(ii) Equity
In Equity the notion of good faith is defined more widely than at Law to include an objective test of constructive notice. The recipient will not have acted in good faith if he or she knew of the claimant’s equitable interest in the property, suspected it, or had constructive notice of it.[1] The defendant will have constructive notice of the claimant’s equitable proprietary interest if the defendant failed to make enquiries that would have been made by a reasonable person in the defendant’s position.[2] Notice will also be imputed to the defendant if his or her agent had actual or constructive notice of the defect in title, as long as the agent acquired notice in the course of the transaction that involved the transfer of property that the claimant wishes to recover. The defendant will not, however, be prevented from relying on the bona fide purchase defence simply because he or she had notice of a doubtful claim of the claimant to recover the property.[3] Further, where the defendant has received money in discharge of a debt, he or she will not usually be bound to inquire into the manner in which the payer acquired the money.[4]
- [1] Barclays Bank v O’Brien [1994] 1 AC 180, 195 (Lord Browne-Wilkinson).
- [2] Nelson v Larholt [1948] 1 KB 339. See also Macmillan Inc v Bishopsgate Investment Trust plc [1995]1 WLR 978, 1000 (Millett J); Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ347, [2012] Ch 453, [100] and [109] (Lord Neuberger MR). In Armstrong DLW GmbH v Winnington NetworksLtd [2012] EWHC 10 (Ch), [2013] Ch 156, [122], Stephen Morris QC equated notice for the bona fide purchasedefence with the notion of bad faith in the defence of change of position (see p 691, below), so the defendantwill only have constructive notice if, on the facts known to the defendant, the reasonable person would havebeen aware of the impropriety of the transaction or would have made inquiries about its propriety.
- [3] Carl-Zeiss Stiftung v Herbert Smith (No 2) [1969] 2 Ch 276.
- [4] Thomson v Clydesdale Bank [1893] AC 282, 287 (Lord Herschell).
