The Court of Appeal has dismissed a knowing receipt claim against a bank for receipt of shares transferred to it in breach of trust, on the basis that the claimant did not have a continuing proprietary interest in the shares: Byers & Ors v The Saudi National Bank  EWCA Civ 43.
The decision provides helpful clarification as to the elements required to make good a claim in knowing receipt. It confirms that liability for knowing receipt arises from the recipient’s knowledge of the fact that it has received trust property that has been transferred in breach of trust. This includes where a recipient has received the property without knowing that it was transferred in breach of trust and only later discovers the fact. Once the recipient acquires such knowledge, it makes it unconscionable for the recipient to retain the property and imposes a duty on the recipient to treat the property as if they are a trustee of it and to restore it to the trust. This contrasts with liability for dishonest assistance, where liability is fault-based and arises from the recipient’s dishonesty in assisting a trustee to commit a breach of trust (or assisting a fiduciary to commit a breach of fiduciary duty).
A key battleground in the present case was whether a continuing proprietary interest in the relevant property is required for a claim in knowing receipt claim. In the view of the Court of Appeal, a defendant cannot be liable for knowing receipt if it takes the property free of any interest of the claimant. In this case, given the claimant had failed to prove at trial that its beneficial interest in the shares continued under local law following transfer to the bank, the claim in knowing receipt failed.
We previously reported on the High Court decision in this case here.
For more on the Court of Appeal decision, see this post on our Banking Litigation Notes blog.