TRUSTS LAW: KNOWING RECEIPT(EQUITABLE LIABILITY OF STRANGERS (II)) – TERM 2 WEEK 5

Unconscionable Receipt – Knowing Receipt

1. Introduction 

Where a person knowingly receives trust property which has been transferred away from trust OR
otherwise misapplied AND where that person has acted unconscionably, then that person will incur
personal liability to account as CONSTRUCTIVE TRUSTEE to beneficiary of that trust for amount of loss.

 Knowing Receipt  Unconscionable Receipt + Knowledge

 Knowing Receipt  person who is not trust, not beneficiary will be personally liable to
account to trust for any loss suffered in a situation where she receives trust property
UNCOSNCIONABLY with knowledge that property had been passed to her in breach of trust
(Re Montagu, AGIP v Jackson, Lipman Gorman v Karpnale, El Ajou v Dollar Land Holdings
appealed, BCCI v Akindele)
 Another expression of defining KR  Personal liability to account concerning strangers who
received some trust property that has been transferred away in breach of trust
Receipt-Based claim analogous to equitable compensation (El Ajou vv Dollar Land)
 Must prove breach of trust FIRST before making a KR claim/ for a KR claim to exist.
 Once breach of trust shown, C must show that D acted unconscionably & whether there has
been receipt or to will be decided according to tracing claim rules (El Ajou vv Dollar Land) OR
it will eb based on D having possession of the property!
 Knowledge means actual knowledge, willfully closing one’s eyes to breach of trust, failing to
make inquiries which reasonable person would have made (Re Montagu)
 This test of knowledge also based on whether D had acted unconscionably in receiving trust
property (BCCI v Akindele)

2. The nature of the “receipt” – Receipt Based

a. Taking property in your possession

b. Taking beneficial ownership of property

3. The nature of “unconscionability” in unconscionable receipt

4. The nature of “knowledge”
5. Acid Test for Knowledge: “Should you have been suspicious?”
6. Current State of the law – Analysis of change effected to law by introducing
“unconscionability” & line of cases applying dishonesty to receipt-based claim & explanation
of how those cases correlate with concept of UR.
7. The nature of the remedy