Dishonesty is not necessary for liability as a knowing recipient of trust property

On 9 December 2000 the Civil Division of the Court of Appeal handed down an interesting judgment in Houghton and others v Fayers and another which clarified the area of accessory liability as a constructive trustee for those who knowingly receive property transferred to them in breach of trust or other fiduciary duty. Joanna Gray explains.

Joanna Gray University of Newcastle upon Tyne

Factual background

The original action which gave rise to the appeal in Houghton and others v Fayers and another was brought by some 39 claimants. Those claimants were a company, Fayers Legal Services Ltd, and 38 shareholders who had invested one million pounds in this company which had been set up by a Mr Fayers, the first defendant. The objectives of the company were to fund and prosecute legal claims and the shareholders of the company would, through dividend payments, participate in its profits which it was intended would be constituted out of shares in successful damages claims. The company made hardly any profit and the claimants pursued claims for recovery of their initial investment against both Mr Fayers and against the second defendant, Mr Day. They sought summary judgment and the High Court judge at first instance granted the 38 individual shareholders summary judgment against Mr Fayers for damages for fraudulent misrepresentation and ordered Mr Fayers to repay Fayers Legal Services Ltd an amount of UK£962,562 with interest in respect of what the judge found to be his misfeasance and breach of trust with regard to the company.