Dishonest assistance

Dishonest assistance is the principal personal claim against a third party who assists a trustee or fiduciary to commit a breach of trust or fiduciary duty. It belongs with Week 13, on breach of trust and equitable compensation, and Week 14, on tracing and knowing receipt. The distinction is fundamental. Knowing receipt is receipt-based: the defendant receives trust property, or its traceable substitute, in circumstances making it unconscionable to retain it. Dishonest assistance is participation-based: the defendant may receive nothing, but is fixed with personal liability because he dishonestly assisted another person’s breach.

The claim is equitable, personal, and fault-based. It does not depend upon the defendant becoming a trustee in the strict sense. The older phrase, accessory liability, remains useful if handled carefully. The defendant is not liable because he holds property on trust; he is liable because equity imposes a personal obligation to make good loss caused by his dishonest participation in a fiduciary wrong. The liability is therefore commonly described as secondary, but that label must not obscure the fact that the defendant is sued directly in equity and may be ordered to pay equitable compensation, account for profits, or meet other personal remedies.

The modern elements are fourfold. First, there must be a trust or fiduciary relationship. Secondly, there must be a breach of trust or fiduciary duty by the trustee or fiduciary. Thirdly, the defendant must assist that breach. Fourthly, the assistance must be dishonest. The trustee’s own breach need not be dishonest: it is enough that the trustee or fiduciary committed a breach and that the assistant participated dishonestly. This point, established in Royal Brunei Airlines Sdn Bhd v Tan, is indispensable in exams. A candidate who requires a fraudulent trustee has applied the pre-modern formulation.

The central difficulty is dishonesty. English equity now applies an objective standard, assessed in light of the defendant’s actual knowledge or belief as to the facts. The question is not whether the defendant appreciated that ordinary honest people would call his conduct dishonest. Nor is it enough that the defendant was negligent, careless, foolish, commercially sharp, or morally unattractive. The court first identifies what the defendant actually knew or believed about the circumstances. It then decides whether, given those facts, the defendant’s conduct was dishonest by ordinary standards of honesty. Barlow Clowes, Abou-Rahmah, Starglade and Group Seven are the important equity cases; Ivey v Genting Casinos supplies the now general private-law and criminal-law formulation of dishonesty.

For Durham Year 2 Trusts, dishonest assistance is a doctrinal bridge. It tests whether students can move from the internal obligations of trustees to the external protection of equitable rights against strangers. The best answers do not merely recite Royal Brunei and Twinsectra. They explain why equity needs accessory liability, why it is confined by dishonesty, and how the remedy differs from proprietary claims and knowing receipt. They also keep the analysis anchored in the pleaded wrong: identify the trust or fiduciary duty, identify the breach, identify the acts of assistance, then evaluate dishonesty fact-sensitively.

Dishonest assistance developed from equity’s jurisdiction over trustees and fiduciaries, and from its refusal to allow strangers to make themselves participants in equitable wrongdoing. The historical terminology is untidy. Older cases spoke of strangers to the trust being made liable as constructive trustees. That language was never wholly satisfactory. A trustee in the institutional sense assumes or is vested with obligations of stewardship over identified trust property. A dishonest assistant need not receive property, need not undertake stewardship, and need not be in a position to perform trusteeship. He is treated as liable in equity, not because he has become a full trustee, but because he has dishonestly participated in another’s fiduciary breach.

The classic starting point is Barnes v Addy (1874) LR 9 Ch App 244. Lord Selborne LC distinguished two categories of stranger liability. First, a stranger may receive and become chargeable with trust property. Secondly, a stranger may assist with knowledge in a dishonest and fraudulent design by the trustee. The first line became knowing receipt. The second became dishonest assistance. Much of the later difficulty arose from the wording of the second limb. Was liability confined to cases where the trustee’s design was itself dishonest or fraudulent? What degree of knowledge was required of the third-party assistant? Was the defendant’s liability based on knowledge, dishonesty, unconscionability, or some blend of the three?

Nineteenth- and twentieth-century cases often framed the issue through degrees of knowledge. Baden, Delvaux and Lecuit v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA classified knowledge into five categories: actual knowledge, wilfully shutting one’s eyes, wilfully and recklessly failing to make inquiries, knowledge of circumstances indicating the facts to an honest and reasonable person, and knowledge of circumstances putting an honest and reasonable person on inquiry. That taxonomy had influence in both knowing receipt and accessory liability, but it also encouraged false precision. In dishonest assistance, the decisive issue is not a mechanical category of knowledge. It is whether the defendant’s participation, viewed in light of his actual knowledge and beliefs, was dishonest.

Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 marked the modern turn. Lord Nicholls, giving the advice of the Privy Council, rejected the view that the trustee’s breach had to be dishonest. The defendant’s own dishonesty is the touchstone. That reformulation made the doctrine more coherent: accessory liability is justified by the assistant’s fault, not by borrowing the moral quality of the trustee’s breach. Royal Brunei also sought to remove the cumbersome Baden categories from the centre of the inquiry. Dishonesty, not knowledge as a discrete taxonomy, became the organising concept.

Twinsectra Ltd v Yardley [2002] UKHL 12 then produced serious uncertainty. Lord Hutton’s speech appeared to require both objective dishonesty and the defendant’s appreciation that his conduct was dishonest by ordinary standards. That was often called the combined test. It risked allowing a defendant with idiosyncratically low standards of honesty to escape liability. Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37 confined Twinsectra and restored the emphasis on objective dishonesty informed by the defendant’s actual knowledge. The subsequent English cases have largely followed Barlow Clowes, and Ivey v Genting Casinos [2017] UKSC 67 has entrenched a general test that rejects the second subjective limb associated with Ghosh in criminal law.

Historically, then, dishonest assistance has moved in three stages. The first stage treated the doctrine as part of constructive trusteeship. The second stage struggled with knowledge, notice, and categories of cognition. The third stage adopts a fault-based accessory claim centred on objective dishonesty. Durham examination answers should show that history briefly, because it explains why old authorities must be read cautiously and why modern doctrine is not captured by the literal words of Barnes v Addy.

The elements of dishonest assistance should be analysed in a disciplined order. Begin with the primary relationship. There must be a trust or fiduciary duty. Most cases involve express trusts, company directors, agents, solicitors, or others owing fiduciary obligations. It is not enough to assert unfairness in commerce. Equity’s accessory liability attaches to participation in breach of an equitable obligation. The question whether the primary wrongdoer is a trustee or fiduciary is therefore not a formality; it defines the wrong to which the defendant is accessory.

The second element is breach. The trustee or fiduciary must have committed a breach of trust or fiduciary duty. It is unnecessary to prove that the trustee acted dishonestly. This is the central lesson of Royal Brunei. A trustee may innocently misapply funds, act beyond power, prefer one beneficiary improperly, or breach the no-conflict rule without fraud. A third party who dishonestly assists that breach may still be liable. Conversely, if there is no breach, there can be no dishonest assistance: one cannot assist a non-wrong. In problem questions, state the primary breach with specificity. Do not write that the bank assisted wrongdoing; say that the trustee misapplied trust money, or that the director diverted a corporate opportunity, or that the fiduciary paid away client account funds contrary to the trust.

The third element is assistance. Assistance is a broad concept. It includes arranging transactions, executing documents, providing banking facilities, making introductions, preparing false paperwork, transferring funds, designing structures, concealing misapplications, or otherwise facilitating the breach. The assistance need not be the sole cause of the loss, and the defendant need not control the trustee. But it must be more than a remote background condition. The court asks whether the defendant’s conduct was part of the practical machinery by which the breach was committed or concealed. A solicitor who prepares completion documents knowing the transaction misuses client money may assist. A bank that merely operates an ordinary account without suspicious involvement may not.

The landmark cases trace a movement from constructive trusteeship language to a modern fault-based accessory liability. Barnes v Addy supplies the taxonomy but not the modern test. Lord Selborne’s two categories remain the starting point: receipt of trust property and assistance in a dishonest and fraudulent design. The danger is to read the phrase as if it still requires a dishonest trustee. Royal Brunei makes clear that it does not. The assistant’s dishonesty is the relevant moral threshold.

Royal Brunei Airlines Sdn Bhd v Tan is the pivotal authority. A travel agent held money for the airline but misapplied it. The defendant company director controlled the agent and caused the misapplication. The Privy Council treated the defendant’s dishonesty as the foundation of liability. The trustee’s or fiduciary’s breach need not itself be dishonest. Lord Nicholls also sought to replace the Baden categories with a more direct inquiry into honest commercial conduct. The case is essential because it makes dishonest assistance independent of the trustee’s state of mind.

Twinsectra v Yardley is important because it introduced confusion. Money was advanced for a specified purpose through solicitors’ undertakings and was misapplied. The House of Lords held that the relevant solicitor was not liable. Lord Hutton’s formulation was read as requiring that the defendant’s conduct be dishonest by ordinary standards and that the defendant realised that ordinary people would regard it as dishonest. That second requirement made liability too dependent on the defendant’s own appreciation of moral standards. Lord Millett dissented in substance and favoured the Royal Brunei approach. Twinsectra must be handled carefully: it is not the final word.

Barlow Clowes corrected the course. The Privy Council explained Twinsectra as requiring knowledge of the facts that make the conduct dishonest, not subjective appreciation of dishonesty as a moral label. The defendant’s own standards do not govern. This is the case to cite when rejecting the argument that a defendant escapes because he did not think of himself as dishonest.

Abou-Rahmah v Abacha and Starglade Properties v Nash then show English courts applying Barlow Clowes. They emphasise that the defendant’s actual knowledge and beliefs are found first, and that dishonesty is judged objectively. They also show the factual intensity of the inquiry. Suspicion, commercial context, implausibility, and failure to inquire may be powerful, but the court still needs findings about the defendant’s state of knowledge.

Novoship v Mikhaylyuk demonstrates the remedial dimension. The Court of Appeal accepted that a dishonest assistant may be liable to account for profits, but the remedy is not automatic and must be connected to the wrongdoing. The case is valuable because it prevents students from treating equitable compensation as the only possible response. It also illustrates that dishonest assistance operates in commercial fiduciary contexts beyond the family trust or traditional settlement.

Group Seven v Nasir is a modern Court of Appeal authority on dishonest assistance in a fraud setting involving solicitors and client account arrangements. It illustrates how professional role, warnings, transaction structure and knowledge of suspicious facts contribute to the dishonesty analysis. It is particularly useful for problem questions involving solicitors because it shows that professional involvement can be assistance where it gives the scheme practical effect, and that the court will scrutinise what the professional knew and why he acted as he did.

Finally, Ivey v Genting Casinos, although not a trust case, is now central to the general test for dishonesty. It confirms the two-stage approach: find the defendant’s actual knowledge or belief as to the facts; then apply objective standards of ordinary decent people. In equity, it supports the Barlow Clowes line rather than the subjective gloss associated with Twinsectra. It should be used carefully: Ivey supplies the test of dishonesty, not the other elements of dishonest assistance.

See practice questions section below.

See further reading section below.