Tuesday, January 27, 2015

In 1977 the 10th Duke died. The 11th Duke sued his estate in respect of the chattels which were the subject of the 1923 settlement. Megarry V.-C. held that the failure to select chattels for inclusion in the 1923 settlement was a breach of trust, but that the trustees had been discharged from liability for that breach by a deed of discharge executed in 1953,

residence. In 1977 the 10th Duke died. The 11th Duke sued his estate in respect of the chattels which were the subject of the 1923 settlement. Megarry V.-C. held that the failure to select chattels for inclusion in the 1923 settlement was a breach of trust, but that the trustees had been discharged from liability for that breach by a deed of discharge executed in 1953, to which the plaintiff had been a party. He ordered an inquiry as to which chattels should have been selected for inclusion in the settlement and stood over the plaintiff’s tracing claim until this had been completed. The main point in issue was whether the 10th Duke had received the chattels as a constructive trustee on the ground of knowing receipt. Megarry V.-C. expressed the provisional view that he had not, and subsequently, after further argument, delivered a final judgment to that effect. Megarry V.-C.’s two judgments are the first in which the relationship between the in rem and in personam liability of a recipient of trust property transferred in breach of trust has been explored. In his first, provisional judgment, Megarry V.-C. doubted whether the doctrine of notice, as it had evolved in the context of the bona fide purchaser rule, could apply to a case involving constructive trusteeship. He distinguished between the former, where the question was whether a person took property subject to or free from some equity, and the latter, where the issue was whether or not to impose upon a person the “personal burdens and obligations of trusteeship.” Furthermore, while a purchase was the occasion for “suspicion and investigation,” the receipt of a gift was not. In a memorable passage, he said: “The cold calculus of constructive and imputed notice does not seem to me to be an appropriate instrument for deciding whether a man’s conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee.” He amplified his ideas in his final judgment. Because constructive trusteeship was imposed whether the recipient had any property in his possession or not, notice was an inappropriate test for determining liability. Whether a person’s conscience was sufficiently affected to justify the imposition of such a trust depended on whether he had knowledge of the breach of trust: there had to be some want of probity on his part. It followed from this that the knowledge required was actual knowledge, a wilful shutting of eyes, or a wilful or reckless failure to make such inquiries as a reasonable and honest man would make. Neither constructive nor imputed notice sufficed. Applying those principles to the facts, Megarry V.-C. held that the 10th Duke’s estate was not liable. The 10th Duke did not have knowledge of the breach of trust and had acted with complete honesty. Although his solicitor had once known the terms of the 1923 settlement, he had by 1948 forgotten them. That solicitor was not employed by the 10th Duke to investigate the latter’s title to the chattels