## Facts

- This case concerned a commercial dispute involving the misappropriation of trust funds by a corporate trustee.
- Significant sums were transferred by the trustee to Saudi National Bank (SNB), allegedly in breach of fiduciary duties.
- The claimants, beneficiaries of the trust, sought to recover the funds from SNB on the basis of knowing receipt.
- The court examined SNB’s knowledge of the breaches and the diligence performed to verify the transactions’ legitimacy.
- The transactions in question were said to be inconsistent with the trustee’s usual practices and allegedly raised red flags.

## Issues

1. Whether SNB could be held liable for knowing receipt of trust property, specifically whether it had the requisite knowledge of the trustee’s breach.
2. Whether constructive knowledge—failure to inquire where there are red flags—suffices for knowing receipt liability.
3. The distinction and application of the legal tests for dishonest assistance versus knowing receipt.
4. The scope and limitations of equitable tracing in recovering misappropriated trust property.

## Decision

- The court held Saudi National Bank liable for knowing receipt, finding SNB had constructive knowledge of the breach due to failure to conduct due diligence amid suspicious circumstances.
- The court reaffirmed that knowing receipt liability arises where the recipient’s knowledge (actual or constructive) makes it unconscionable for them to retain the property.
- It clarified that constructive knowledge (i.e., failing to make reasonable inquiries) suffices for knowing receipt.
- SNB was ordered to account for the misappropriated funds pursuant to equitable tracing.
- The judgment distinguished between the mental elements required for dishonest assistance (dishonesty) and knowing receipt (knowledge of breach).

## Legal Principles

- Knowing receipt liability requires that the recipient of trust property has actual or constructive knowledge that the property was transferred in breach of trust.
- Constructive knowledge applies where a reasonable person in the recipient’s position should have known of the breach and failed to investigate.
- The court reaffirmed the distinction between dishonest assistance (requiring proof of dishonesty) and knowing receipt (focusing on knowledge but not necessarily dishonesty).
- Equitable tracing allows for the recovery of trust property even when it has been mixed with other assets, provided identification is possible.
- The recipient’s liability is grounded in equitable principles that protect beneficiaries and prevent third parties from benefitting from breaches of trust.

## Conclusion

The Court of Appeal provided significant clarification on the requirements for knowing receipt and the role of constructive knowledge, distinguishing it from dishonest assistance and emphasizing due diligence obligations for recipients of trust property, particularly in commercial contexts.


Byers v Saudi National Bank [2022] EWCA Civ 43