English Trusts Law - Breach and Remedies - Liability For Receipt

Liability For Receipt

Knowing receipt cases
Barnes v Addy (1873-74) LR 9 Ch App 244
Belmont Corp v Williams Furniture Ltd (No 2) 1 All ER 393
Agip (Africa) Ltd v Jackson Ch 265
Re Montagu’s ST Ch 264
Baden v Societe Generale 1 WLR 509
El Ajou v Dollar Land Holdings plc 3 All ER 717
BCCI (Overseas) Ltd v Akindele 
 Ch 437
Dubai Aluminium Co Ltd v Salaam UKHL 48
Criterion Properties plc v Stratford LLC UKHL 28
Arthur v Attorney General of the Turks and Caicos Islands UKPC 30
English trusts law

Although beneficiaries or those owed fiduciary duties will ordinarily wish to sue trustees first for breach of obligations, the trustee may have disappeared, or become insolvent, or perhaps the beneficiaries will desire to have a specific asset returned. In all these situations, the law allows a limited remedy if a person that was passed on trust property is not "equity's darling", the "bona fide purchaser" of the asset. A bona fide purchaser of property, even if received after a breach of trust, has long been held to take free of any claims by prior owners, provided that they have committed no wrong, and they have paid. When the value in assets is traced, this process is technically said to be "genuinely neutral as to the rights" a claimant may have. Only if recipients have committed additional wrongs, through some form of negligence, knowledge or dishonesty, will they liable, with a good claim at the end of the tracing process. However, the law is unsettled on what is needed, and divides between a traditional common law or equity approach, on the one hand, and a more modern unjust enrichment analysis on the other hand. Traditionally, common law used to allow a claim from anybody who had money, but had lost it or had been deprived of it, from a person who had received the money without payment, as of right. This action for "money had and received" was, however, limited to money, and was said to be limited to money in physical form. In equity, an action could be brought for return of any property that could be traced, but the courts said liability was limited to people who in some sense had "knowledge" of a breach of trust. The leading case, Bank of Credit and Commerce International (Overseas) Ltd v Akindele stated that the touchstone of liability is that a defendant acted "unconscionably". In that case, Akindele, a Nigerian businessman, was sued by the liquidators of the disgraced and insolvent bank, BCCI for return of over $6.6m. Akindele received this payment, apparently as he said he knew part of a fixed return deal, when in fact BCCI was engaging in a fraudulent scheme to buy its own shares, and thus inflate its share price. Nourse LJ held that on these facts, Akindele had done nothing "unconscionable" and was not liable to return the money. In other cases, however, it is apparent that the standard has been lower, and set at negligence. In Belmont Finance Corp v Williams Furniture Ltd (No 2) Goff LJ held that if one "ought to know, that it was a breach of trust", liability will follow. Accordingly, different courts have differed on the requisite threshold of liability. Some have thought liability for receipt should be limited to "wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make", while others have favoured a simple negligence standard, when a breach of trust would have been obvious to an honest, reasonable person. The latter view is consistent with an unjust enrichment analysis, favoured by the late Peter Birks and Lord Nicholls in extrajudicial writing. This favours strict liability upon receipt of any property, unless it is paid for. If the recipient is not a bona fide purchaser, they must make restitution of the property to the former owner to avoid unjust enrichment. This was an approach adopted by the House of Lords in Re Diplock. However, unlike Re Diplock the modern unjust enrichment analysis would allow a defence, if the recipient had changed her position, for instance by spending money that would not otherwise have been spent, a defence recognised in Lipkin Gorman v Karpnale. This approach ends by suggesting that even if it is paid for, if the recipient ought to have known, they will be deemed to have committed a wrong and must restore the property to the previous owner anyway.

Read more about this topic:  English Trusts Law, Breach and Remedies

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