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Review Your SQE 1 Practice Records

Examination Timing: 00H01M17S

David is the trustee of a fund worth £500,000. In breach of trust, he transfers £200,000 of trust money to his girlfriend, Laura, to impress her. Laura knows David is not wealthy enough to afford this transfer and is aware that he owes several creditors over £200,000. David has mentioned to Laura on several occasions that he is a trustee and would consider taking money unlawfully from the trust for his own use. Laura did not enquire about the source of the £200,000 because she felt sorry for David and wanted the money for her own purposes. Instead of buying a house, Laura spent all the money on parties and expensive holidays. David has now disappeared, still in debt. The beneficiaries of the trust wish to make a personal claim of £200,000 against Laura. Is a personal claim against Laura likely to succeed?

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Laura's knowledge that David could not afford the £200,000, coupled with his statements about misusing trust funds, should have made her suspicious about the source of the money. Her decision not to enquire further, especially given her awareness of his financial situation and previous comments about the trust, demonstrates a level of wilful blindness or recklessness. This falls within the scope of dishonesty required for a personal claim for knowing receipt, as established in cases like BCCI (Overseas) Ltd v Akindele [2001] Ch 437. Her actions indicate that she consciously decided to ignore the warning signs, which constitutes constructive knowledge and supports a personal claim for knowing receipt. 

Key Point: In trust law, a personal claim for knowing receipt can succeed if the recipient has constructive knowledge of the breach of trust. This occurs when the recipient's knowledge and circumstances would make a reasonable person suspicious, yet they deliberately avoid making further enquiries. Understanding the thresholds for dishonesty and constructive knowledge is crucial in evaluating the liability of strangers to a trust.

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