Their Lordships therefore reject Lord Neill's submission that the judge failed to apply the principles of liability for dishonest assistance which had been laid down in Twinsectra . In their opinion they were no different from the principles stated in Royal Brunei Airlines v Tan which were correctly summarised by the judge.
Their Lordships now address the grounds upon which the Staff of Government Division allowed Mr Henwood's appeal. Having set out the Acting Deemster's findings at some length, they said that she could have held Mr Henwood liable unless she could find that he had
Their Lordships think that, on the facts of the case, this was an accurate way of putting the matter. The question for the Staff of Government Division was whether there was evidence upon which the Acting Deemster could have made such a finding.
The court referred to the judge's findings that Mr Henwood had been made fully aware of the nature of Barlow Clowes' business by his visits to Gibraltar and Geneva, that he knew that over £1 million had been "propelled" through an off-shore shell company controlled by Mr Cramer in three tranches between 5 and 14 May 1987 and that in consequence of the talks about merging ITC into the Clowes/Cramer group, Mr Henwood had begun to wonder where all Mr Cramer's money came from. She concluded that –
Another matter which the judge took into account was Mr Henwood's knowledge of previous dishonesty by Mr Cramer. No sooner had he become a client of ITC in 1985 than he enlisted their support (which was willingly given) in a fraudulent scheme to pretend that a company he controlled had entered into leases at substantial rents with independent tenants. The charade even included Mr Cramer (through ITC) placing advertisements in the Financial Times and answering them himself in the guise of a different company. The sub-underwriting agreement which led to the transaction 11 payment of £1,886,415 to Ryeman had also involved a pretence, which Mr Henwood knew to have been dishonest, that Ryeman was independent of Mr Cramer and Barlow Clowes.
Finally, the judge had regard to the lies which Mr Henwood told in evidence. In flat contradiction to what he had said on previous occasions, he denied that he had had any knowledge of the Barlow Clowes business or the money-laundering transactions which passed through ITC and the companies it was administering. With conspicuous fairness the judge noted that people sometimes tell lies for reasons other than a belief that they are necessary to conceal guilt: compare R v Lucas (Ruth) [1981] QB 720. She said of Mr Henwood's denial that he knew about the nature of the Barlow Clowes business:
The Staff of Government Division dealt with this mass of evidence by saying:
This is, with all respect, a travesty of the judge's findings. Her findings did not stem wholly from her disbelief of Mr Henwood's evidence. The appellate court had itself recounted the other matters upon which the judge relied and which have been summarized above. She did not say that "as a matter of objective assessment" Mr Henwood must have appreciated that the disposals were of misappropriated money. She said that as matter of Mr Henwood's subjective state of mind, he suspected this to have been the case.
The court went on to say that the judge's reasoning displayed the dangers of "drawing inferences from inferences", a process which they had earlier said was "notoriously productive of injustice". Their Lordships have some difficulty in understanding what this means. Mr Henwood's various subjective states of mind – whether or not he suspected misappropriation and whether he consciously decided not to ask questions about the transactions in which he was assisting – were facts. Since there is no window into another mind, the only way to form a view on these matters is to draw inferences from what Mr Henwood knew, said and did, both then and later, including what he said in evidence. That is what the judge did and it is hard to see what other method could have been adopted. The Acting Deemster, who had seen Mr Henwood giving evidence for six days, was in a far better position than the Staff of Government Division to arrive at the right answer.
The appellate court then went on to say that because Mr Henwood knew the general nature of the businesses of the members of the Barlow Clowes group, it was not a necessary inference that he would have concluded that the disposals were of moneys held in trust. That was because there was no evidence that Mr Henwood –
Their Lordships consider that this passage displays two errors of law. First, it was not necessary (as the Staff of Government Division had themselves said earlier in the judgment) that Mr Henwood should have concluded that the disposals were of moneys held in trust. It was sufficient that he should have entertained a clear suspicion that this was the case. Secondly, it is quite unreal to suppose that Mr Henwood needed to know all the details to which the court referred before he had grounds to suspect that Mr Clowes and Mr Cramer were misappropriating their investors' money. The money in Barlow Clowes was either held on trust for the investors or else belonged to the company and was subject to fiduciary duties on the part of the directors. In either case, Mr Clowes and Mr Cramer could not have been entitled to make free with it as they pleased. In Brinks Ltd v Abu-Saleh [1996] CLC 133, 151 Rimer J expressed the opinion 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. But their Lordships do not agree. Someone can know, and can 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: see Twinsectra Ltd v Yardley [2002] 2 AC 164 at para 19 (Lord Hoffmann) and para 135 (Lord Millett). And it was not necessary to know the "precise involvement" of Mr Cramer in the group's affairs in order to suspect that neither he nor anyone else had the right to use Barlow Clowes money for speculative investments of their own.
Their Lordships accordingly consider that there was abundant evidence on which the judge was entitled to make the findings of fact which she did about the disposal of £577,429 of the transaction 11 money on 8 June 1987. The Staff of Government Division should not have set them aside.
By the time of the later transactions, Mr Henwood had even more reason to be suspicious. In particular, he had been told on 2 July 1987 by two employees in the Geneva office that Mr Clowes and Mr Cramer were misappropriating clients' money. Mr Clowes had subsequently persuaded the employees to say that they had been misunderstood, but Mr Henwood knew he had understood them perfectly well. The Staff of Government nevertheless found that even in these circumstances, the judge was not entitled to find that he must have entertained suspicions which he chose not to investigate. They said that he might have thought his suspicions would somehow be disabused or that he might have relied upon the word of Mr Clowes that all was well.
The difficulty about this reasoning is that Mr Henwood never said in evidence that he thought his suspicions might be disabused or that he had made inquiries of Mr Clowes and been given a reassuring answer. Mr Henwood's evidence, which the judge found to be untruthful, was that he knew nothing and had no reason to suspect anything. A state of mind in which suspicion had been allayed was entirely the invention of the Staff of Government Division. There was no evidence that Mr Henwood had tried to seek any explanation whatever and their Lordships consider that the judge was fully justified in concluding that this was the result of a deliberate and dishonest decision.
Their Lordships will therefore humbly advise Her Majesty that the appeal should be allowed and the decision of the Acting Deemster restored. Mr Henwood must pay the appellants' costs in the Staff of Government Division and before their Lordships' Board.