The common law Discuss

"Where a person assists a trustee in the breach of a fiduciary duty owed to the beneficiaries, he may be held liable, both in equity by way of knowing assistance, or at common law by way of one of the economic torts. The adoption by the House of Lords in Twinsectra v Yardley of the criminal test of dishonesty as the basis of liability in knowing assistance has made the common law route a more attractive means of obtaining recovery from such an accessory. " Discuss.

If a stranger knowingly and dishonestly assists a trustee in a breach of trust he will be liable for accessory liability. In the case of Barnes v Addy (1874) LR 9 Ch App 244, assistance was described as one of two limbs constituting accessory liability. Knowing assistance is the equitable action for obtaining recovery from someone who has assisted in a breach of trust (Baughen, 2002). After Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, knowing assistance is now more properly identified as 'dishonest assistance' (Speirs, 2002).

Lord Nicholls in Tan stated that dishonesty is the touchstone of liability for knowing assistance (at para. 387). The decision of the Privy Council in Tan and its acceptance by the House of Lords in Twinsectra Ltd v Yardley and others [1999] Lloyd's Rep Bank 438 has brought about an important shift in the law on accessory liability (Moffat, 2005). Twinsectra Ltd lent money to Mr Yardley. Mr Sims, the solicitor acting for Mr Yardley, gave an undertaking that the loan monies would be used to purchase properties only.

Mr Sims paid over the loan monies to a second solicitor, Mr Leach, who knew of the undertaking which had been given by Mr Sims. Nevertheless, Mr Leach applied the funds according to Mr Yardley's instructions, which were not in agreement with the undertaking. It was alleged that the payment of funds by Mr Sims to Mr Leach constituted a breach of trust, and that Mr Leach had dishonestly assisted him in doing this. Carnwath J found that there was no trust, so there could be no breach, and that Leach had not acted dishonestly.

The Court of Appeal came to a different conclusion. Their Lordships held that the undertaking did create a trust, and that Leach had been dishonest. The House of Lords held unanimously that the undertaking created a Quistclose trust, but a majority of 4-1 found that Mr Leach was not dishonest. There was much controversy over the meaning of 'dishonest' in the context of a claim for dishonest assistance in a breach of trust.

Although all their Lordships were content to rely on the opinion of Lord Nicholls in Tan, they each construed his speech in fundamentally different ways. The difference in opinion between the majority and minority has its basis in two issues – interpretation and policy (Stafford, 2002). Lord Nicholls' speech in Tan made six points: in the context of civil proceedings, dishonesty "means simply not acting as an honest person would in the circumstances" (at para.

389); dishonesty was an objective standard; honesty and dishonesty were mostly concerned with advertent conduct, and could be equated with conscious impropriety, for the most part; individuals were not at liberty to set their own standards of honesty; acting in reckless disregard of others' rights could be a tell-tale sign of dishonesty; an honest person would have regard to the circumstances known to him, including the nature and importance of the transaction, the nature and importance of his role, the ordinary course of business, and the seriousness of the consequences.

Lord Nicholls also established "that dishonesty was a necessary ingredient of accessory liability" and that knowledge was not an appropriate test (at para. 392). The majority adopted the combined test of dishonesty, interpreting Lord Nicholls' speech to mean that dishonesty was a state of mind, requiring a consciousness on the part of the defendant that he was transgressing ordinary standards of honest behaviour.

By interpreting dishonesty as a state of mind, Lords Hutton and Hoffman were incorrect, even though they identified a number of dicta within the speech of Lord Nicholls' speech which supported the conclusion that the defendant's state of mind was relevant (Stafford, 2002). In response to Lord Millett's point that Lord Nicholls had rejected Ghosh as an appropriate test of dishonesty, Lord Hutton concluded that this dictum actually amounted to a rejection of the purely subjective test of dishonesty. Lord Millett suggested that Lord Nicholls' test was purely objective, with subjective elements (at para. 122).

The majority was also influenced by policy considerations which has particular significance for professionals. Lord Hutton said "A finding by a judge that a defendant has been dishonest is a grave finding, and it is particularly grave against a professional man, such as a solicitor… I think it would be less than just for the law to permit a finding that a defendant had been "dishonest" in assisting in a breach of trust where he knew of the facts… but had not been aware that what he was doing would be regarded by honest men as dishonest" (at para. 35). On the other hand, Lord Millett took a contrasting view of policy considerations.

He held that a claimant should not be required to establish that the defendant had a dishonest state of mind. In answering the question of whether subjective dishonesty should be required, he stood by the objective approach by giving three reasons: "consciousness of wrongdoing is an aspect of mens rea and an appropriate condition of criminal liability, but not for civil liability; the objective test is in accordance with Lord Selbourne's statement in Barnes v Addy and traditional doctrine; and the claim for 'knowing assistance' is the equitable counterpart of the economic torts" (at para.

127). Lord Millett went further to state that "a requirement of subjective dishonesty introduces an unnecessary and unjustified distinction between the elements of the equitable claim and those of the tort of wrongful interference with the performance of a contract" (at para. 127). Lord Millett said that "the question is whether a plaintiff should be required to establish that an accessory to a breach of trust had a dishonest state of mind or whether it should be sufficient to establish that he had acted with the requisite knowledge (so that his conduct was objectively dishonest)" (at para.

126). He held that Lord Nicholls' speech admitted of only one interpretation – that the test was purely objective. There was "no trace in Lord Nicholls' opinion that the defendant should have been aware that he was acting contrary to objective standards of dishonesty" (at para. 118). Lord Millett also noted a passage which indicated that Lord Nicholls had rejected the criminal law standard of dishonesty in R v Ghosh [1982] QB 1053. He concluded that the test stipulated in Tan was concerned with dishonesty as a course of conduct, as opposed to a state of mind.

Although Lord Millett's dissenting speech was powerful and more logical, his views did not prevail. His approach represented a better reading of Lord Nicholls' original judgment, and set a more realistic standard for establishing liability on the part of those assisting in breaches of trust (Thornton, 2002). The majority view of the House of Lords means that it is harder for a plaintiff to obtain recovery from an accessory using the equity route.

This is because the burden of proof lies on the claimant to prove the defendant's consciousness of wrongdoing, which means proving that the defendant was aware that what he was doing went contravened the standards of honesty held by ordinary and reasonably people (Stafford, 2002). Lord Millett remarked that the majority view creates an unfortunate anomaly when compared with the tort of inducement of breach of contract, where a dishonest state of mind is not a requirement of liability: a reversal of the usual expectation that equity sets higher standards of conduct than does the common law (Thornton, 2002).