Re Montagu's Settlement Trusts [1987] Ch 264

Facts

• The case concerned the liability of an innocent volunteer who received and dissipated trust property without knowledge of a breach of trust.
• The central question was whether such a recipient could be held liable for restitution, or whether a lack of knowledge would provide a complete defense.
• The facts involved a recipient who had no actual knowledge of a breach and acted in good faith in their dealings with the trust property.

Issues

1. Whether an innocent volunteer who dissipates trust property can be held liable for restitution despite lacking knowledge of a breach of trust.
2. Whether constructive knowledge (as opposed to actual knowledge or willful blindness) is sufficient to impose liability for knowing receipt.
3. How actual knowledge, constructive knowledge, and notice are to be distinguished in assessing liability in cases of trust property receipt.

Decision

• The court held that liability for knowing receipt requires more than just receiving trust property; the recipient must have actual knowledge of the breach or have been willfully blind to it.
• Constructive knowledge alone—awareness of facts that would put a reasonable person on inquiry—is insufficient to establish liability.
• Innocent volunteers acting in good faith and without knowledge of any breach cannot be held liable for the dissipation of trust property.
• Merely having notice of facts that might suggest a breach does not impose liability.

Legal Principles

• Liability for knowing receipt under trust law requires actual knowledge or willful blindness; constructive knowledge does not suffice.
• The distinction between actual knowledge (true awareness), constructive knowledge (what should have been known), and notice (actual, constructive, or imputed) is key in determining liability.
• Equity prioritizes fairness by protecting innocent volunteers who lack knowledge of the breach, ensuring that remedies are proportionate and just.
• Equitable remedies such as restitution or tracing are subject to the recipient's good faith and lack of knowledge, providing a defense for innocent volunteers.

Conclusion

Re Montagu’s Settlement Trusts [1987] Ch 264 establishes that innocent volunteers who receive and dissipate trust property without actual knowledge of a breach are not liable for knowing receipt. The case clarifies the limits of constructive knowledge in trust law and highlights the importance of good faith and actual knowledge in equitable remedies.