Laura has really been going to town with the posts on her site. There is the one below, on February 9, 2016 and one she copied from this site. I am the uncredited person who rekeyed the article, which will be posted here in a few minutes.
Below Laura is, again, worried about where the money went. You would think living with Alex for this long would have answered any questions she had.
Tuesday, February 9, 2016
When will a person who assists a trustee to commit a breach of trust be liable as a constructive trustee
218
THE MODERN LAW REVIEW [Vol. 50 (2) When will a recipient of trust
property transferred in breach of trust be liable as a constructive
trustee? At least two possible types of claim may lie against such a
recipient.8 If the property is still in the recipient’s hands in a
traceable form, the claimant may bring an in rem tracing claim
enforceable by means of a lien. Such a claim will fail if the recipient
was a bona fide purchaser without notice, or if the property has become
untraceable. Whether or not such a claim will lie, the recipient may be
liable in the alternative to an in personam claim as a constructive
trustee on the grounds of knowing r e ~ e i p t . ~ The point of
contention is whether constructive notice or actual knowledge on the
part of the recipient is necessary before liability will be imposed.’O
On this point, the three cases are not unanimous. Re Montagu’s
Settlements In 1923, Viscount Mandeville, who was entitled in remainder
to a large collection of chattels (in which his father, the 9th Duke of
Manchester, had a life interest), assigned his interest to two trustees.
Under the terms of the trust, the trustees were, on the death of the
9th Duke, to select such of the chattels as they in their absolute
discretion thought fit, for inclusion in a settlement. Those chattels
would be held on the same trusts as the lands to which Viscount
Mandeville would become entitled on the death of his father. Any
chattels not so selected were to be held for Viscount Mandeville
absolutely. The 9th Duke died in 1947 and Viscount Mandeville succeeded
to the Dukedom. By then both the trustees and the 10th Duke’s solicitor
had forgotten the precise terms of the 1923 settlement. No selection of
chattels was ever made, and all parties assumed in good faith that the
10th Duke was entitled to them absolutely. Many were sold by him in
1949, and the rest shipped to Kenya where the Duke had taken up ~~~ ~~ *
There is a third possibility. Should a personal representative pay
money from the estate to someone not entitled to it. any next of kin,
legatee or creditor of the estate may bring an in personam claim to
recover that payment from the recipient: Ministry of Health v. Simpson
(19511 A.C. 251. A claim of this kind was pleaded both in Re Montagu and
in Lipkin Gorman. In each case, it was doubted whether such a claim lay
in respect of dispositions made by a trustee of an inter viwos trust.
In the former, the claim was stood over, and in the latter dismissed,
because the plaintiff had not pursued his claim against the defaulting
trustee first. MAR.19871 NOTES OF CASES 219 220 THE MODERN LAW REVIEW
[Vol. 50 the trustees. Even if the doctrine of imputed notice did apply,
the Duke would not thereby have been fixed with notice.’] Two themes
underpin Megarry V.-C.’s judgment. The first is a unitary view of the
basis of liability as a constructive trustee for intermeddling. All
forms of such liability depend upon there being some “want of probity”
on the part of the alleged trustee. This view derives from certain
passages in Carl Zeiss Srifrung v. Herbert Smirh & Co. (No.2).12The
second theme is that the concept of notice with its overtones of being
put upon inquiry had no place where a donee rather than a purchaser was
involved. Megarry V.-C. laid great stress on a passage in Re DiplockI3
to this effect. These two distinct points are interwoven and treated as
one in the judgment. With some diffidence, it is suggested that although
the result of the case is plainly correct, the reasoning is open to
doubt: (i) Historically, liability for knowing receipt grew up
inextricably with the in rem liability to a tracing claim with no
differentiation between the threshold of knowledge that was required for
each.14 (ii) There is some authority that imputed notice will suffice
for liability for knowing re~eipt,’a~nd a number of decisions where a
wholly honest recipient of trust property has been held liable as a
constructive trustee because of a failure to make inquiries or to draw
inferences from facts.I6 John v. Dodwell and Company, Lrd.17 is a case
in point. The respondents’ manager drew cheques on their account to pay
for shares which he had purchased for himself from the appellant broking
firm. The appellants then paid over the moneys so received (after
deduction of commission) to the sellers. The appellants received the
payments honestly but with notice from the face of the cheques that the
moneys did not belong to the manager. The Privy Council held the Megarry
V.-C. found that the Duke had notice of the terms of the 1923
settlement. It does not follow that the Duke had notice that a breach of
trust had been committed. l2 (19691 2 Ch. 276, 298, Sachs L.J.; 301,
Edmund Davies L.J.-cf. Danckwerts L.J. at p.290. In both judgments in Re
Monragu, Megarry V.-C. expressed the view obiter that constructive
notice would not suffice for liability for knowing assistance. I’ (19481
Ch. 465, 478-479. I‘ Hill v. Simpson (1802) 7 Ves. 152 and M’Leod v.
Drummond (1810) 17 Ves. 152, both tracing cases, were influential in the
early evolution of knowing receipt; see, e.g., Keane v. Robarts (1819) 4
Madd. 332, and Wilson v. Moore (1834) 1 My. & K. 337. Is Midgley v.
Midgley [1893] 3 Ch. 282, 303-304, Lopes L.J.; John v. Dodwell and Co.
Lid. [1918] A.C. 563, 569, Viscount Haldane. l6 Bryson v. The Warwick
and Birmingham Canal Company (1853) 4 De G.M. & G. 711; Mayor and
Corporation of Berwick v. Murray (1856) 26 L.J.Ch. 201; Gray v. Lewis
(1869) L.R. 8 Eq. 526; Reckilt v. Barnerr, Pembroke and Slarer, Lrd.
(19291 A.C. 176; Belmonr Finance Corporation Lrd. v. Williams Furniture
Lid. (No.2) (198Ol 1 All E.R. 393; and Nelson v. Larholt [1948] 1 K.B.
339 (a case of wilful shutting of eyes?). See too Rolled Sreel Products
(Holdings) Ltd. v. Brirish Sreel Corporation (19863 Ch. 246, 298, Slade
L.J.; 303, Browne-Wilkinson L.J. I’ [1918]
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