Knowing receipt

Liability for knowing receipt is an equitable claim which arises in circumstances where a third party recipient’s knowledge of the circumstances of the transfer of trust property to them in breach of trust or fiduciary duty renders it unconscionable to permit the recipient to retain the property or the traceable proceeds of the property.

A claim for knowing receipt requires that:-

  1. Assets are held under a trust or fiduciary relationship;
  2. The assets are transferred in breach of trust or breach of the fiduciary relationship;
  3. The assets (or their traceable proceeds) are received by a third party;
  4. The third party beneficially receives the assets with knowledge (or constructive knowledge) that they are trust property and have been transferred in breach of trust or breach of fiduciary duty and retains the assets (or their traceable proceeds) after acquiring such knowledge, or deals with them in such a way that is inconsistent with the trust.

Satisfaction of (1) to (3) above will establish a constructive trust of the property concerned and will enable a claimant to recover the property by way of an equitable proprietary remedy. However, the third party recipient may have a defence of bona fide purchaser for value of a legal estate without notice.

If (1) to (4) above can be made out, then the third party recipient, or any subsequent recipient who, via the equitable tracing rules, can be shown to have knowingly received trust assets or their traceable proceeds, can be held personally liable to account to the claimant for the trust property or its proceeds.

Personal liability for knowing receipt is important in cases where the recipient has disposed of some, or all, of the trust property and its income. It allows a beneficiary to pursue a recipient personally for an account of the value of the assets received, rather than the specific trust property concerned.