Supreme Court Clarifies Requirements for Knowing Receipt Claims
The Supreme Court’s judgment in a recent case addressed the question of whether a claimant, in a knowing receipt claim, must have a continuing proprietary equitable interest in property transferred in breach of trust.
P and its joint liquidators (“the appellants”) claimed against the D (“the respondent”), successor in title to X, for knowing receipt of shares that were originally held on trust for P and were transferred in breach of trust to X. The key issue was whether X’s receipt of the shares, which extinguished P’s equitable proprietary interest under Saudi law, barred the knowing receipt claim under English law.
In considering the matter, the court distinguished between personal and proprietary claims and their linkage in the context of knowing receipt. It also focused on the fact that a bona fide purchaser’s acquisition of an asset free from trust obligations extinguishes any subsequent claim in knowing receipt.
The Supreme Court dismissed the appeal, upholding the decisions of the lower courts. It found that the operation of Saudi Arabian law had the effect that P’s proprietary equitable interest in the shares was extinguished by the transfer to X and the registration of those shares in D’s name. This result was not altered by the breach of trust and any knowledge which D had that the transfer was in breach of trust.
The Supreme Court’s decision clarifies the necessity for a claimant to maintain a continuing equitable proprietary interest for a knowing receipt claim to succeed. This requirement remains pivotal even if the property has been validly transferred under applicable foreign law.