Knowing Receipt and Dishonest Assistance Flashcards
Royal Brunei Airlines v Tan
B does NOT need to prove that the breach of trust which D dishonestly assisted was a dishonest breach of duty - there only needs to be a breach of T’s primary duty for a valid dishonest assistance claim.
Baden, Delvaux v Societe Generale
This set out the Baden scale of knowledge which was traditionally used both in relation to dishonest assistance and knowing receipt claims by B against a third party who had assisted in the breach of trust. Peter Gibson J set out 5 stages of knowledge - first three stages were actual knowledge, whereas the second two stages were known as constructive knowledge (i.e. where D ought reasonably to have had knowledge).
1) Actual knowledge
2) Wilfully shutting one’s eyes to the obvious
3) Wilfully and recklessly failing to make enquiries that an honest and reasonable person would make
4) Knowledge of circumstances that would indicate the facts to a reasonable and honest man
5) Knowledge of circumstances that would put an honest and reasonable man on enquiry
Royal Brunei Airlines v Tan (PC)
This changed the test and moved away from using the Baden scale of knowledge for dishonest assistance - Lord Nicholls said that using knowledge was unhelpful for dishonest assistance claims as it led to the courts getting into “tortuous convolutions” about D’s state of knowledge.
Lord Nicholls held that the test for whether D had acted dishonestly for a dishonest assistance claim is that D should be liable if his assistance was dishonest in reference to the standards of right-thinking members of society. This was clearly intended to be an objective test, and NOT subjective.
Note that Lord Nicholls explicitly rejected the approach taken in BCCI v Akindele because he thought making unconscionability the touchstone for liability for DA claims would be too uncertain!
Twinsectra v Yardley (HL)
Lord Hutton modified the test set out by Lord Nicholls in Royal Brunei Airlines v Tan and held that in addition to D’s conduct being dishonest with reference to the standards of right-thinking members of society, D must also have appreciated that they were acting dishonesty - so added the requirement of self-conscious dishonesty. This introduced a subjective test in addition to Lord Nicholls’s test set out in Royal Brunei, which was clearly (in reality) a shift from the test he adopted in the PC.
Barlow Clowes International v Eurotrust (PC)
However, Lord Hoffmann (who concurred with Lord Hutton in Twinsectra) then attempted to reinterpret what he and Lord Hutton had held in Twinsectra. He argued that actually they did NOT modify the test set out by Lord Nicholls in Royal Brunei, and that their words might be misconstrued in Twinsectra - he claimed that actually they still meant that it was an objective test for D’s dishonesty.
So he argued that it is an objective test for D’s dishonest behaviour and there does NOT need to be self-conscious dishonesty - the dishonest assistant only needs to be aware of the elements of the transaction + objective test.
Note that this is a highly questionable reconstruction of the HL majority in Twinsectra, since Lord Hutton clearly modified the test to be subjective. The issue was that Lord Hoffmann could not overrule Twinsectra because it was a HL case (and Barlow Clowes is PC), so he had to reinterpret his words in Twinsectra to regard it as an objective test.
Abou-Rahmah v Abacha
CA then did follow Lord Hoffmann in Barlow Clowes and held that Twinsectra v Yardley did in fact establish an objective test in English law for dishonest assistance (even though it does seem to be quite clearly a subjective test, on a proper construction of the majority’s words). Arden LJ argued that Barlow Clowes merely gave guidance on how to interpret the test in Twinsectra, and thus followed Lord Hoffmann’s slightly questionable interpretation of the words in Twinsectra being an objective test.
Dubai Aluminium v Salaam
Lord Nicholls then reasserted the objective approach for dishonesty in dishonest assistance claims. This affirms the current position that the test for dishonest assistance is OBJECTIVE - court considers whether D’s conduct would be regarded as dishonest by the standards of right-thinking members of society.
Grupo Torras SA v Al Sabah
For causation in dishonest assistance claims, all that B needs to show to hold D (third party DA) liable for DA is that they made the breach EASIER - so there is not a but for test, which means that the threshold/requirement for causation for DA claims is quite low and easy to achieve.
El Ajou v Land Dollar Holdings
This sets out the three requirements for a knowing receipt claim:
1) Disposal of assets by T in breach of fiduciary duty
2) Beneficial receipt of traceable assets by D
3) Knowledge by D that the assets he received were in breach of T’s duty
Baden, Delvaux v Societe Generale
Baden scale of knowledge was traditionally used for KR knowledge requirements. If D had actual knowledge of the breach (first three stages of knowledge), then D had sufficient knowledge for a knowing receipt claim. However, if D merely had constructive knowledge (i.e. did not actually have knowledge that the money they received was in breach of trust duty, but they SHOULD have OBJECTIVELY), then this would be unlikely to establish liability for KR.
BCCI v Akindele
CA held that the Baden scale of knowledge is no longer used for determining whether D had sufficient knowledge of the breach of trust duty for a knowing receipt claim.
Nourse LJ said that the test for knowledge for knowing receipt is whether the recipient’s state of knowledge was such that it would be unconscionable for him to retain the benefit of the receipt - so unconscionability is the new touchstone for liability for KR claims.
Mitchell and Elliott - ‘Remedies for Dishonest Assistance’
Mitchell and Hayton argue that liability for DA is secondary civil liability - i.e. it is based on T’s primary liability for unauthorised breach of trust duty. T’s liability for breach of trust duty is duplicated and attached to the DA, making them JOINT AND SEVERALLY LIABLE for the breach - so B only needs to sue one of them to recover all of their loss.
They say that this explains the current position of the common law because we regard T’s breach of duty as a primary breach of T duty, but the D.A then has accessorial liability for assisting T with the breach.
Since the liability for DAs is secondary civil liability, they argue that DAs are accountable to trustees as constructive trustees - the law regards them as being trustees even though they are not, because T’s liability is duplicated and attached to the DA.
Grupo Torras v Al-Sabah - Mitchell and Hayton
They argue that Lord Mance endorsed the idea of DA liability being secondary civil liability as he said that first we need to consider the breach of trust, indicating that DA’s liability is secondary as it is contingent upon T’s breach of duty incurring liability first.
Mitchell and Watterson - Remedies for Knowing Receipt
They argue that the KR becomes a constructive trustee upon receiving the trust property, and have a duty to return it on this basis - so if KR then uses the property in a way that is inconsistent with B’s rights, then B can hold them liable through the same mechanism they can hold Ts liable.
Therefore, they argue that the KR’s continuing retention of misapplied trust property is unauthorised and illegitimate - thus KR owes an immediate restitutionary duty,
Green v Weatherhill - Mitchell and Watterson
They use this case to argue that the first remedy for KR is simply a restitutionary order - KR must return the property to B in specie. If KR then disposed of the trust property and this was not in the terms of the trust, then they will be liable for SP claim.
