‘Barnes v Addy’ and the capacity for a knowing recipient’s knowledge to evolve
Where a third party receives property following a breach of trust or a breach of fiduciary duty, equity may intervene to claw back what they have obtained — but only where the third party had the requisite knowledge of its source.[1] Certain of the categories of knowledge described in Baden v Société Générale generally are accepted as attracting so-called recipient liability,[2] namely (in descending order from actual knowledge to something akin to constructive knowledge or notice):
Actual knowledge.
Wilfully shutting one’s eyes to the obvious.
Wilfully and recklessly failing to make such enquiries as an honest and reasonable person would make.
Knowledge of circumstances that would indicate the facts to an honest and reasonable person.
What is not necessarily apparent when approaching such matters, however, is the way in which, as information is accumulated over time, a person can progress from one degree or category of knowledge at law to another.
Such was the case in Goway Travel Pty Ltd v Critchley.[3] There, the Court found that recipients of heavily discounted travel fares — provided by an employee travel agent in breach of her fiduciary duty — initially had constructive knowledge of the circumstances in which the fares were offered and that ‘at various times after … it would have satisfied more demanding Baden categories of knowledge’.[4] Slattery J held that ‘[t]he times that these various levels of knowledge were acquired [could] be demonstrated from the findings in the factual narrative’,[5] with the recipients eventually acquiring actual knowledge of the agent’s wrongdoing.
The constructive knowledge which the Court found the recipients to have possessed would have sufficed when establishing liability; there was no need to establish actual knowledge. It appears Slattery J’s decision to nonetheless analyse the sequence of events which followed, in order to identify how the recipients’ knowledge evolved over time, reflects what his Honour considered to be the ‘unrealistic’ nature of approaching the question of the recipients’ liability — including as to their knowledge — on an ‘all or nothing basis’.[6]
[1]: Barnes v Addy (1874) LR Ch App 244.
[2]: [1992] 4 All ER 161. As to the acceptance of these four categories of knowledge as founding recipient liability see, eg, Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, [251–[286].
[3]: [2024] NSWSC 2.
[4]: Ibid [549].
[5]: Ibid.
[6]: Ibid [547].