Knowing Receipt
In general, personal liability of third parties may take in two forms, namely receipt-based
liability and accessorial liability. This essay will mainly focus on the receipt-based liability
where the third party may be personally liable when he received a property transferred following
a breach of trust that a claimant has equitable proprietary interests in it and later no longer has
that property with him. If the third party still possesses the property, then the claimant will likely
to pursue a proprietary claim instead. This issue is further complicated by the fact that knowing
recipients and knowing assistants are both treated as constructive trustees, thus it is often
confused that whether the standard of knowledge for both liabilities are the same. The Privy
Council in Royal Brunei Airlines v Tan firmly distinguished between these two, saying that there
was no reason why the standard should be the same and this was accepted by the House of Lords
in Twinsectra v Yardley though in obiter.
Despite this, the determination of the standard was further complicated by the distinction
between knowledge and notice. Notice generally applied in conveyance of land, where the
purchaser must investigate in a reasonably diligent fashion the title he intends to buy and the land
itself, in order to be free of any equitable interests over that title. However, in typical breach of
trust cases, a recipient has no obligation to investigate the source if the right he receives. This is
illustrated in the case of Papadimitriou v Credit Agricole Corp where the Privy Council held that
constructive notice was sufficient. Lord Sumption in a separate, concurring judgement stated that
to make a person accountable on the footing of knowing receipt, the question of what constitutes
notice or knowledge is the same. This obiter dictum seems to be inconsistent with English law.
Again, it is unclear that what level of knowledge or notice is considered knowing receipt, but at
least something more than constructive notice is required.
Prior to the Court of Appeal decision in Bank of Credit and Commerce International
(Overseas) Ltd v Akindele, the leading in this area was Re Montagu ST. Megarry VC held that
the relevant question was whether the recipient had subjective knowledge, not whether he had
notice. The liability should not be imposed unless he had actual knowledge that his receipt was
in breach of trust, was “wilfully blind” to the fact or had wilfully and recklessly failed to make
inquiries that an honest and reasonable man would. It is notable that in this case, one was not
liable for knowledge he once had but had honestly and genuinely forgotten when the breached
occurred.
There was this case of El Ajou v Dollar Land Holdings Plc which was decided in
between Re Montagu and BCCI case. The claimant must show a disposal of his assets in breach
of fiduciary duty, the beneficial receipt by the defendant and knowledge on the part of the
defendant that the assets he received are traceable to a breach of fiduciary duty. It must be noted
that this case was related to a breach of fiduciary duty and thus similar to the BCCI. This issue
will be discussed later after assessing the BCCI decision.
In BCCI v Akindele, the Court of Appeal reached a similar outcome consistent with Re
Montagu, but it was not decided using the law laid down in Re Montagu. Nourse J tried to start
afresh and establish the first principle relating to law on recipient liability like how Royal Brunei
In general, personal liability of third parties may take in two forms, namely receipt-based
liability and accessorial liability. This essay will mainly focus on the receipt-based liability
where the third party may be personally liable when he received a property transferred following
a breach of trust that a claimant has equitable proprietary interests in it and later no longer has
that property with him. If the third party still possesses the property, then the claimant will likely
to pursue a proprietary claim instead. This issue is further complicated by the fact that knowing
recipients and knowing assistants are both treated as constructive trustees, thus it is often
confused that whether the standard of knowledge for both liabilities are the same. The Privy
Council in Royal Brunei Airlines v Tan firmly distinguished between these two, saying that there
was no reason why the standard should be the same and this was accepted by the House of Lords
in Twinsectra v Yardley though in obiter.
Despite this, the determination of the standard was further complicated by the distinction
between knowledge and notice. Notice generally applied in conveyance of land, where the
purchaser must investigate in a reasonably diligent fashion the title he intends to buy and the land
itself, in order to be free of any equitable interests over that title. However, in typical breach of
trust cases, a recipient has no obligation to investigate the source if the right he receives. This is
illustrated in the case of Papadimitriou v Credit Agricole Corp where the Privy Council held that
constructive notice was sufficient. Lord Sumption in a separate, concurring judgement stated that
to make a person accountable on the footing of knowing receipt, the question of what constitutes
notice or knowledge is the same. This obiter dictum seems to be inconsistent with English law.
Again, it is unclear that what level of knowledge or notice is considered knowing receipt, but at
least something more than constructive notice is required.
Prior to the Court of Appeal decision in Bank of Credit and Commerce International
(Overseas) Ltd v Akindele, the leading in this area was Re Montagu ST. Megarry VC held that
the relevant question was whether the recipient had subjective knowledge, not whether he had
notice. The liability should not be imposed unless he had actual knowledge that his receipt was
in breach of trust, was “wilfully blind” to the fact or had wilfully and recklessly failed to make
inquiries that an honest and reasonable man would. It is notable that in this case, one was not
liable for knowledge he once had but had honestly and genuinely forgotten when the breached
occurred.
There was this case of El Ajou v Dollar Land Holdings Plc which was decided in
between Re Montagu and BCCI case. The claimant must show a disposal of his assets in breach
of fiduciary duty, the beneficial receipt by the defendant and knowledge on the part of the
defendant that the assets he received are traceable to a breach of fiduciary duty. It must be noted
that this case was related to a breach of fiduciary duty and thus similar to the BCCI. This issue
will be discussed later after assessing the BCCI decision.
In BCCI v Akindele, the Court of Appeal reached a similar outcome consistent with Re
Montagu, but it was not decided using the law laid down in Re Montagu. Nourse J tried to start
afresh and establish the first principle relating to law on recipient liability like how Royal Brunei
