Cleaning up After Breaches of Fiduciary Duty - The Liability of Banks and Other Financial Institutions as Constructive Trustees

Abstract

extract] Although statute and common law liability naturally had their place in this litigation, equitable principles played a central role. Company directors may be liable in equity as well as under the Corporations Act for their defaults. This paper is not concerned with direct fiduciary liability. Equitable constructive trusteeship could also, however, have been imposed on those to whom money was passed or who, perhaps as financial advisers to a fallen entrepreneur, furthered the enterprise in some way. Banks are the natural defendants to this secondary litigation. They are, for the most part, solvent and inescapably within the jurisdiction of the court. Moreover, banks are often the unsuspecting facilitators of the movement of the proceeds of fraud. For these reasons they have been increasingly drawn into hindsight inquiries as to the effectiveness of their procedures for preventing financial fraud.