Re Montagu's ST [1987] Ch 264

Facts

• The tenth Duke of Manchester received chattels intended to be held in trust, where his solicitor was aware of the trust obligation.
• The solicitor’s actual knowledge of the trust arrangements and obligations was not imputed to the tenth Duke.
• The solicitor had forgotten about the existence of clause 14 of a family settlement relating to the trust.
• The tenth Duke did not possess the required level of actual knowledge regarding the trust property.
• The court determined that the Duke was not personally liable for losses caused by breach of trust, as he was not a constructive trustee.
• He was considered a volunteer, only liable for the return of chattels remaining in his possession or the traceable proceeds of any sold.

Issues

1. Whether a recipient of trust property can be held liable as a constructive trustee on the basis of constructive or imputed notice, or whether actual knowledge is required.
2. Whether the personal liability of a constructive trustee should be imposed on a recipient whose knowledge of the breach arises solely from their solicitor’s knowledge.
3. How the distinction between proprietary and personal liability applies to volunteers and recipients with knowledge of a trust.

Decision

• The court found that only actual knowledge, not constructive or imputed notice, of the trust and its breach would suffice to impose constructive trusteeship.
• The knowledge of the solicitor was not attributed to the tenth Duke, so he did not qualify as a constructive trustee.
• The tenth Duke was held to be a volunteer, liable only for proprietary remedies—namely, the return of remaining trust chattels or traceable proceeds, and not for personal liability due to breach of trust.
• The court emphasized that only those recipients whose conscience is affected by actual knowledge should bear the obligations of a constructive trustee.

Legal Principles

• Constructive trusteeship is imposed to prevent unjust enrichment, requiring actual knowledge of both the existence of the trust and the breach.
• Constructive or imputed notice is insufficient to impose personal liability under the doctrine of knowing receipt.
• Mere volunteers, without actual knowledge, are subject only to a proprietary claim for remaining property or traceable proceeds.
• A constructive trustee, distinguished by knowing receipt, bears both proprietary and personal liability for losses arising from breaches of fiduciary duty.
• The threshold of knowledge for constructive trusteeship is stricter than for a purchaser without notice, focusing on whether the recipient’s conscience is sufficiently affected.

Conclusion

Re Montagu’s ST clarifies that constructive trusteeship for knowing receipt requires actual knowledge affecting the recipient’s conscience, with personal liability reserved for those meeting this threshold. Volunteers lacking such knowledge are subject only to proprietary claims, reflecting the need for a rigorous approach to personal obligations in trust law.