Civil fraud - knowing receipt

Knowing receipt refers to the personal liability of non-trustees for losses arising to trusts. Liability arises where the non-trustee receives trust property, or continues to hold trust property, in the knowledge that it is in breach of trust or breach of fiduciary duty. 

A claim for knowing receipt is often pursued in the context of wider fraudulent or wrongful behaviour. It is therefore common for a claim in knowing receipt to be brought alongside a number of other heads of claim, such as misappropriate of funds and unjust enrichment, and also for criminal action to be pursued. Often the wrongdoers seek to put the assets out of reach of the claimant and, therefore, methods such as asset tracing are used in order to follow the assets (or their traceable proceeds) through multiple sets of hands.

Who is the claimant? 

Generally speaking, a claim in knowing receipt will usually be brought by the beneficiaries of a defaulting trustee or other fiduciary. However, this is not always the case. It is possible for trustees to bring claims on behalf of beneficiaries for knowing receipt, even though it was their breach which led to the misappropriation of the assets.   

Establishing liability 

The requirements for bringing a claim in knowing receipt are found in two Court of Appeal Judgments, El Ajou v Dollar Land Holdings Plc and Bank of Credit and Commerce International (Overseas) Ltd v Akindele. A claimant must be able to show: 

1. Receipt of the claimant’s assets or their traceable proceeds by the defendant; 
2. Such receipt arises from a breach of trust or fiduciary duty owed to the claimant by a third party;
3. Knowledge on the part of the defendant that the assets that have been received are traceable to a breach of trust or fiduciary duty, sufficient to make it unconscionable for the defendant to retain the benefit of the receipt. 

It is not necessary for a claimant to establish that the defendant has been dishonest. But, it will often be the case that the knowing receipt will have been dishonest given the very nature of the claim. 

If a claimant is able to establish the above elements, then the defendant will be held personally liable as if they were a trustee. The claimant then has a choice as to whether to pursue the defendant for the value of the assets received, together with any profits, or the loss which the claimant has suffered as a consequence of the misappropriation of the said assets. Typically, a claimant would seek the former where the value of the assets has increased or substantial profits have been obtained, but the latter if the assets have been dissipated in an unprofitable manner. 

Remedies 

The defendant’s liability will either be personal or proprietary. To put it another way, the claimant will have a claim against the defendant in their personal capacity for compensation and/or an account of profits, or alternatively, a claim over the assets or their substitutes. 

For more advice on claims for knowing receipt, or civil fraud more generally, please contact Cara White on c.white@ashfords.co.uk.