Remedies against third parties: recipient and accessory liability - Establishing accessory liability (dishonest assistance)

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Overview

Accessory liability through dishonest assistance is an essential concept in equity law for SQE1 FLK2 candidates. This doctrine addresses how third parties aiding breaches of trust or fiduciary duties can be held accountable. While recipient liability involves receiving trust property, accessory liability focuses on direct involvement in the breach. Understanding this principle is vital for dealing with trust disputes, corporate governance issues, and various equity law scenarios. This article offers a thorough exploration of the principles, case law, and practical applications of accessory liability, emphasizing the elements necessary to establish dishonest assistance.

Core Principles of Accessory Liability

Key Elements

To prove accessory liability through dishonest assistance, four main elements need to be established:

  1. Fiduciary Relationship: There must be a fiduciary relationship, such as between a trustee and a beneficiary or a director and a company.

  2. Breach of Fiduciary Duty: A breach must occur, such as misappropriation of trust assets or self-dealing.

  3. Assistance by the Third Party: The third party must have provided aid that enabled the breach, which could include advice, executing transactions, or concealing information.

  4. Dishonesty: The conduct of the third party must be deemed dishonest, judged by an objective standard.

Understanding Dishonesty

Dishonesty is central to accessory liability and has evolved considerably through case law. Initially, courts debated whether to assess dishonesty based on personal beliefs (subjective) or broader societal standards (objective). The modern preference, as demonstrated in key legal precedents, favors an objective view.

Key Legal Precedents

Several landmark cases have influenced accessory liability through dishonest assistance:

Royal Brunei Airlines v Tan [1995] 2 AC 378

This Privy Council decision marked a major shift in assessing dishonesty in accessory liability cases:

  • Dishonesty should be gauged objectively, based on what an honest person would consider dishonest.
  • The defendant's personal beliefs about the honesty of their actions are not decisive.
  • Carelessness or incompetence does not equate to dishonesty without conscious wrongdoing.

Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37

This case further refined the principles set out in Royal Brunei:

  • Endorsed the objective test for dishonesty.
  • Clarified that the defendant's state of mind is relevant, but they need not personally view their conduct as dishonest.
  • Assessed what the defendant knew about the transaction to determine dishonesty by societal standards.

Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67

Though not about accessory liability, this Supreme Court decision impacted the assessment of dishonesty across the board:

  • Overturned the previous two-stage test for dishonesty.
  • Unified the test for dishonesty in civil and criminal contexts.
  • Focused on the individual's knowledge or belief about the facts, then judged by societal standards of honesty.

Practical Application and Analysis

Consider this scenario:

A trustee, Sarah, manages a family trust worth £5 million. She involves her friend, Mark, a financial advisor, to invest £1 million in a high-risk venture aligned with her interests. Sarah conceals this conflict from Mark but highlights potential returns. Despite doubts, Mark assists without due diligence or questioning Sarah's authority, leading to a £1 million loss.

Analysis:

  1. Fiduciary Relationship: Sarah owes fiduciary duties to the trust beneficiaries.
  2. Breach of Fiduciary Duty: She breached her duty by not disclosing her personal interest.
  3. Assistance: Mark aided the breach by facilitating the investment.
  4. Dishonesty: The main question is whether Mark's actions were dishonest by objective standards.

Applying Royal Brunei and Barlow Clowes principles, a court would assess Mark's awareness of the transaction and the nature of the trust, and whether ignoring his doubts signifies dishonesty by societal norms, regardless of his personal views.

Comparative Jurisdictional Analysis

While the SQE1 FLK2 exam emphasizes English law, understanding approaches in other common law jurisdictions offers valuable insights:

United States

  • U.S. courts often require a higher degree of knowledge or recklessness to establish accessory liability.
  • Focus is on "knowing participation" in the breach.
  • Requirements vary, with some jurisdictions demanding actual knowledge, while others accept constructive knowledge.

Australia

  • Follows a similar approach to the UK with slight differences.
  • The High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] endorsed a knowledge-based test.
  • Considers the accessory's knowledge of the primary wrongdoer's dishonest intent.

Canada

  • Combines aspects of subjective and objective approaches.
  • In Air Canada v M & L Travel Ltd [1993], constructive knowledge suffices.
  • Tests whether the defendant had knowledge that would alert an honest individual to the need for inquiry.

Conclusion

Accessory liability through dishonest assistance requires careful analysis. SQE1 FLK2 candidates should:

  1. Learn the four main elements of accessory liability: fiduciary relationship, breach, assistance, and dishonesty.
  2. Familiarize themselves with the evolving standard of dishonesty through pivotal cases.
  3. Apply the objective test for dishonesty based on societal standards.
  4. Examine scenarios by assessing the defendant's knowledge and actions against societal expectations of honesty.
  5. Recognize different jurisdictions' approaches, highlighting the importance of context in addressing accessory liability.

By mastering these concepts, candidates will be well-prepared for complex equity law challenges and their careers in legal practice.