The realm of equity and trusts often intersects with tort law, particularly through the doctrines of
knowing assistance and knowing receipt. These doctrines play a crucial role in addressing the
wrongful conduct involving the misappropriation or misuse of trust assets. This blog post will
provide an overview of these torts, their legal foundation, and how they apply.
Knowing Assistance
Knowing assistance, often associated with the liability of third parties in breach of trust or fiduciary
duty, is a doctrine that holds a person liable for knowingly assisting in wrongdoing. This form of
liability is not based on the individual’s direct breach of duty but rather their active involvement in
the breach.
Legal Foundation and Key Elements
To establish a claim for knowing assistance, the plaintiff must prove the following elements:
- Existence of a Trust or Fiduciary Relationship: There must be a valid trust or fiduciary
relationship where the trustee or fiduciary owes a duty to the beneficiaries.
- Breach of Duty: There must be a breach of trust or fiduciary duty by the trustee or fiduciary.
- Third-Party Assistance: The defendant must have provided assistance to the trustee or
fiduciary in committing the breach.
- Knowledge of the Breach: The defendant must have known that their actions were assisting
in a breach of trust or fiduciary duty.
Case Law Example
In the landmark case of Air Canada v. M & L Travel Ltd. ( 1993), the Supreme Court of Canada
clarified the standard for knowing assistance. The Court held that constructive knowledge, or “wilful
blindness,” could suffice to establish liability. This means that a person who suspects a breach and
deliberately avoids confirming that suspicion may still be held liable.
Knowing Receipt
Knowing receipt, on the other hand, deals with the receipt of trust property by a third party who
knows, or ought to know, that the property was transferred in breach of trust or fiduciary duty.
Unlike knowing assistance, which involves active participation, knowing receipt concerns passive
receipt of misappropriated assets.
Legal Foundation and Key Elements
To prove knowing receipt, the plaintiff must establish:
- Transfer of Trust Property: There must be a transfer of property from the trustee or
fiduciary to the defendant.
- Beneficial Receipt: The defendant must have received the property for their own benefit.
- Knowledge of the Breach: The defendant must have known or ought to have known that the
property was transferred in breach of trust or fiduciary duty.
Basic Example of Knowing Receipt
Imagine a charitable trust intended for educational scholarships, where the trustee misappropriates
funds and transfers them to an acquaintance, referred to as Recipient, claiming it’s a loan for a
business venture. Recipient uses the funds for their startup, knowing the funds originated from the
trust and suspecting the transfer was improper. Despite not directly breaching the trust,
the Recipient’s acceptance and use of the misappropriated funds with knowledge of their improper
source makes them liable for knowing receipt. The beneficiaries may be able to sue the Recipient to
recover the funds and other damages.
Practical Implications
The principles of knowing assistance and knowing receipt are essential tools in the equitable
jurisdiction of the courts to address breaches of trust and fiduciary duties. These doctrines ensure
that third parties who participate in or benefit from such breaches are held accountable.
Final Thoughts
Beneficiaries seeking to pursue claims of knowing assistance or knowing receipt should gather
robust evidence demonstrating the third party’s knowing involvement or knowing receipt of
misappropriated assets. This often involves detailed financial records, witness testimonies, and expert
analyses.
Individuals and businesses should be aware of their potential liability when dealing with trust
property or fiduciary relationships. It is crucial to maintain thorough records and exercise due
diligence to ensure that transactions involving trust assets are legitimate and authorized.
If you are facing issues related to knowing assistance or knowing receipt, it is crucial to seek expert
legal guidance to navigate these complex areas of law. At Scocco Law, we are experienced in equity
and trust disputes, including cases involving the misappropriation of trust assets and fiduciary
breaches. Our experienced team is dedicated to protecting your rights and ensuring that those who
assist in or benefit from wrongful conduct are held accountable. Contact Scocco Law today for a
consultation and let our expertise work for you in resolving your legal challenges.
