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Law Notes Trusts and Equity Notes

Third Parties Knowing Receipt Dishonest Assistance Trustees De Son Tort Notes

Updated Third Parties Knowing Receipt Dishonest Assistance Trustees De Son Tort Notes

Trusts and Equity Notes

Trusts and Equity

Approximately 1016 pages

Equity notes fully updated for recent exams at Oxford and Cambridge. These notes cover all the LLB trusts cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London).

These were the best Equity and Trusts Law notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LLB samples from outstanding law students with the highest re...

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Third Parties (Knowing Receipt + Dishonest Assistance + Trustees de Son Tort)


A recipient of trust property may be subject to a personal claim called knowing receipt. As this is a personal claim based on D’s conduct when he had the trust property, a knowing receipt claim does not depend on D’s continued retention of the trust property.

  • Knowing receipt claims developed as a claim based on wrongdoing, and the recipient in knowing receipt is NOT a (constructive) trustee (Lord Sumption JSC at [31] of Williams v Central Bank of Nigeria; a person in knowing receipt “has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. … His sole obligation of any practical significance is to restore the assets immediately. … It does not make him a trustee”).

By contrast, a proprietary claim does not require fault, but does require D to retain the trust property.

It is first worth noting a couple of points about what constitutes ‘actual notice’ and ‘constructive notice’. This is relevant both to the BFP for value without notice defence, and the ‘knowledge’ requirement for knowing receipt claims.

  1. Lord Clarke at [14] of Papadimitriou v Crédit Agricole distinguished and explained each of actual and constructive notice:

    1. Actual notice

      1. “Where [D] in fact appreciates that a proprietary right in the property probably exists”

    2. Constructive notice

      1. “Where a reasonable person with the attributes of [D] should have appreciated based on facts already available to it that the right probably existed”

        1. OR

      2. “Where [D] should have made inquiries or sought advice which would have revealed the probable existence of such a right.”

        1. “The bank must make inquiries if there is a serious possibility of a third party having such a right or, put in another way, if the facts known to the bank would give a reasonable banker in the position of the particular banker serious cause to question the propriety of the transaction.”

    3. NB: Lord Sumption JSC agreed with Lord Clarke’s reasoning in the case, but “would eschew with words like ‘possible’, which set the bar too low, or ‘probable’ which suggest something that would justify a forensic finding of fact.” Lord Sumption preferred a test whereby “if there are features of the transaction such that if left unexplained they are indicative of wrongdoing, then an explanation must be sought before it can be assumed that there is none”.

Also see the tracing rules from Week 6

Elements of a knowing receipt claim:

  1. Receipt

    1. D was at some point in receipt of trust property. B must show that D received an asset which either:

      1. was originally held on trust by T for B (and then misapplied), or

      2. is a traceable substitute of a trust asset originally held and misapplied by T

    2. D must have received the property “for his own use and benefit” (Millett J in Agip v Jackson) – NB: See below for why we may be better rejecting this

      1. This excludes from liability those, such as agents, who receive property only on behalf of, and so hold it only for the benefit of, someone else.

        1. BUT: Webb questions why those who receive property on behalf of others should be immune from liability in knowing receipt. A person will be immune from liability even if he knew full well that the property derived from a breach of trust, but instead of returning it to B, handed it over to his principal.

          1. Webb claims that the requirement would make sense if knowing receipt claims were based on D’s unjust enrichment rather than wrongdoing, though.

            1. This unjust-enrichment-based view is favoured by Lord Millett, who endorsed the beneficial receipt requirement in Agip and Twinsectra.

            2. BUT: The authorities are still tied to the wrongdoing approach. Thus, we may be better off rejecting Millett J’s beneficial interest requirement.

    3. Pilcher v RawlinsBFPs for value without notice are immune from liability – personal and proprietary. They have “an absolute, unqualified, unanswerable defence”.

      1. Sir WM James LJ: Once a purchaser has shown that he acted in good faith, for value and without notice, “this court has no jurisdiction whatever to do anything more than to let him depart in possession of that legal estate, that legal right, that legal advantage which he has obtained, whatever it may be. In such a case a purchaser is entitled to hold that which, without breach of duty, he has had conveyed to him”.

      2. Webb: There will also be no claim in knowing receipt where the asset D received had previously passed through the hands of a BFP following the initial breach of trust but prior to its receipt by D. In such cases, D did not receive trust assets.

  1. Knowledge

    1. OLD LAW:

      1. The courts used a framework set out in Baden v Société Générale which identified five types or degrees of knowledge:

        1. Actual knowledge

        2. Wilfully shutting one’s eyes to the obvious

        3. Wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make

        4. Knowledge of circumstances which would indicate the facts to an honest and reasonable man

        5. Knowledge of circumstances which would put an honest and reasonable man on inquiry

      2. No consensus developed as to which sufficed for imposing liability in knowing receipt.

        1. Re Montagu said that only categories 1-3 were sufficient

        2. Agip v Jackson said that all 5 categories were sufficient

      3. Other times the courts instead asked whether D needed to have actual or constructive knowledge (or notice) of the breach of trust. But here too there was no agreement.

        1. NB: ‘Constructive knowledge’ = D did not know, but could and should have known


      1. CoA in BCCI v Akindele acknowledged the need for a single standard which could be applied in all future cases. The court’s conclusion was set down by Nourse LJ at p455: “The recipient’s state of knowledge must be such as to make it...

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