Dishonest assistance

The liability itself is well established, but the mental element of dishonesty is subject to considerable controversy which sprang from the House of Lords case Twinsectra Ltd v Yardley.

Lord Selbourne's statement has been heavily criticized, particularly on the requirement that the defaulting fiduciary / trustee has to be dishonest or fraudulent.

Peter Gibson J in Baden v Société Générale identified 5 categories of knowledge which was subject to much debate and led the courts into "tortuous convolutions".

However, Charles Mitchell recognized possible difficulties with this categorization: firstly, secondary liability means that the dishonest assistant will be liable for the disgorgement gains of the defaulting fiduciary / trustee, while the fiduciary / trustee will not be liable for secret profits of the dishonest assistant; secondly, the assessment of exemplary damages against the dishonest assistant will be based on that of the fiduciary / trustee which can be undesirable.

[10] However, the prevalent view is that dishonest assistance is a personal liability that does not result in an imposition of constructive trust.

He never claims to assume the position of trustee on behalf of others, and he may be liable without ever receiving or handling the trust property...

Historically in England, liability would be imposed on persons who assisted in a breach of trust or fiduciary duty "with knowledge".

[17] The modern English terminology emerged in Royal Brunei Airlines v Tan[18] in which the Privy Council rejected knowledge as an element of the liability and replaced it with a requirement for dishonesty.

A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation.

It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly...'Knowingly' is better avoided as a defining ingredient of the principle...His Lordship went on to articulate a test for dishonesty, which is generally perceived to be an objective test with some subjective characteristics: Whatever may be the position in some criminal or other contexts (see, for instance, R v Ghosh[19]), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances.

When undertaking such exercise, the court will also have regard to personal attributes of the defendant, such as his experience and intelligence, and the reason why he acted as he did.

His Lordship then gave a few examples of dishonesty, such as deception, knowingly taking the property of others, participation in a transaction in light of knowledge that it involves a misapplication of trust assets, willful blindness etc.

The majority in that case held that Lord Nicholls in Royal Brunei meant to say that, for a person to be held liable as an accessory to a breach of trust, he had to have acted dishonestly by the ordinary standards of reasonable and honest people and have been himself aware that by those standards he was acting dishonestly.

Lord Millett delivered a dissenting judgment, maintaining that Royal Brunei decided that the test of dishonesty is objective, although account must be taken of subjective considerations such as the defendant's experience and intelligence and his actual state of knowledge at the relevant time.

Subsequently, the lower English courts have adopted the test laid down in Barlow Clowes, although theoretically it is not open to them to refuse to follow the House of Lords decision in Twinsectra.

In fact, some commentators have suggested that Pill LJ seems to support the combined test in Twinsectra, although he did not make it explicit.

In Royal Brunei Airlines v Tan , Royal Brunei Airlines appointed Borneo Leisure Travel (‘BLT’) to act in Sabah and Sarawak as its general travel agent. The arrangement constituted BLT a trustee for the airline of the money it received from the sale of passenger and cargo transportation. The money received by BLT on behalf of the airline was paid into BLT's ordinary current account. Any balance in its current account in excess of a stated amount was transferred at times to a fixed deposit account of Mr. Tan, who was BLT's managing director and principal shareholder. BLT was required to pay the airline within 30 days, but at times from 1988 onwards, it was in arrears. In August 1992, the airline terminated the agreement and subsequently claimed against Mr. Tan in respect of the unpaid money.