Recipient Liability

Hello. My name is Gary Watt. I'm a Professor of law at the University of Warwick and the author of certain books for OUP on the subject of trusts and equity. And in these very short videos I'm just going to give you a little taste of some of the complex concepts in this subject, and try and make them simple, which is exactly what I try and do throughout my textbooks.

So, the topic I am going look at now is what we call recipient liability. A simple trust is where we have a trustee and a beneficiary. In fact, that very simple example—where we really have one beneficiary—if they are an adult, we call it a bare trust, because the adult beneficiary could bring the trust to an end at a moment's notice by telling the trustee, ‘I don't want you to be my trustee anymore.’ It's a very simple concept, the trust. What is not simple is to decide what should happen if your trustee cannot be trusted and actually transfers your trust property into the hands of a stranger. Now, that stranger is a recipient.

One of the big questions in this area of law is: Should I as the beneficiary claiming to recover this property—this asset—should I have to prove the recipient was at fault, that they knew that it was my property, or they knew it was not theirs to receive, that they knew there’d been a breach of trust? Should I have to prove that the recipient was at fault? Or is it enough to show that the recipient has my asset, and simply say, ‘They've got my asset, they must give it back,’ so that the recipient has to prove that they were innocent? So, who has the obligation, the onus of proof? Me as the claimant, or the recipient?

Now, some people say what we should have is strict liability. If you can prove they have your asset, the recipient, they must hand it back, no fault needed to be proved by the claiming beneficiary. That's not actually the law we have. The law we have at the moment says that there must be proof that the recipient was unconscionable in some way, that their conscience was affected, that they knew they should not have received or retained the misapplied property.

Well, it's a fine debate that could go either way, but I want to point to one type of trust, a very simple trust, which I am going to draw up here—I mentioned it to you—where we simply have a trustee and an adult beneficiary. It's called a bare trust; it couldn't be more simple.

Now it seems to me that in this case—as, for example, where you leave money with your solicitor (that's a simple bare trust)—if you are the person trusting the trustee and you created this trust, or you could have brought it to an end, you are responsible for the risk that your trustee might prove to be untrustworthy. If you allow this bare trust to continue—and you could have stopped it—if you allow it to continue, the risk that you're creating for third parties must fall on you. So I think it's clear. The way you have a bare trust, the beneficiary claimant must have the onus of proving that the recipient did something wrong.