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(D) DISHONESTLY INDUCING OR ASSISTING IN A BREACH OF TRUST OR FIDUCIARY DUTY

Where the defendant has dishonestly assisted a trustee or fiduciary to breach their duty, or has induced such a breach of duty, the defendant will be liable to the claimant to whom the duty was owed.289 The defendant’s liability for dishonest assistance is a form of accessorial liability,290 since the defendant is a secondary party to the wrong committed by the trustee or fiduciary who breaches his or her duty. It follows that the accessory is tainted by this wrongdoing and so his or her liability is also a form of equitable wrongdoing.

(i) Establishing Liability for Dishonest Assistance

To establish liability for dishonest assistance the following conditions must be met:

  • (1) There must have been a breach of trust or fiduciary duty,291 but this need not have been a dishonest and fraudulent breach on the part of the trustee or fiduciary.292
  • (2) The defendant must have procured, induced or assisted the breach.293
  • (3) The defendant must have been at fault in some way. The appropriate test of fault for this claim has been a matter of controversy. In Williams v Central Bank of Nigeria294 Lord Sumption described this claim as ‘knowing assistance’295 and considered it to be based on fraud, but also added that the ‘liability of a knowing assister has always depended on the unconscionability of his conduct’.296 In the space of one paragraph the whole gamut of equitable fault is encompassed without any apparent awareness that these terms might bear different meanings.

In fact, the accepted test of fault is that of dishonesty, as was recognized by the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan.2 7 In Tan a number of important principles were identified concerning the nature of this cause of action: first, its existence was justified by analogy with the tort of procuring a breach of contract. In the same way that it is possible to be liable in tort for interference with the proper performance of the institution of a contract, so too there should be liability for interference with the proper performance of the institution of the trust or fiduciary relationship. Secondly, liability should not be strict because it is not based on the receipt of property, but instead on the defendant’s assistance in the breach. In other words, liability is obligation-based and not property-based and it was not considered to be appropriate to hold a defendant personally liable as an accessory without proof of fault. Thirdly, dishonesty was interpreted as an objective test, so the defendant is considered to have acted dishonestly if he or she failed to act as an honest person would have acted in the circumstances.298 This was interpreted as involving a two-stage test: first, what did the defendant know about the circumstances at the time relating to the proposed transaction and his or her participation in it? Secondly, in the light of that knowledge, would the reasonable person have considered the defendant’s conduct to be dishonest? In assessing this, the court will have regard to personal attributes of the defendant, such as experience and intelligence, and the reason why the defendant acted as he or she did. So, if the defendant is a professional, such as a solicitor, the objective standard of honesty will be higher. The significance of this test of dishonesty is that the defendant is not the arbiter as to what is or is not dishonest. The defendant [1] [2] [3] [4] [5] [6] [7] [8] [9]

might consider his or her conduct to be honest, but, in the light of the defendant’s knowledge of the circumstances, the reasonable person might disagree.

The meaning of dishonesty was considered further in Twinsectra v Yardley299 where Lord Hutton concluded that the test of dishonesty recognized in Tan was a hybrid test, which would be satisfied where the defendant’s conduct was dishonest by the standard of reasonable people and the defendant realized that the conduct was dishonest by those standards. This mirrors the test adopted by the criminal law for purposes of property offences.300 But this was not the interpretation adopted by Lord Nicholls in Tan. His reference to subjectivity was only a reference to the need first to consider what the defendant knew and then, in effect, to give that knowledge to the reasonable person and determine how the reasonable person would have characterized the defendant’s conduct in the light of that knowledge.301 This interpretation was subsequently recognized by the Privy Council in Barlow Clowes International Ltd v Eurotrust International Ltd,302 where Lord Hoffmann, delivering the judgment of the Privy Council, interpreted Lord Hutton’s judgment in Twinsectra, as well as his own, as being consistent with the objective test of dishonesty as recognized in Tan. Although not binding on the English courts, this is clearly a highly persuasive decision.

In Abou-Rahmah v Abacha,303 Arden LJ in the Court of Appeal was willing to apply the definition of dishonesty as recognized by the Privy Council. She recognized that Barlow Clowes had clarified that Twinsectra had not recognized a hybrid test of dishonesty, so that the defendant was not required to be conscious of his or her wrongdoing.304 She recognized that, exceptionally, the High Court or Court of Appeal might follow a decision of the Privy Council rather than a decision of the House of Lords. Abou-Rahmah was such an exceptional case, because Barlow Clowes did not depart from Twinsectra, but simply gave guidance as to its proper interpretation, the members of the Privy Council were all members of the House of Lords and two members of the majority in Twinsectra were also in Barlow Clowes.305 She also considered that, as a matter of policy, there was no reason, when considering civil liability, why the law should have regard to the defendant’s views as to the morality of his or her actions. But, even applying the objective test of dishonesty, on the facts of the case she did not consider that the defendant’s general, rather than specific suspicions, about fraudulent activities were sufficient to render him dishonest. The other two judges agreed that the defendant was not dishonest, but did not consider that it was necessary to consider the conflict between Twinsectra and Barlow Clowes, since the defendant’s conduct was not even objectively dishonest, because he was not suspicious about the legitimacy of particular payments, although Pill LJ did acknowledge the value of Barlow Clowes in interpreting Twinsectra,306 and Rix LJ referred to dishonesty ‘in the Twinsectra sense... as clarified in Barlow Clowes 307 In Starglade Properties Ltd v Nash308 Morritt LJ recognized that ‘[t]here is a single standard of honesty objectively determined [10] [11] [12] [13] [14] [15] [16] [17] [18]

by the court. That standard is applied to specific conduct of a specific individual possessing the knowledge and qualities he actually enjoyed’.[19]

This objective test of dishonesty can be justified for policy reasons. It is appropriate to require defendants to comply with objectively determined standards of honesty. Although this test of dishonesty differs from that which is adopted in the criminal law, this is entirely appropriate.[20] The criminal law is concerned to ensure that the defendant is aware of his or her moral wrongdoing, since that establishes culpability and justifies punishment; the focus is on a dishonest state of mind. The civil law is not concerned with establishing culpability, since the aim is not to punish the defendant, but simply to provide a remedy. Consequently, the focus is placed on the dishonesty of the defendant’s conduct rather than his or her state of mind, and this can be determined objectively, albeit with regard to the defendant’s knowledge and suspicions of the circumstances.

  • [1] Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.
  • [2] Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch), [2006] FSR 16, [1600] (Lewison J). SB Elliottand C Mitchell, ‘Remedies for Dishonest Assistance’ (2004) 67 MLR 16.
  • [3] Barlow ClowesInternationalLtdvEurotrustInternationalLtd [2005] UKPC 37, [2006] 1 WLR 1476, [28].
  • [4] Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378. 293 Ibid.
  • [5] 294 [2014] UKSC 10, [2014] AC 1189, [35].
  • [6] 295 See also Vestergaard Frandsen v Bestnet Europe Ltd [2013] UKSC 31, [2013] 1 WLR 1556, [26] (Lord
  • [7] Neuberger). 296 Ibid (emphasis in original).
  • [8] 297 [1995] AC 378. See also Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164.
  • [9] 298 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 389.
  • [10] [2002] UKHL 12, [2002] 2 AC 164. 300 Ghosh [1982] QB 1053.
  • [11] 301 See the judgment of Lord Millett in Twinsectra Ltd v Yard-ley [2002] UKHL 12, [2002] 2 AC 164.
  • [12] 302 [2005] UKPC 37, [2006] 1 WLR 1476. 303 [2006] EWCA Civ 1492, [2007] 1 All ER (Comm) 827.
  • [13] 304 Ibid, [65].
  • [14] 305 In Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347, [2012] 1 AC 776the Court of Appeal approved the approach adopted in Abou-Rahmah because it was a forgone conclusionthat, had the case gone to the House of Lords, the decision of the Privy Council would have been followed: [74]
  • [15] (Neuberger LJ). See also Starglade Properties Ltd v Nash [2010] EWCA Civ 1314 and Fiona Trust & Holding
  • [16] Corp v Privalov [2010] EWHC 3199 (Comm), [1437] (Andrew Smith J).
  • [17] Abou-Rahmah v Abacha [2006] EWCA Civ 1492, [2007] 1 All ER (Comm) 827, [94].
  • [18] Ibid, [40]. 308 [2010] EWCA Civ 1314.
  • [19] Ibid, [26].
  • [20] Twinsectra v Yardley [2002] UKHL 12, [2002] 2 AC 164, 197 (Lord Millett).
 
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