Sheahan v Thompson (No 2)

The case of Sheahan v Thompson (No 2) involved the trustees of a unit trust who were sued by the unitholders for breach of trust. The trustees had paid trust assets to a third party to settle separate proceedings against them for misapplication of those assets. The unitholders claimed that the trustees' actions amounted to a breach of trust and that the third party had received the trust property knowingly. The Court of Appeal of the Supreme Court of New South Wales was tasked with deciding several legal issues, including whether the unitholder had consented to the payment and if that consent was fully informed, and whether the third party had knowledge of the breach of trust. The court also considered whether the third party's knowledge should be attributed to the corporate defendants who received the trust property, and if rescission was necessary in a claim in personam for knowing receipt of trust property. Additionally, the court examined whether a trustee who had agreed to pay out trust money to a third party in breach of trust for their own benefit could give an effective release to the third party recipient, and whether successor trustees were bound by a deed of release granted by original trustees to a third party. Finally, the court assessed whether rescission of the deeds of release was a precondition to relief and if the defences of laches, acquiescence and delay could be established.

The court found that the unitholder had not consented to the payment of trust assets to the third party, and that any consent that was given was not fully informed. The court also determined that the third party had knowledge of the breach of trust, and that this knowledge should be attributed to the corporate defendants who received the trust property. The court held that rescission was not necessary in a claim in personam for knowing receipt of trust property, and that a trustee who had agreed to pay out trust money to a third party in breach of trust for their own benefit could not give an effective release to the third party recipient. The court further held that successor trustees were not bound by a deed of release granted by original trustees to a third party, and that rescission of the deeds of release was a precondition to relief. Finally, the court found that the defences of laches, acquiescence and delay could not be established.