Security interests and knowing receipt

Abstract

Third parties who receive trust property with knowledge that the transfer to them was a breach of trust will be liable in knowing receipt. Knowing receipt has grown quickly in importance in recent years and many of the finer points of the doctrine are still being worked out. This paper discusses one such issue: whether liability can exist when the third party acquires a security interest in trust property, rather than the underlying trust property itself. This point has not yet been considered by English courts, although it has been examined in cases from Australia, Canada and Hong Kong. The paper analyses the existing authorities in the context of the wider law relating to knowing receipt and explains the conceptual difficulties and practical problems with allowing liability to be grounded on the receipt of a mere security interest in trust property.