Further light is cast on the meaning of “dishonest assistance”

Nearly 20 years after the collapse of Barlow Clowes in 1988, the litigation arising out of the fraudulent activities still rumbles on. In a little noticed decision in Barlow Clowes International v Eurotrust International (2005) UKPC 37, the Privy Council has taken the opportunity to “clarify” some observations in the House of Lords decision in Twinsectra v Yardley (2002) 2 AC 164 and effectively restore the position to what we thought was the state of the law as a result of the Privy Council decision in Royal Brunei Airlines v Tan (1995) 2 AC 378.

It will be recalled that in Royal Brunei Lord Nicholls discarded the concept of knowing assistance which had given rise to so many difficulties in relation to what constituted knowledge, and gave it a new name, accessory liability and stated that dishonesty was a necessary and sufficient ingredient of accessory liability: it is now often known as dishonest assistance.

Liability for dishonest assistance requires a dishonest state of mind on the part of the person who assists in the breach of trust. That might consist in knowledge that the transaction is one in which he cannot honestly participate (such as misappropriation of somebody else’s money) or it may consist in suspicion combined with a conscious decision not to make enquiries which might result in knowledge. The latter was the position in Barlow Clowes.

Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant’s mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards.

Certain observations in Twinsectra gave rise to some disquiet. Lord Hutton stated that “dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people” and Lord Hoffmann referred to a dishonest state of mind as being “consciousness that one is transgressing ordinary standards of honest behaviour”.

The Privy Council in Barlow Clowes (where the panel included both Lord Nicholls and Lord Hoffmann) took the opportunity to clarify these observations and make it clear that it was not necessary that the defendant should have thought about what these standards were. It was enough that he was conscious of those elements of the transaction which made participation in it transgress ordinary standards of honest behaviour. He just needed to be aware of enough of the facts to make his behaviour dishonest by objective criteria.

The Privy Council also disagreed with the view expressed in Brinks Ltd v Abu-Saleh that a person cannot be liable for dishonest assistance in a breach of trust unless he knows of the existence of the trust or at least the facts giving rise to the trust. They considered that somebody can know, and certainly suspect, that he is assisting in a misappropriation of money without knowing that the money is held on trust or what a trust means.

The return to the fully objective standard in this context will be welcomed by all, except possibly the professional indemnity insurers of solicitors who are able to claim that they did not realise that what they were doing was dishonest.