Claims against Accessories to breach of trust: Spotlight on dishonest assistance – Maryam Oghanna writes for ThoughtLeaders4 Private Client Magazine
Maryam Oghanna, Senior Associate in our Dispute Resolution team, has authored an article for Thought Leaders 4 on the topic of claims against accessories to breach of trust.
The article was first published in ThoughtLeaders4 HNW Divorce Magazine in March 2023 and can be read in full below.
Dishonest assistance is one of a limited number of claims that may be brought against a person, other than a trustee, who has assisted the trustee in committing a breach of trust. Where the remedy against the trustee would be inadequate, accessory claims against a third party (particularly where they involve large financial institutions) can be an appealing prospect. If the claim is successful, the third party is liable to personally account for the breach of trust as if they were the trustee.
In order to bring a successful dishonest assistance claim, a claimant would need to meet the following test:
- There is a trust;
- There is a breach of trust by the trustee of that trust;
- The defendant induces or assists that breach of trust; and
- The defendant does so dishonestly.
As we discuss further below, the final test – showing that the defendant acted dishonestly – is the most difficult hurdle for a claimant to overcome. There is no requirement for the trustee to have acted dishonestly in committing the underlying breach of trust. But, given that the accessory defendant is one step removed from the breach of trust, the additional requirement of dishonesty is unsurprising.
Standing
Although the basis of liability is in equitable wrongdoing, a dishonest assistance claim derives from a breach of trust by a trustee. Therefore, the same rules apply in respect of standing to bring the claim. It has been more common for a successor trustee (including administrators) or wronged beneficiaries to bring the claim against the third party, but it is also possible for the trustee who committed the breach of trust to bring the claim.
Untangling the Claim
Requirement 1 - ‘There is a trust’
It must be shown that a trust exists. However, there is no requirement for a formal trust which expressly vests property in a trustee. There need only be a fiduciary duty in relation to that property. For example, a director of a company might be deemed to be a trustee in relation to the company’s property for these purposes, even though the company owns its property.
Requirement 2 – ‘There is a breach of trust by the trustee’
If there is no breach of trust (which includes breach of fiduciary duty), it cannot be shown that the defendant was an accessory. Therefore, it is essential that a breach of trust claim against the relevant trustee has been established prior to the bringing of a dishonest assistance claim.
Requirement 3 – ‘Inducing or assisting the breach of trust’
Whether the defendant induced or assisted the breach of trust will be a matter of fact, and there is no subjective element to this requirement. It must be shown that the defendant’s conduct did, in fact, assist the trustee in committing a breach of trust. The assistance must be more than just of minimal impact, but it need not be shown that it would inevitably lead to the losses that were suffered. Unlike a claim for knowing receipt, the defendant need not have received or handled property.
Requirement 4 – ‘Dishonesty’
The test for dishonesty in a claim of accessory liability for breach of trust is set out in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at [389], and clearly indicates an objective test of honesty which is a question of law. However, this is to be determined in light of the defendant’s knowledge of the breach and dishonesty at the time, creating a subjective element to the test.
The test has since developed to accept that a defendant does not need to be aware that his conduct would be characterised as dishonest by ordinary standards (Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67; [2018] A.C. 391 at [62]). The subjective element extends to the circumstances at the time, and even the defendant’s own experience and intellect (Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 A.C. 164 at [121]).
Further, when considering the defendant’s ‘knowledge’ at the time of the breach, a defendant may be found liable if they suspected that they may be assisting a breach of trust but wilfully took no steps to ascertain either way: referred to as ‘blind-eye knowledge’ (Manifest Shipping & Co Ltd v. UniPolaris Insurance Co Ltd [2003] 1 AC 469 at [112]). Carelessness will not on its own be sufficient to establish knowledge, but it may be deemed to be a contributing factor.
Where the allegations are against a company or legal person, the dishonesty must still be evidenced by reference to one or more natural persons (Stanford International Bank Ltd v HSBC Bank plc [2021] EWCA Civ 535 at [47]).
Comment
Dishonest assistance is a fault-based and serious claim and the test for the dishonesty requirement has, perhaps unsurprisingly, generated much discussion.
Any allegations of fraud or dishonesty must be clearly pleaded in statements of case, which may cause a significant hurdle and additional cost risk for many claimants who may have limited knowledge of the particulars of the dishonesty.
Further, success of the claim will likely hang on the evidence before the court in relation to the defendant’s dishonesty, which, if the defendant is competent in their deception, may well be documentlight. In those circumstances, oral evidence at trial can carry much weight (as seen in the rather surprising decision of the Supreme Court of Gibraltar in Lavarello v Jyske Bank (Gibraltar) Ltd, unreported, May 17, 2017, Gib SC, later overturned by the Court of Appeal for Gibraltar in Lavarello v Jyske Bank (Gibraltar) Ltd 2017/CACIV/006 & 007).
Despite the difficulties in bringing the claim, the benefit of pursuing a remedy against another, potentially more affluent, party in relation to a breach of trust is weighty. This is particularly the case if trust assets have been dissipated as a consequence of the breach of trust. Accessory claims are therefore likely to remain a regular feature in the English and Welsh High Court.