Recipient Liability - Knowing receipt (Personal claims against strangers - (remedies against third parties)-FS

Question 1

What is the definition of Knowing Receipt?

Answer 1

Knowing receipt is a form of personal liability imposed on a third party who receives trust property in breach of trust or fiduciary duty, where it is unconscionable for them to retain the benefit of that receipt.

Question 2

What are the three elements required to establish knowing receipt?

Answer 2

1. A breach of trust or fiduciary duty by the trustee.
2. Receipt of trust property by the third party for their own benefit.
3. Sufficient knowledge by the third party to make it unconscionable for them to retain the property.

Question 3

Is dishonesty required to establish liability for knowing receipt?

Answer 3

No. Dishonesty is not required. The test is whether the third party’s knowledge makes it unconscionable for them to retain the benefit, not whether they acted dishonestly.

Question 4

What types of knowledge can establish liability for knowing receipt?

Answer 4

• Actual knowledge of the breach
• Willful blindness or deliberate ignorance
• Subjective awareness that prompts moral obligation to inquire

Question 5

What is the legal test for ‘unconscionability’ in knowing receipt claims?

Answer 5

Whether the third party’s knowledge at the time of receipt, or shortly after (while still in possession of the property), makes it unfair or unjust for them to retain the benefit.

Question 6

When is a personal claim against a recipient likely to be used?

Answer 6

• Trust property has been dissipated
• Property cannot be traced
• The trustee is bankrupt or untraceable
• The third party is solvent and identifiable

Question 7

Can a third party avoid liability by claiming ignorance of the trust breach?

Answer 7

No. If they had reason to suspect the breach and deliberately failed to ask questions, they may still be liable (e.g., “shutting their eyes to the truth”).

Question 8

Why is Rupi (from the SQE scenario) liable for knowing receipt?

Answer 8

Rupi received trust funds, suspected they were from the trust, and chose not to ask questions. Her willful blindness makes it unconscionable to retain the benefit, satisfying the test for recipient liability.