They are logically distinct questions, I accept, whether x has sufficient knowledge to be liable in knowing receipt, or to defeat a defence of bona fide purchase. I wonder if Lord Sumption simply considers there might be a pleasing binary symmetry in making them mirror images of each other. This is not the first time a judge has thought this. Stephen Morris QC found the symmetry attractive in Armstrong v Winnington [2013] Ch 156, where he said on the subject of bona fide purchase…

On the other hand, there is much to be said for aligning the relevant "states of mind" in all three types of claim. Given both the analysis of Moore-Bick J in Niru and the view of Lewin that in the commercial context, "commercially unacceptable conduct" might be regarded as sufficient to establish the modified Baden types (4) and (5) notice or knowledge, it seems to me that where a defendant with knowledge of certain facts has acted in a "commercially unacceptable way", this should be sufficient to defeat the defence of bona fide purchaser and to establish "unconscionability" for the purposes of receipt of trust property, as well as defeating the defence of change of position.

In my judgment, the position, in a commercial context, can be summarised as follows:

(1) Baden types (1) to (3) knowledge constitute "notice" so as to defeat the defence. In order to defeat the defence on this basis, it is not necessary to show that the defendant realised that the transaction was "obviously" or "probably" improper or fraudulent; the possibility of impropriety or the claimant's interest is sufficient.

(2) In other circumstances, mere negligence is not sufficient. Baden types (4) and (5) knowledge constitute "notice" such as to defeat this defence only if, on the facts actually known to this defendant, a reasonable person would either have appreciated that the transaction was probably fraudulent or improper, or would have made inquiries or sought advice which would have revealed the probability of impropriety.

and on the subject of knowing receipt…

Lewin, supra at §42-49 (and others - Goff & Jones, supra, §33-029) comment that, despite what the Court of Appeal said in BCCI v Akindele, the Baden classification of knowledge is still useful in distinguishing different types of knowledge for the purpose of determining what kind of knowledge makes it unconscionable for the defendant to retain the trust property. Both parties agreed that it was thus helpful (and indeed necessary) to consider which types of Baden "knowledge" would render receipt of trust property "unconscionable" and then each made arguments in line with their arguments on the issue of "notice" for the bona fide purchaser defence, suggesting that the tests for knowledge and for notice overlap considerably. I agree. Lewin suggests that this is the case (by its express cross-reference between the two issues in the commercial context, see paragraphs 115 and 116 above).

In my judgment, the position, in a commercial context, can be summarised as follows:

(1) Baden types (1) to (3) knowledge on the part of a defendant render receipt of trust property "unconscionable". It is not necessary to show that the defendant realised that the transaction was "obviously" or "probably" in breach of trust or fraudulent; the possibility of impropriety or the claimant's interest is sufficient.

(2) Further Baden types (4) and (5) knowledge also render receipt "unconscionable" but only if, on the facts actually known to this defendant, a reasonable person would either have appreciated that the transfer was probably in breach of trust or would have made inquiries or sought advice which would have revealed the probability of the breach of trust.

Duncan

From: Enrichment - Restitution & Unjust Enrichment Legal Issues [mailto:ENRICHMENT@LISTS.MCGILL.CA] On Behalf Of Mitchell, Charles
Sent: Wednesday, July 15, 2015 11:54 AM
To: ENRICHMENT@LISTS.MCGILL.CA
Subject: Re: [RDG] PC tracing case

Thanks, Lionel. It seems to me that the question whether a BFP defence can be raised against a proprietary claim and the question whether a defendant is liable for KR are different questions and that Lord Sumption is wrong to say that the same test should be used to answer them. See Megarry V-C in Re Montagu's ST [1987] Ch. 264 at 272–273, affirmed in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 at 452. Best wishes, Charles

From: Enrichment - Restitution & Unjust Enrichment Legal Issues <ENRICHMENT@LISTS.MCGILL.CA> on behalf of Lionel Smith, Prof. <lionel.smith@MCGILL.CA>
Sent: 15 July 2015 11:11
To: ENRICHMENT@LISTS.MCGILL.CA
Subject: [RDG] PC tracing case

I don't think anyone has mentioned Credit Agricole Corporation and Investment Bank v Papadimitriou [2015] UKPC 13, [2015] 2 All ER 974, from Gibraltar, which is at http://www.bailii.org/uk/cases/UKPC/2015/13.html and was decided on 24 March.

The defendant bank received the proceeds of sale of a collection of furniture that had been owned by the plaintiff, and it was held that it was subject to a proprietary claim over those proceeds. The main legal issue was the shape of the defence of bona fide purchase. The majority of the Board reviewed a number of statements in recent cases and concluded that ([20]): "The bank must make inquiries if there is a serious possibility of a third party having such a right [that is, a proprietary right] or, put in another way, if the facts known to the bank would give a reasonable banker in the position of the particular banker serious cause to question the propriety of the transaction."

The defence was denied to the bank, largely on the basis that the transaction appeared to have no obvious commercial purpose and it should have investigated this.

Lord Sumption agreed with the majority and added ([33]): "Whether a person claims to be a bona fide purchaser of assets without notice of a prior interest in them, or disputes a claim to make him accountable as a constructive trustee on the footing of knowing receipt, the question what constitutes notice or knowledge is the same. … Ultimately there is little to be gained from a fine analysis of the precise turns of phrase which judges have employed in answering these questions. … If even without inquiry or explanation the transaction appears to be a proper one, then there is no justification for requiring the defendants to make inquiries. He is without notice. But if there are features of the transaction such that if left unexplained they are indicative of wrongdoing, then an explanation must be sought before it can be assumed that there is none." [sic, should be "one"?]

One thing seems interesting to me: so far as I understand the case, the plaintiff was the legal owner of the furniture (in fact the plaintiff had died during the proceedings but we are told ([7]) that nothing turns on this). The person who sold the furniture had been in possession of it with the knowledge and consent of the owner. If (which is never stated clearly) the plaintiff's proprietary interest in the proceeds was by way of a trust, then this seems to be a case in which a legal owner is able to assert a trust interest in the proceeds of an unauthorized disposition of the property in question, without any reference to any need for a fiduciary relationship.

Which, personally, I think is a Good Thing.

Lionel

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From:	Enrichment - Restitution & Unjust Enrichment Legal Issues <ENRICHMENT@LISTS.MCGILL.CA>
To:	ENRICHMENT@LISTS.MCGILL.CA
Date:	15/07/2015 12:07:30 UTC
Subject:	Re: [RDG] PC tracing case