DISHONEST ASSISTANCE/KNOWING

ASSISSTANCE

PLAGIRISM DONE
WORD 1600

2017-A
Question 6
In Barnes v Addy(1874) Lord Selborne said: ‘strangers are not to be made
constructive trustees merely because they act as the agents of trustees in
transactions within their legal powers, transactions, perhaps of which a Court
of Equity may disapprove, unless … they assist with knowledge in a
dishonest and fraudulent design on the part of the trustees.’
Discuss.
General remarks
This quotation invited candidates to write an essay on dishonest assistance, which
is discussed in Chapter 16 of the module guide and in Chapter 11 of Penner.
Law cases, reports and other references the examiners would expect you to
use
Royal Brunei Airlines v Tan [1995] UKPC 4; Twinsectra Ltd v Yardley [2002] UKHL
12; Barlow ClowesInt Ltd v EurotrustInt Ltd [2005] UKPC 37.
Common errors
A common error was the failure to address the specific question asked.
A good answer to this question would…
discuss what it means when assistants are ‘made constructive trustees’ and how
the Privy Council in Royal Brunei Airlines v Tan (1995) changed the old requirement
that the breach of trust had to be fraudulent. It might compare dishonest assistance
with knowing receipt but should not write a general essay on accessory liability.
Poor answers to this question…
merely recited a general essay on dishonest assistance and knowing receipt.
Answer

An trustee is under obligation to fulfil some duties that are

called trustee duties and fiduciary duty if a trustee is acting
contrary to duty then trustee can be held for the breach of
duty.

However under equity a third party can also be held for breach
of trustee under a constructive trust. A constructive where a
person has unconscionably asserted a beneficial interest in
property, that person may be held accountable in equity as a
constructive trustee.

Third parties will sometimes be personally liable(i.e.

accountable for paying money out of their personal funds) to
cover the loss to the trust fund brought on by a breach of trust.
They may be required to do so in a number of cases, one of
them is where they have dishonestly assisted the trustees to
breach the trust. In this essay we will discuss DISHONEST
ASSISTANCE category of third party liability, and our focus
would be how much knowledge is required to establish liability
of this honest as there has been constant uncertainty about
requirement of knowledge.
However before we move to discuss Knowing receipt it is
necessary to distinguish between dishonest assistance n
Knowing receipt. Dishonest assistance is basically when a
person assists in a breach of a fidicuary duty. Whereas Knowing
receipt refers to liability of a person who in the knowledge
receives property and commits a breach of trust.

It is worthy to mention here that unlike knowing receipt in

dishonest assistance it is not necessary stranger must have
received the property or in a case where he does, it is not for
his own benefit. Dishonest assistance is secondary form of
liability usually arise when a trustee who has committed a fraud
can not be found or has not enough funds to oblige with the
claims of the beneficiaries.

Following paragraphs will now discuss dishonest assistance in

detail.

Person would be personally liable to account to the beneficiary

of any loss if he had assisted in a breach of a fiduciary duty for
instance breach of trust. Any loss causes by such a breach of
duty or trust with a dishonesty will make person as dishonest
assistant (Barnes v Addy).

There should two elements to the defendant stranger’s liability,

first, that the defendant must have helped in the breach of
trust second liability is that the help in must be dishonest.
Dishonest assistance liability is a secondary form of liability in
that defendant will only be sued after the the trustees' breach
has already been established or only if the trustees cannot be
held accountable for breach of trust for some cause..
Furthermore, the liability of the dishonest assistant is based on
fault which means that the defendant is held liable for the act
of assisting in the breach of trust as well as for her fault in
doing so dishonestly. The loss for which the stranger must be
liable and must be accountable to the beneficiaries is the loss
which arises from defendant’s assistance in the breach of trust.
If there won't be any breach of trust terms then there would be
no loss to which an stranger should be held accountable for.

The test to prove dishonesty “dishonesty” is objective test

which means what would an honest person have done in these
situation from an objective standpoint. Moreover, question
would be asked did the defendant do what an honest person
would have done? Liability is therefore gauged on failing to act
honestly rather than strictly on acting honestly, so one need
not have lied nor need one have been actively deceitful.

A test for ‘dishonesty’ established in Royal Brunei Airlines case.

This was a plainly an objective test. In the Following decision of
the House of Lords in Twinsectra v Yardley. the speech of Lord
Hutton established that this test should not be solely an
objective but instead it should be a mixed of subjective and
objective elements, with the unexpected consequence that a
person would not be responsible for aid in a breach of trust if
he relies on his subjective morality as for a defence for his
objective dishonest behaviour . Lord Nicholls reasserted his
objective approach in the House of Lords in Dubai Aluminium v
Salaam, a case which seems to have been avoided in this area
may be This is because it does not appear in electronic legal
databases primarily in the case of "dishonest assistance", but
rather on the basis of the partner's liability.

Before Tan decision the dishonesty test was whether the

stranger had ‘knowledge’ of the breach of trust, Such
knowledge would be anticipated to be present if three
categories of Baden Knowledge are found (AGIP)(Polly Peck)
first three Baden degrees existed (AGIP v Jackson; Polly Peck)

The dilemma of objective-subjective test was brought to the

Barlow Clowes v Eurotrust where Privy Council unopposed
manner and joint opinion was delivered by Lord Hoffmann. HE
went on to elaborate that Lord Hutton had been
misunderstood. Latter on, the Court of Appeal in Abou Rahmah

v Abacha have purportedly followed Royal Brunei Airlines but

nonetheless case re-introduced subjective elements to the test
for dishonesty. These are matters that we discuss now in detail
Lord Nicholls in Royal Brunei Airlines v Tan stated that on the
part of trustee his breach of trust need not have been a
dishonest act. Rather, it is enought that an defendant has acted
dishonestly.The trustee’s own state of mind will not be taken
any consideration as Lord Niccolas held that:

“acting dishonestly, or without integrity which simple

translates into not acting as an honest person would in the
situations. This is an objective standard.’

Rest of this judgment makes it clear, dishonesty in this context

include circumtances involving either fraud, lack of integrity,
negligent risk taking which will make a integrity of defendant
under shadow of ambiguity

In Twinsectra v Yardley, Lord Hutton established that it was not

enough to declare a person liable for dishonest assistance to
demonstrate that an objectively honest Person instead his it
was decided that it would be imperative for the stranger to
have understood subjectively that other people would have
declared his behaviour to have been dishonest.

According to Hoffmann the principles laid down in Tan “require

more than knowledge of the facts which make the conduct
wrongful”.

This added second element to the test of dishonest of the test.

The implication for improvement and amendment in old
criteria was that a defendant could avoid liability by proving
that he did not understand that an objectively honest person
would have understood her as dishonest act.
The Privy Council has had the chance to re-examine the
dilemma of dishonesty test in the Barlow Crows case.Mr.
Henwood's defense counsel, citing Lord Hutton's speech in
Twinsectra, stated that this condition of mind was not
dishonest until Mr. Henwood would know that his acts by
ordinary standards be regarded as dishonest.

The Privy Council said that Lord Hutton's speech at the

Twinsectra may have an element of 'confusion', which could be
interpreted as not compatible with the test applied by Sir
Nichols at Tan. Nonetheless Privy Council was firm in its
believe that Lord Hutton sought to depart from his approach in
Tan.

Lord HOFFMAN made it clear that test set by the Lord Hutton
did not form a standard to the effect that Defendants must
have considered what the commonly accepted standards of
honest conduct are. What was needed was that the defendants
be made aware of the elements of the transaction that caused
their participation to violate these standards.

Nevertheless Privy council's emphasize that majority test in of

Twinsectra i.e Combined test is not in clash with Lord Nicholls'
test i.e solely objective test of Tan seems unconvincing because
Lord Millet said while noting his dissenting note in his
judgement of Twinsectra that these two tests are purely
distinct tests. Moreover, a number of scholars have also said
that Barlow clowes is only a reinterpretation of twinsectra.
However since the Twinsectra test was decided by HoL it could
not be overturned by Privy council.

However Barlow it was confirmed in following cases such

abacha case clearly said that Barlow test is acceptable test for
determination of dishonesty element.

To sum up this answer was simply a debate regarding

misunderstanding which has followed Royal Brunei Airlines v
Tan regarding extent of element of knowledge required to
establish liability .What is a misunderstanding is what was
required by Lord Nicholls in Royal Brunei Airlines v Tan was a
purely objective test.

The test was not what the defendant knew but it was only of
what an honest person would be doing if he is being
confronted with the similar situation and it is also test which
examines whether defendant qualifies criteria of honesty.
Failure to qualify on this standard of honesty will qualify a
defendant as a dishonest person. The test which was entirely
objective test of dishonesty was mixed with element of
subjective dishonesty by discredditing twinsectra test i.e that
the defendant must also be knowing that his act would be
considered to be as dishonest by other people.
Nonetheless RX LJ accepted that an unchallenged decision of
the Privy Council IN Barlow made an attempt to fall back upon
the test of objective test set by Tan. Therefore, the reference to
knowledge which Rix LJ makes should not be made if, as Rix LJ
claimed to be doing, the law was supposed to go back to the
objective test of tan but what Rix LJ has achieved instead,
ironically enough, is an affirmation of the hybrid subjective-
objective test for dishonesty in Twinsectra v Yardley.