The paper argues that liability for knowing receipt of misdirected trust funds is a wrong-based, fault-based, compensatory liability. When a recipient knowingly receives trust funds to which he is not entitled, the law responds to his wrongful conduct by subjecting him to a duty analogous to that owed by an express trustee, to hold and apply the misdirected funds solely for the benefit of the trust beneficiaries. A knowing recipient who applies the funds in any other way incurs a liability that is identical with an express trustee’s liability to reconstitute a trust fund following an unauthorised payment out of the fund. For these reasons, knowing recipients are commonly said to incur a ‘personal liability to account as constructive trustees’. Their fault-based, compensatory liability is distinguished from the fault-based, compensatory liability incurred by dishonest assistants in a breach of trust, and also from the strict, restitutionary liability incurred by recipients of an unjust enrichment.
Mitchell, Charles and Watterson, Stephen, Remedies for Knowing Receipt (January 1, 2010). Chap 5 in Charles Mitchell (ed), Constructive and Resulting Trusts (Oxford, Hart Publishing, 2010).