Re Montagu's Settlements, Duke of Manchester v National Westminster Bank Ltd and Others

From: Law Gazette, UK

Wednesday 08 April 1987

Equity and Succession-Constructive Trust: Ch D (Sir Robert Meganay V-C): 29 March 1985
By cl 14(b) of a 1923 family settlement, the future tenth Duke of Manchester assigned to trustees certain chattels to which he was thene absolutely entitled in remainder after the death of his father, the ninth duke; the trustees were then (if not before) to make an inventory or inventories of such chattels as they considered suitable for inclusion in the settlement.
The ninth duke died in 1947 but neither before that date nor afterwards did the truestees make any selection in accordance with cl 14(B) and by the end of 1948 they had released the chattels to the tenth duke.
He died in 1977 and the chattels as part of his estate came into the possession of his executor.
The plaintiff, the eleventh duke, claimed against the remaining trustees and the executor a declaration, inter alia, that the tenth duke had become a constructive trustee in relation to the chattels and that his estate was accountable for them or their proceeds.
PWE Taylor QC and P Rawson (instructed by Beachcrofts) for the plaintiff.
John Chadwick QC and Lynton A Tucker (instructed by Allen & Overy) for the executor.
Sir Robert Megarry V-C said the question was what sufficed to constitute a recipient of trust property a constructive trustee of it.
The tenth duke had had notice, both actual and imputed of the terms of cl 14(Be of the 1923 settlement but he did not have 'knowledge' at any material time that the chattels he had received were subject to any trust (believing they had been lawfully released to him by the trustees).
The matter could be summarised as follows: (1) The imposition of a constructive trust by reason of the knowing receipt of trust property was governed by different rules from those governing tracing as a means of determining the rights of property; (2) In the knowing receipt of trust property, the basic question was whether the conscience of the recipient was sufficiently affected to justify the imposition of such a trust; (3) Whether such a constructive trust arose depended on the recipient's knowledge, not on notice; (4) Knowledge was not only actual knowledge but knowledge that would have been acquired but for shutting one's eyes to the obvious or recklessly failing to make inquiries such as a reasonable man would make, for in such cases there was a want of probity justifying the imposition of a constructive trust; (5) It was doubtful whether the extended meaning of knowledge referred to in the Baden case [1983] BCLC 325, 407 would include carelessness in making necessary inquiries as amounting to a want of probity; (6) Where a person had genuinely forgotten a fact that he once knew, the test was whether the knowledge continued to operate on that person's mind at the time in question; (7) It was at least doubtful whether there was a general doctrine of 'imputed knowledge' that corresponded with 'imputed notice'; even if there was, for the purposes of creating a constructive trust of the 'knowing receipt' type, the doctrine would not apply so as to fix a donee or beneficiary with all the knowledge that his solicitor had.
Any such doctrine should be distinguished from the process whereby, under the name 'imputed knowledge', a company would be treated as having the same knowledge as its directors and secretary; and (8) Where an alleged constructive trust was based not on 'knowing receipt' but on 'knowing assistance', some at least of those considerations might apply.
in the present case the ninth duke never became a trustee of the property.
Order Accordingly.
(WLR)