I’m not sure I follow the point of the second scenario, as the recipient has notice and therefore the trust rights while persist in relation to the money paid. Even if A did not tell them the source of the money was a trust fund, I imagine the creditor would have difficulty substantiating any bona fide purchase defence. In and of itself B’s actions constitute intimidation and moreover, in England, likely also various criminal offences including blackmail and harassment of a debtor.

 

As such, I’m not sure the court would permit a defendant to say their actions constituted a ‘bona fide’ purchase and allow them to rely on their own illegal conduct in order to put themselves within the Byers scenario. The requirement the purchase be “bona fide” as well as “without notice” is seldom discussed in case law (see Midland Bank v Green [1981] AC 513, 528), but if Lord Wilberforce is right that it has any content at all I can’t think of a better case than this.

 

I think the upshot of that is that wherever there is knowing receipt, there will also be notice sufficient to make the trust bite. The Byers situation only arises in special scenarios where a statute provides for purchaser protection by clearing off any encumbrances on the buyer’s title.

 

As for dishonest assistance, there is no reason why a bank would not be liable regardless of whether its receipt extinguishes the trust (although it is hard to conceive of a case where the defendant knows enough to make him dishonest, but doesn’t have constructive notice of the breach of trust – perhaps a case like  Brink's Ltd v Abu-Saleh [1996] CLC 133 where the alleged assister believes that they are helping to facilitate tax evasion rather than a fraud (although that claim failed on other facts). I’m not aware of a case where a bank specifically has been found liable for receiving money into an overdrawn account, but in Rowlands v National Westminster [1978] 1 WLR 798, the judge accepted as correct a statement in Paget’s Banking Law that a bank has no particular special position, and that:

 

“The banker obviously must not be a party or privy to any fraud on the beneficiaries, any misapplication of the trust fund. He could not, on the mere instruction of the customer, transfer trust funds to private account, to wipe out or reduce an overdraft. It is with the cheque that difficulties arise”

 

 

 

Hi all,

 

I’ve been puzzling over a scenario in my head, mainly as a result of reading Byers v Saudi National Bank and Brazil v Durant, and was wondering if anyone had any thoughts on it.

 

Are there any cases where beneficiaries have sought to bring dishonest assistance or knowing receipt claims against a creditor who has been wrongfully paid, in satisfaction of a debt, by an embezzling trustee with misappropriated trust funds? In particular, imagine that no discrete asset has been acquired, and there isn’t a “co-ordinated scheme”, but rather the debtor’s overdraft at a bank has merely been paid off, but the bank has some sort of ‘constructive knowledge’ of dodgy dealings. I’m not sure we could engage in backward tracing (to the extent we believe that is permissible, if at all) in that scenario, but could some sort of personal claim not be brought against the bank? If Byers is right then a knowing receipt claim would fall as the equitable proprietary interest would be destroyed by payment into a debt, unless we say that the ‘dishonesty exception’ the court hints at could be engaged by merely constructive knowledge (but where no discrete asset has been acquired, I’m still not sure how one would trace, even backwards, here so presumably we’d be looking at a knowing receipt claim).

 

Alternatively, imagine that Trustee A has a gambling debt to B, who threatens to break their legs unless they repay the debt, A says they can only do so with trust funds as their personal funds are exhausted, but B nevertheless insists on payment in satisfaction of the debt (assume also that the debt is a valid one). If we can’t trace the funds, because B is merely an intermediary for C nefarious criminal organisation so transfers the funds and we can’t find them, surely the beneficiaries of the trust administered by A could bring a claim against B in dishonest assistance and/or knowing receipt?

 

The scenario is entirely hypothetical, but it seems to me that if we allow tracing into/through debts, then we must also allow at least the possibility of claims in knowing receipt and/or dishonest assistance against a creditor (who has accepted payment of misappropriated trust funds in satisfaction of a debt owed by the trustee to them) in similar circumstances as we do for ordinary non-debt claims (for example where the assets have been dissipated/tracing isn’t viable for whatever reason and the beneficiaries are best bringing a personal claim). Alternatively, of course, we might just say backwards tracing is wrong in the first place (which I don’t necessarily disagree with, but doesn’t help with how the law actually is).

 

All the best,

Lucas

 

	Dr Lucas Clover-Alcolea Lecturer Faculty of Law University of Otago | Te Whare Wānanga o Otāgo Richardson Building, 85 Albany Street, Dunedin | Ōtepoti New Zealand | Aotearoa Email lucas.cloveralcolea@otago.ac.nz Linkedin

 

 

 

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