Re Montagu's Settlement Trusts
A recipient of trust property who has forgotten that it was trust property, and did not want to know, is not liable for knowing receipt unless he had actual knowledge or deliberately shut his eyes.
Facts
Under the trusts of a settlement, chattels were to be held for the benefit of the 10th Duke of Manchester's heirs. The trustees, in breach of trust and on mistaken advice, released the chattels to the Duke himself, who sold many of them. The Duke had at one time known of the terms of the settlement, but had forgotten them. After his death, his successor sued the Duke's estate for knowing receipt.
Legal principle
Megarry V-C held that the Duke's estate was not liable, because the Duke had not had the necessary knowledge. He said that the recipient is liable as a constructive trustee only if his conscience is sufficiently affected, which requires knowledge, such as actual knowledge, wilfully shutting one's eyes to the obvious, or wilfully and recklessly failing to make inquiries. Carelessness, without more, is not enough. The Duke had honestly believed that the chattels were his, and a person who has genuinely forgotten facts does not know them.
Related cases on tracing and third party liability
- Agip (Africa) Ltd v Jackson [1991] Ch 547
- Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509
- Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 WLR 1476
- Barlow Clowes International Ltd v Vaughan [1992] 4 All ER 22
- BCCI (Overseas) Ltd v Akindele [2001] Ch 437
- Bishopsgate Investment Management Ltd v Homan [1995] Ch 211
- Devaynes v Noble (Clayton's Case) (1816) 1 Mer 572
- El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685
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