Third Party Liability: Knowing-receipt/ strict liability
‘The standard of unconscionability for receipt of trust property by strangers has unfairly diluted liability
in this area of law’. Do you agree? Give reasons for your answer.
Is strict liability a better alternative to the current test of unconscionability for knowing-receipt?
1. Introduction
The law governing third-party receipt of property is uncertain and ambiguous
This is a pressing problem, particularly in the commercial arena where operators of financial markets
need to evaluate the risks involved in numerous daily transactions
o As commented extra-judicially by Lord Nicholls in the late 1900s, the ‘law does not exhibit
the degree of certainty which the business community is entitled to expect’
o Regrettably, this still stands to be true
The current law is based on the loose concept of ‘unconscionability’, which has replaced
‘knowledge-based’ liability
This essay analyses how ‘unconscionability’ has been interpreted, whether it is fair to claimants or if
it has diluted liability
Will consider whether strict liability should be the new standard
Concludes that whilst both alternatives are problematic, ‘unconscionable’ receipt represents the fairer
and more workable option
2. The journey to “unconscionability”
The shift from “knowledge” to “unconscionability” for recipient liability has added painfully little to
this area of the law and has confused the threshold of defendant culpability
The question was analysed by the CA in BCCI v Akindele
o Nourse LJ attempted to reorganise the untidy state of the law, bringing about a fundamental
change in the test for third-party liability
Until then, the defendant’s liability depended upon what knowledge he had of the breach (Baden, Re
Montagu)
o Using the Baden scale, the concept of ‘knowledge’ had been divided into technical and
confusing categories (Scott LJ in Polly Peck)
o But no definitive view as to the level of knowledge (actual or constructive) required for
liability (S Thomas)
Nourse LJ in Akindele abandoned this flawed test in favour of a test of unconscionability
o Rather than being a question of whether D ‘knowingly’ received the property, test became a
question of whether the recipient’s state of knowledge is such as to make it unconscionable
for him to retain the benefit of the receipt.
3. Analysing Nourse LJ’s judgment
A curious & unexpected development in the law, since Nourse LJ had earlier cited and approved Re
Montagu, describing it as a seminal judgment
Nevertheless, his fault-based approach was recently commended by the Supreme Court in Williams
v Bank of Nigeria
o Protects innocent recipients of trust property & allows claimants to take advantages of
increases in value
While the attempt at creating a single, comprehensive test for knowing-receipt should be
commended, the exact constituents of “unconscionable behavior” remain unclear
o Thomas: the unconscionability test will not be useful if the definition of it is left to judicial
interpretation as the term lacks objectivity
Nourse LJ recognised the problem in allowing the courts free hand to classify the level of
‘knowledge’ to impute liability, and therefore seems to contradict himself
‘The standard of unconscionability for receipt of trust property by strangers has unfairly diluted liability
in this area of law’. Do you agree? Give reasons for your answer.
Is strict liability a better alternative to the current test of unconscionability for knowing-receipt?
1. Introduction
The law governing third-party receipt of property is uncertain and ambiguous
This is a pressing problem, particularly in the commercial arena where operators of financial markets
need to evaluate the risks involved in numerous daily transactions
o As commented extra-judicially by Lord Nicholls in the late 1900s, the ‘law does not exhibit
the degree of certainty which the business community is entitled to expect’
o Regrettably, this still stands to be true
The current law is based on the loose concept of ‘unconscionability’, which has replaced
‘knowledge-based’ liability
This essay analyses how ‘unconscionability’ has been interpreted, whether it is fair to claimants or if
it has diluted liability
Will consider whether strict liability should be the new standard
Concludes that whilst both alternatives are problematic, ‘unconscionable’ receipt represents the fairer
and more workable option
2. The journey to “unconscionability”
The shift from “knowledge” to “unconscionability” for recipient liability has added painfully little to
this area of the law and has confused the threshold of defendant culpability
The question was analysed by the CA in BCCI v Akindele
o Nourse LJ attempted to reorganise the untidy state of the law, bringing about a fundamental
change in the test for third-party liability
Until then, the defendant’s liability depended upon what knowledge he had of the breach (Baden, Re
Montagu)
o Using the Baden scale, the concept of ‘knowledge’ had been divided into technical and
confusing categories (Scott LJ in Polly Peck)
o But no definitive view as to the level of knowledge (actual or constructive) required for
liability (S Thomas)
Nourse LJ in Akindele abandoned this flawed test in favour of a test of unconscionability
o Rather than being a question of whether D ‘knowingly’ received the property, test became a
question of whether the recipient’s state of knowledge is such as to make it unconscionable
for him to retain the benefit of the receipt.
3. Analysing Nourse LJ’s judgment
A curious & unexpected development in the law, since Nourse LJ had earlier cited and approved Re
Montagu, describing it as a seminal judgment
Nevertheless, his fault-based approach was recently commended by the Supreme Court in Williams
v Bank of Nigeria
o Protects innocent recipients of trust property & allows claimants to take advantages of
increases in value
While the attempt at creating a single, comprehensive test for knowing-receipt should be
commended, the exact constituents of “unconscionable behavior” remain unclear
o Thomas: the unconscionability test will not be useful if the definition of it is left to judicial
interpretation as the term lacks objectivity
Nourse LJ recognised the problem in allowing the courts free hand to classify the level of
‘knowledge’ to impute liability, and therefore seems to contradict himself
