essay 3rd party

who claimed that KR is a secondary liability?

Longmore LJ in Novoship

how does Virgo argue against Longmore LJ’s claim that KR is a secondary liability?

secondary liability requires proof of cause, assistance, or encouragement of breach

furthermore, liability arises AFTER the breach, and sometimes there will have been a number of transfers of the property between different parties before liability arises

what does a claim in KR rest on?

vindicating the beneficiary’s proprietary rights

Mitchell and Watterson argue that a knowing recipient is liable as ____________

a trustee

Swadling: there is NO explanation of why D receiving w/ knowledge _________________________________

is turned by operation of law into a trustee

statements in cases such as Westdeutsche (Lord BW) that the recipient must restore the right to their rightful owner if he still has them are ___________

OBITER - also could equally suggest that D is liable to BE ORDERED BY A COURT to restore the rights

what does Birks argue that KR is better seen as?

part of unjust enrichment

(as opposed to proprietary vindication)

how does Swadling reject Birks’ view that KR is better seen as part of unjust enrichment?

D’s enrichment (the receipt of the right dissipated in breach of trust) does not come from the beneficiary, so the enrichment is not at C’s expense

Swadling contends that liability for KR should been seen as _____________________________________________________

a species of a larger wrong of inconsistent dealing

• such a wrong is committed when the recipient deals with the right in a way which he knows is inconsistent with the terms of the trust

why does Swadling argue that ‘knowing receipt’ is a misnomer?

the receipt is not the gist of the action, but the later, inconsistent, dealing

how was the doctrine of KR treated in Williams v CBN?

treated as a form of personal liability, NOT a proprietary or custodial one

• emphasised it was fault-based, not merely arising because of receipt

• suggested KR was not the same as being an express trustee, but rather liability for equitable wrongdoing

what did Lord Neuberger emphasise in Williams v CBN?

that the liability of the recipient in KR is founded on dishonesty

facts of Byers v SNB?

concerned shares transferred in breach of trust

• Cs argued that the bank was liable for KR

• as a matter of Saudi Arabian law, the transfer extinguished the company’s equitable proprietary interest in the shares

• held: no KR because need a continuing equitable proprietary interest - THIS is what the liability

what did the CA stress in Byers v SNB?

liability for KR is ‘custodial in nature’ - when property is misapplied into a recipient’s hands, equity imposes obligations akin to trusteeship

which case aligns with Mitchell + Watterson’s view?

Byers v SNB

• knowing recipients are treated as though they hold property on trust, with trustee-like duties to account

how do Mitchell + Watterson justify their argument that a knowing recipient is a genuine trustee of the rights he receives?

this is consistent with the language of the courts, and explains the knowledge requirement, which in their view is what turns the recipient into a trustee of the rights he receives

what are the problems with Mitchell + Watterson’s argument?

i) M+W claim the support of Megarry VC in Re Montgaue, Millett J in Agip (Africa) v Jackson, and Lord BW in Westdeutsche for the proposition that the recipient must restore the rights to their rightful owner if he still has them

• but these statements are OBITER and AMBIGUOUS - could equally be saying that D is liable to be ordered by a court to restore the rights

ii) no explanation of why D who receives w/ knowledge is turned by operation of law into a trustee

iii) difficult to reconcile this view with AIB Group (UK) v Mark Redler

iv) incorrect to say that the beneficiary has a ‘right’ to account w/o having to go anywhere near a court

Lord Nicholls argues that it would be better to have 2 distinct forms of liability:

1. fault-based

2. receipt-based (counterpart of cl action for money had and received)

how does Smith argue against Lord Nicholls’ proposition that liability for KR should be split into (i) fault-based and (ii) receipt-based?

• not approp to require equity to develop a new cause of action simply to reflect what occurs at law

• equitable proprietary rights are not protected in the same way as legal ones - e.g. most legal proprietary rights are NOT defeated by the bona fide purchaser defence

what policy reasons does Virgo give for countering Smith’s contention that liability for KR should be split into (i) fault-based and (ii) receipt-based liability?

• not approp for 3rd party recipients of property to be held strictly liable, since equitable interests tend to be hidden

• if such liability were recognised in equity it would place unacceptable burdens on 3rd party recipients such as banks, which have no reason to suspect C might have a property interest

how is Knowing Receipt best understood?

a personal liability distinct from true trusteeship

Mitchell and Watterson argue that the dishonest assister is liable to account as __________________________

a constructive trustee

• he is fixed w/ secondary liability

why does Virgo argue that the language of constructive trusteeship for dishonest assistance is misleading?

it might suggest that the 3rd party holds property on CT for C

• but liability as an accessory does not depend on the 3rd party having received any property

• so this language should be avoided because of its proprietary connotations