred in breach, may be personally liable to account for it.
- Knowing assistance. A person who assists a trustee or fiduciary in a dishonest and fraudulent design, with the requisite knowledge of that design, may be liable even if they never received anything.
Farah Constructions v Say-Dee
The leading Australian authority is the High Court’s decision in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89. Several points from it matter to gatekeepers:
- For knowing assistance, Australian courts continue to require a dishonest and fraudulent design by the trustee or fiduciary, which is more than an ordinary breach of trust. The High Court did not adopt the English approach in Royal Brunei Airlines v Tan, which focuses on the accessory’s own dishonesty.
- The High Court declined to recast recipient liability as strict, restitution-based liability. Receipt-based claims in Australia still turn on what the recipient knew.
The Baden categories
Australian courts analyse knowledge using the five categories from the English Baden case, which run from actual knowledge to mere constructive notice. In Farah, the High Court said the first four categories can be enough for knowing assistance, but constructive notice is not. The Full Federal Court in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 took a similar approach to knowing receipt.
The significance is that liability does not necessarily require proof of actual knowledge. Shutting one’s eyes to the obvious, or deliberately not asking, may be enough, depending on the facts.
Banks are not immune
In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157, a majority of the Western Australian Court of Appeal held lending banks liable under the receipt limb for amounts realised under securities connected with breaches of directors’ duties. The case settled before the High Court decided the issues.
Practical scenarios
These hypothetical situations show where the issues can arise. Whether liability follows depends on the facts.
- A payment to a family member. A trustee instructs a private bank to pay trust money to the trustee’s adult child, who is not a beneficiary, or without a consent the deed requires. A bank usually has no duty to police the deed, but if staff are told or can plainly see the payment is unauthorised, knowing assistance questions may arise; if the bank applies the funds to a debt owed to it, receipt questions may arise.
- A removed trustee. An appointor removes a trustee and appoints a new one. Before the custodian updates its records, the former trustee instructs it to transfer securities. Whether the custodian is protected may depend on the terms of its mandate, when it received notice of the change, and how it responded.
- A family office employee. A staff member executes distributions on the patriarch’s instructions, knowing the recipients are outside the class or that the trustee has not resolved to make them. Employees can be accessories personally, and instructions from above are not of themselves a defence.
- Trust assets as security for a beneficiary’s personal loan. A lender takes a mortgage or guarantee over trust property to secure a beneficiary’s own borrowing. The questions include whether the deed authorises giving security for a non-trust purpose, whether the transaction benefits the beneficiaries as a whole, and whether the lender, as recipient of the security, is fixed with knowledge of the breach.
Red flags around trustee authority
Many claims start with uncertainty about who the trustee is and what it may do:
- The deed, variations and appointment instruments. Copies supplied years ago may be out of date. Was the trustee validly appointed, and did the appointor who signed still hold that office, or had it passed on death or incapacity?
- Corporate trustee resolutions. Were the signing directors validly appointed, and was the resolution properly passed under the constitution?
- Powers to borrow, lend and give guarantees. Some deeds limit these powers, require consents, or restrict benefits to particular beneficiaries.
- Unusual features. Urgency, payees outside the beneficiary class, instructions from someone other than the trustee, or a known dispute between family branches.
AML/CTF obligations: a brief note
Banks and custodians have long been reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). Following the 2024 amendments, AUSTRAC confirms that “Tranche 2” entities, including lawyers, accountants, conveyancers, real estate professionals and trust and company service providers, became regulated for designated services from 1 July 2026.
- Customer due diligence on trusts. AUSTRAC’s guidance treats the trust as the customer. It requires identifying the trustees and others acting for it and their authority, beneficiaries or classes, and beneficial owners and controllers such as settlors, appointors and protectors.
- Suspicious matter reports and tipping off. Section 123 restricts disclosing information about a suspicious matter report or related information. Since the amendments, the focus is on whether disclosure would or could reasonably be expected to prejudice an investigation.
- Structuring. Section 142 makes it an offence to conduct transactions so as to avoid reporting requirements.
AML/CTF compliance and private-law liability are separate. Meeting AUSTRAC requirements does not answer an equitable claim, and an internal suspicion may later be relied on as evidence of what the institution knew.
Privacy and confidentiality when beneficiaries ask
Beneficiaries sometimes ask a bank or custodian directly for trust account statements. The institution’s relationship is with the trust, acting through its trustee, and its duty of confidentiality and obligations under the Privacy Act 1988 (Cth) point towards caution in releasing information to anyone the trustee has not authorised. A beneficiary’s entitlement to trust information is mainly a question between beneficiary and trustee, under the deed and the court’s supervisory jurisdiction. Where an SMR has been lodged, tipping-off restrictions add another layer.
Protection and defences: issues to consider
- Documenting enquiries. A contemporaneous record of what was asked, what was received and why the instruction was accepted can matter when knowledge is later in dispute.
- Indemnities from the trustee. An indemnity may be only as good as the trustee’s own right to be indemnified from trust assets, which can be lost if the trustee acted in breach.
- Seeking directions. A trustee can apply to the court for advice or directions, for example under s 63 of the Trustee Act 1958 (Vic). A third party generally cannot, but may ask the trustee to do so, or consider whether to act until authority is clarified.
- Insurance. Professional indemnity and similar policies may contain exclusions for dishonesty or knowing wrongdoing that need to be read against this kind of claim.
Questions for gatekeepers to discuss with an adviser
- Do our records show who the current trustee, appointor and protector are, and how we would learn of a change?
- Have we reviewed the deed’s powers to distribute, borrow, lend and give security, rather than relying on a summary?
- For a corporate trustee, how do we confirm director authority and resolutions?
- What is our process when an instruction appears to fall outside the beneficiary class or the trustee’s powers?
- How do our mandate terms, indemnities and insurance respond to an equitable claim?
- How do we handle information requests from beneficiaries, particularly where a family dispute or an SMR exists?
Frequently asked questions
Can a bank be liable for knowing assistance in a trustee’s breach in Australia?
It can. Liability may arise where the bank assists a dishonest and fraudulent design by the trustee with the requisite knowledge, which may include wilfully ignoring obvious signs. Mere processing of an instruction without that knowledge is generally not enough. The outcome depends heavily on the facts.
What is Barnes v Addy liability in Australia?
It is the principle under which strangers to a trust may be liable for knowingly receiving trust property transferred in breach, or knowingly assisting a dishonest and fraudulent breach. The High Court restated the Australian approach in Farah Constructions v Say-Dee.
Does constructive notice make a third party liable?
For knowing assistance, the High Court in Farah indicated it is not sufficient on its own. Where a particular case falls is fact-specific.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates advises private banks, trust companies and family offices on Australian law issues, including trustee authority, trust deed powers and third-party exposure on Australian trusts. Justin Chua trained in accounting (Bachelor of Commerce, accounting major), is an affiliate member of STEP (the Society of Trust and Estate Practitioners), and advises on the legal and tax structure of family wealth together. He is a Nationally Accredited Mediator and an Accredited Family Business Advisor. We work with the family’s accountant and registered tax agents, and with lawyers in Asia, and advise in English, Mandarin and Cantonese.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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