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Equity and Trust – Innocent Volunteer
Case Scenario
The trustees of the King Family Trust hold:
£4 million
for the benefit of several beneficiaries.
One trustee, Frank, improperly removes:
£500,000
from the trust in breach of trust.
Frank gives:
Alice:
The court must determine:
Innocent Volunteer
Definition
An innocent volunteer is:
a third party who receives trust property without providing consideration and without knowledge of the breach of trust.
The recipient must lack:
Important Distinction
The innocent volunteer differs from:
Bona Fide Purchaser for Value
because the innocent volunteer:
❌ gives no consideration.
Knowing Recipient
because the innocent volunteer:
❌ has no knowledge of the breach.
Application to the Scenario
Alice:
Tracing Rule
General Rule
Trust property may generally be traced into the hands of an innocent volunteer.
This allows beneficiaries to recover:
Example From the Scenario
The painting worth:
£200,000
was sold by Alice.
She used the proceeds to purchase a holiday apartment.
The beneficiaries may trace into:
Limitation on Recovery
Against an innocent volunteer, recovery is generally limited to:
✅ the original value transferred
PLUS
✅ interest.
Usually:
❌ no account of profits.
Example
Suppose the holiday apartment increases in value to:
£350,000
The beneficiaries may not necessarily claim all profits generated because Alice acted innocently.
Inequitable Results Exception
Tracing may be refused where recovery would produce:
an inequitable result.
Re Diplock
Facts
Executors wrongly distributed estate funds to charities.
The charities innocently spent the money improving their buildings.
Problem
The improvements:
Principle
The court recognised that tracing may be denied where recovery would unfairly prejudice innocent recipients.
Application to the Scenario
Alice used:
£60,000
to renovate her home.
The renovations:
The court may therefore limit or refuse tracing regarding the renovations.
Important Principle
The innocent volunteer must demonstrate:
Kleinwort Benson Ltd v Lincoln City Council
The House of Lords confirmed:
Change of Position Defence
Modern Development
The modern defence of:
change of position
may protect innocent recipients.
Principle
The defence applies where:
Lipkin Gorman v Karpnale Ltd
Lord Goff explained:
the defence applies where:
it would be inequitable to require full restitution.
Application to the Scenario
Alice received:
£100,000
innocently.
Believing the money was hers, she:
Example With Figures
Original Gift
£100,000
Amount Spent Reliantly
£60,000
Remaining Traceable Value
£40,000
Likely Recovery
The court may allow beneficiaries to recover only:
£40,000
rather than the full £100,000.
Why?
Because Alice changed her position innocently in reliance on the gift.
Requiring full repayment may now be inequitable.
Connection Between Diplock and Change of Position
Modern courts often view:
Boscawen v Bajwa
The case suggests:
Important Limitation
The defence only protects:
✅ innocent recipients.
If Alice knew about the breach:
❌ the defence would likely fail.
Key SQE Principles
An innocent volunteer:
Example Summary With Figures
Trust Money Wrongfully Given
£100,000
Innocent Reliance Expenditure
£60,000
Likely Recoverable Amount
£40,000
subject to tracing and equitable considerations.
Conclusion
An innocent volunteer is a recipient of trust property who provides no consideration and lacks knowledge of the breach of trust. Although beneficiaries may generally trace trust property into the hands of innocent volunteers, equity recognises important limitations where recovery would produce unfair or inequitable outcomes. Modern courts increasingly rely on the defence of change of position to balance the property rights of beneficiaries against fairness to innocent recipients who have altered their position in reliance upon the property received.
Case Scenario
The trustees of the King Family Trust hold:
£4 million
for the benefit of several beneficiaries.
One trustee, Frank, improperly removes:
£500,000
from the trust in breach of trust.
Frank gives:
- £100,000 cash;
- and a valuable painting worth £200,000
Alice:
- pays nothing for the gifts;
- has no knowledge of the breach;
- genuinely believes Frank owns the assets personally.
- spends £60,000 renovating her home using the trust money;
- sells the painting and uses the proceeds to buy a holiday apartment.
The court must determine:
- whether Alice is an innocent volunteer;
- whether tracing is available;
- whether tracing would be inequitable;
- and whether Alice may rely on change of position.
Innocent Volunteer
Definition
An innocent volunteer is:
a third party who receives trust property without providing consideration and without knowledge of the breach of trust.
The recipient must lack:
- actual notice;
- implied notice;
- constructive notice.
Important Distinction
The innocent volunteer differs from:
Bona Fide Purchaser for Value
because the innocent volunteer:
❌ gives no consideration.
Knowing Recipient
because the innocent volunteer:
❌ has no knowledge of the breach.
Application to the Scenario
Alice:
- received gifts;
- paid nothing;
- had no knowledge of the breach.
Tracing Rule
General Rule
Trust property may generally be traced into the hands of an innocent volunteer.
This allows beneficiaries to recover:
- the original property;
- substitute assets;
- or traceable proceeds.
Example From the Scenario
The painting worth:
£200,000
was sold by Alice.
She used the proceeds to purchase a holiday apartment.
The beneficiaries may trace into:
- the holiday apartment as substitute property.
Limitation on Recovery
Against an innocent volunteer, recovery is generally limited to:
✅ the original value transferred
PLUS
✅ interest.
Usually:
❌ no account of profits.
Example
Suppose the holiday apartment increases in value to:
£350,000
The beneficiaries may not necessarily claim all profits generated because Alice acted innocently.
Inequitable Results Exception
Tracing may be refused where recovery would produce:
an inequitable result.
Re Diplock
Facts
Executors wrongly distributed estate funds to charities.
The charities innocently spent the money improving their buildings.
Problem
The improvements:
- may not have increased property value;
- became integrated into the buildings.
- the charities might be forced to sell their land;
- despite complete innocence.
Principle
The court recognised that tracing may be denied where recovery would unfairly prejudice innocent recipients.
Application to the Scenario
Alice used:
£60,000
to renovate her home.
The renovations:
- may not increase value proportionately;
- may be inseparable from the property.
The court may therefore limit or refuse tracing regarding the renovations.
Important Principle
The innocent volunteer must demonstrate:
- why tracing would be inequitable on the facts.
Kleinwort Benson Ltd v Lincoln City Council
The House of Lords confirmed:
- inequity must be demonstrated specifically on the facts.
Change of Position Defence
Modern Development
The modern defence of:
change of position
may protect innocent recipients.
Principle
The defence applies where:
- the recipient changed position;
- relied upon receipt of the property;
- and restitution would now be inequitable.
Lipkin Gorman v Karpnale Ltd
Lord Goff explained:
the defence applies where:
it would be inequitable to require full restitution.
Application to the Scenario
Alice received:
£100,000
innocently.
Believing the money was hers, she:
- spent £60,000 renovating her home;
- changed her financial position in reliance upon the gift.
Example With Figures
Original Gift
£100,000
Amount Spent Reliantly
£60,000
Remaining Traceable Value
£40,000
Likely Recovery
The court may allow beneficiaries to recover only:
£40,000
rather than the full £100,000.
Why?
Because Alice changed her position innocently in reliance on the gift.
Requiring full repayment may now be inequitable.
Connection Between Diplock and Change of Position
Modern courts often view:
- change of position
Boscawen v Bajwa
The case suggests:
- change of position reflects logical development of Diplock principles.
Important Limitation
The defence only protects:
✅ innocent recipients.
If Alice knew about the breach:
❌ the defence would likely fail.
Key SQE Principles
An innocent volunteer:
- gives no consideration;
- lacks knowledge of the breach;
- may still face tracing claims.
- tracing may be refused if inequitable;
- change of position may reduce liability.
Example Summary With Figures
Trust Money Wrongfully Given
£100,000
Innocent Reliance Expenditure
£60,000
Likely Recoverable Amount
£40,000
subject to tracing and equitable considerations.
Conclusion
An innocent volunteer is a recipient of trust property who provides no consideration and lacks knowledge of the breach of trust. Although beneficiaries may generally trace trust property into the hands of innocent volunteers, equity recognises important limitations where recovery would produce unfair or inequitable outcomes. Modern courts increasingly rely on the defence of change of position to balance the property rights of beneficiaries against fairness to innocent recipients who have altered their position in reliance upon the property received.
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