Richardson Anthony Arthur v The Attorney General of the Turks & Caicos Islands (Turks & Caicos Islands)

Registration under a Torrens system does not necessarily make title indefeasible against a transferee who acts in bad faith. The effect depends on the governing legislation. Under the Registered Land Ordinance, sections 38(2) and 122(3), together with proviso (i) to section 23, permit proprietary interests arising from a breach of trust to affect registered title where the transferee’s knowledge makes retention unconscionable. That knowledge is distinct from notice of an equitable interest. Knowing receipt imposes personal constructive-trust obligations and may support tracing or following where available. A claim may therefore proceed against a registered proprietor for knowing receipt, including where the underlying transfer involved breach of fiduciary duty.

The Attorney General, on behalf of the Crown, brought a claim concerning land sold to the appellant on favourable terms and subsequently resold for a substantial profit. It was alleged that the Minister for Natural Resources had acted in breach of fiduciary duty and that the appellant knowingly received the property and its sale proceeds. The claim included knowing receipt, constructive-trust remedies, tracing and deceit.

The appellant applied to strike out the knowing-receipt claim, arguing that registration under the Registered Land Ordinance vested absolute title free from prior interests. Martin J refused the application. The Court of Appeal of the Turks and Caicos Islands dismissed the appellant’s appeal. The central issue was whether the Ordinance precluded a claim against a registered proprietor based on knowing receipt of property transferred in breach of trust or fiduciary duty.

1. Disposition. The Board held that the approaches of Martin J and the Court of Appeal were correct. The appeal was dismissed, and the appellant was ordered to pay the costs of the appeal.
2. Knowing receipt. Knowing receipt imposes equitable personal liability where a defendant receives and retains trust property, or property transferred in breach of a fiduciary duty, with knowledge making retention unconscionable. The requirements identified in El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 at 700 were a disposal in breach of fiduciary duty, beneficial receipt of traceable assets and the requisite knowledge. The accepted test from Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 at 455 was knowledge making retention unconscionable, amounting to equitable fraud.
3. Remedies. Proprietary following or tracing and personal liability as a constructive trustee are distinct. Following and tracing vindicate property rights. Knowing receipt imposes personal custodial obligations, including the primary duty to restore the misapplied property. Notice of an equitable interest is concerned with priority, whereas knowing-receipt liability depends on unconscionable knowledge. The Board relied on Foskett v McKeown [2001] 1 AC 103 and Re Montagu’s Settlement Trusts [1987] 1 Ch 264.
4. Effect of the RLO. Sections 38(2) and 122(3) of the Registered Land Ordinance were to be given their ordinary meaning. They expressly contemplate that a registered title may be affected where the transferee is not a bona fide purchaser. Knowing receipt in the Akindele sense is a classic example of lack of bona fides. Proviso (i) to section 23 is a substantive qualification of absolute title. Its reference to duties and obligations as trustee includes the duties of a constructive trustee for knowing receipt, whether or not the transferee is registered as trustee and despite beneficial interests being kept off the register.
5. Application. On the pleaded case, receipt occurred at registration and the essential requirements of knowing receipt were present at that point. The appellant’s proprietary claim to trace the proceeds and personal claim as constructive trustee were therefore not barred at the strike-out stage. The Board rejected attempts to confine sections 38(2) and 122(3) to notice or rectification only. Foreign Torrens authorities were of limited assistance because the applicable legislation, policy and general law differed. The Board left open whether an equitable interest can pass before registration under sections 37 and 83, and whether receipt of such an interest can itself found knowing-receipt liability.

• Privy Council. Appeal dismissed. The appellant was ordered to pay the costs of the appeal.
• Court of Appeal of the Turks and Caicos Islands. Appeal from Martin J dismissed.
• Martin J. Refused to strike out the parts of the writ and statement of claim alleging knowing receipt.