Recipient Liability Essay

Stranger who receives trust property in breach of the trust?

Whether or not the individual has any prior knowledge becomes irrelevant
when an unrelated party acquires possession of an asset through innocent
means and subsequently retains it under constructive trust. The protection of
the beneficiary's equitable interest follows. The beneficiary is bestowed with the
entitlement to retrieve the asset and any identifiable profits linked to it. In the
case of Westdeutsche Bank versus Islington LBC, Lord Browne-Wilkinson
made an observation that the beneficiary is capable of asserting their title in
trust property even if the third party receiver is unaware that what they have
received is trust property.

In Re Diplock, the determination of the proprietary rights of the beneficiary is

not based on the responsibility of the recipient. The principles of tracing aim to
safeguard the recipient by facilitating the recognition of assets held by the bona
fide volunteer. The volunteer who is deemed innocent will not be held
accountable. In Re Montagu's Settlement Trusts it was said that in the event a
volunteer acquires property unintentionally and holds a belief of entitlement,
the lack of notice prevents them from acting as a buyer and so the individual
who has volunteered in this particular situation has to return the item. In the
event that the volunteer is no longer in possession of the property their liability
may be negated provided that they are deemed a constructive trustee. In the
event that the trustee obtained the property while satisfying the necessary
threshold of misconduct to be deemed a constructive trustee he may be subject
to a personal remedy.

The distinction between the proprietary and personal remedies that can be
pursued against individuals who are not known to the plaintiff is effectively
explicated by the situation of a volunteer who has received trust property
without any knowledge of wrongdoing.

In the circumstance where an individual who is not privy to the existence of a

trust makes a bona fide acquisition of trust assets that individual shall be
entitled to full ownership of the assets, without any hindrances from the
beneficiaries. The transferred property is now exempt from any claims made by
the beneficiary. The knowledge of personal liability of a property recipient in a
given scenario is often fraught with ambiguities and according to some judicial
rulings the imposition of liability requires the presence of some degree of fault.

The Court of Appeals COA made a decision in the matter of Re Diploc, where it
was established that a charitable organization would be held accountable for
receiving funds from an estate, despite their belief that the donation was
intended for them and this decision was sanctioned by the House of Lords.

Subsequent cases expressed strong disapproval towards this approach, as they

posited that assertions pertaining to estate management and individuals acting
in good faith should not be subjected to stringent prerequisites and severity. As
per Lord Simmonds' ruling in Health versus Simpson, this particular approach
was exclusively sanctioned for the purpose of estate administration.

Efforts were undertaken to eliminate the stringent approach, leading to the

establishment of a mandate by the Court of Appeal in the case of Re Diplock.
This mandate ensured that all possible personal remedies were exhausted
before resorting to the strict approach towards charities. In the case of Bank v
Islington LBC, Lord Browne-Wilkinson made the assertion that an individual is
not typically held accountable as a trustee unless they possess the necessary
level of knowledge regarding the trust property.

The imposition of strict liability upon the recipients has been rejected in several
other cases, including BCCI v Akindele, Re Montagu's Settlement Trusts,
Lipkin Gorman versus Karpnale Ltd, and Eagle Trust PLC versus SBC
Securities Ltd. Box versus Barclays is another instance of a subsequent legal
case that declined to uphold strict liability. As per Lord Millet's statement in
the Twinsectra case, the recipient cannot be held personally accountable for
the mistake. The House of Lords and the Court of Appeal attempted to provide
clarification on the matter through their respective leading dicta. However, this
proved to be a challenging task due to the presence of dissenting judgements,
obiter statements, and cases such as Re Diplock, which only served to further
complicate the issue at hand.

The issue of determining the necessary degree of fault for establishing personal
liability is a highly argumentative subject. The distinction between the degree
of fault and the evidence demonstrating that the recipient acquired the
property innocently and without any equitable rights must be apparent. In the
case of Re Montagu's Settlement, Megarry V-C cited that it is important to
recognise that the doctrines of purchaser without notice and constructive trust
pertain to situations that vary significantly from one another. The primary
concern pertains to the acquisition of property that may either be encumbered
by an equity or unencumbered. The latter pertains to the imposition of
trusteeship obligations on an individual either voluntarily and involuntarily.

Preservation of the beneficiary's equitable interest necessitates the buyer's

cognizance of the trust's existence. According to Millet J's ruling in Macmillan
Inc v Bishopsgate Investment Trust Ltd, the notice must encompass all of the
purchaser's knowledge and exhibit that they have undertaken the requisite
research to be deemed a prudent and rational businessperson.
The notice requirement is a matter of significant concern to the buyer as it
serves as evidence that no trust was established. The nature of inquiries is
subject to variation based on the type of property and the transaction's nature,
from a practical standpoint.

The legal obligation of conducting a thorough investigation prior to acquiring

real property does not extend to commercial dealings that are constrained by
time limitations, as evidenced by the Bishopsgate-Millet J ruling in the
Macmillan Inc versus case involving shares. In the event that an individual
possessing familiarity with any of the five categories outlined in Baden Delaux
were to obtain possession of the trust property, said individual would be
deemed a constructive trustee and would be subject to legal liability.

According to Millet J's ruling in the El Ajou versus Dollar Land Holdings case,
the purchaser may be deemed responsible for any negligence on their part.
Similar viewpoints were expressed in the cases of International Sales Ltd.
versus Marcus and Agip (Africa) Ltd. versus Jackson.

According to the Court of Appeal's ruling in the case of Carl Zeiss Stiffung
versus Herbert Smith & Co, the most suitable criterion is dishonesty. In the
case of Baden versus Sachs, LJ explicitly limited the degree of culpability to the
first three stages of knowledge. Likewise, Megarry Jadrry employed an
analogous approach in the case of Re Montagu's Settlement Trusts. According
to Loed Browne Wilkinson's statement in Westdeutsche, the notion of
restricting oneself to the initial three states of Baden was accurate. Aikens J. in
the case of Bank of America versus Arnel employed the criterion of dishonesty,
which was derived from the position taken by Potter LJ in the case of
Twinsectra.

Several recent decisions have contributed to the existing state of confusion.

According to BCCI v Akindele, Nourse LJ opined that any advantage ought to
be revealed to the recipient in a manner which renders its concealment wrong.
The decision in question received significant censure, and Lord Nicholls upheld
the veracity examination in the Royal Brunei case. The individual exhibited a
inclination towards dishonesty by simultaneously engaging with literature
pertaining to both unconscionability and dishonesty.

All in all Lord Nicholls's legal writing has made the problem worse because it
has added to the confusion that was already there. He said that responsibility
applies no matter who is at fault, but that it can be disputed using the defence
of change of position. In the current situation, there is a lot of
misunderstanding, so the House of Lords needs to come up with a clear and
straightforward answer to clear up any uncertainty about the problem in
question.
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