What is Dishonest Assistance and Knowing Receipt?
Our blog ‘What is civil fraud?’ discusses various types of civil fraud that exists and what can be done to recover losses or defend against a claim. In this blog, we focus on claims brought for ‘dishonest assistance’ and ‘knowing receipt’.
As the names suggest, these are claims brought against parties that have assisted another party in breaching a fiduciary duty; or that have received money or assets disposed of by the party that has acted in breach of fiduciary duty or trust.
Who are fiduciaries?
Fiduciary relationships can include:-
- Principals and agents (including companies and their directors);
- Banks and their clients;
- Solicitors and their clients
For the purpose of these claims, the defendant and claimant do not necessarily have to be known to each other or have a legal relationship for liability to arise.
Why bring claims for ‘knowing receipt’ and ‘dishonest assistance’?
These types of claims are brought against the assisting / receiving parties where a claim against the primary wrongdoer is unlikely to bear fruit (e.g. if they are no longer in the jurisdiction, or where enforcement may be impossible due to lack of assets).
Where a third-party has received trust property, they may be personally liable in equity where:-
- The property has been misapplied by the trustee in breach of trust;
- The recipient received the property beneficially
- The recipient is not a bona fide purchaser of the legal title or otherwise cannot claim to take free of the legal title; and
- The recipient knows that the property has been transferred to them in breach of trust.
These requirements were discussed in the judgment handed down in Byers & Others v The Saudi National Bank  EWCA Civ 43.
A claim for ‘knowing receipt’ can also be brought where a fiduciary misapplies property belonging to a principal, for example where a company director misapplies company property where s/he owes fiduciary duties to the company. Here, a claimant must show:-
- The defendant received the claimant’s assets (or traceable proceeds);
- The receipt arose from the defendant’s breach of fiduciary duty or trust owed to the claimant by a third-party; and
- The defendant had knowledge that the assets received had resulted from a breach of fiduciary duty or trust, sufficient to deem it unconscionable to retain the benefit of receipt.
What is trust property?
Clear examples of ‘trust property’ are money and land.
Examples that have been the subject of questions for the court to consider are confidential information and business opportunities (e.g. where a director diverts elsewhere opportunities being pursued by the company) and confidential information.
There is no requirement for dishonesty.
Instead, the court will look at whether or not it was unconscionable for the recipient (i.e. the defendant) to retain the benefit of the receipt.
A claimant is not required to show that the defendant realised the transaction was “obviously” or “probably” in breach of trust or fraudulent, just that there is a possibility of impropriety of the claimant’s interest; and that a reasonable person would have appreciated that the transfer was probably in breach of trust or would/ought to have made inquiries or sought advice as to whether or not the transaction would be in breach of trust.
It is a crucial aspect of a claim in ‘knowing receipt’ that the recipient must have received the property for their own use and benefit.
There must be a connection between the transfer of the asset (in breach of trust or fiduciary duty) and the knowing receipt.
Usually, the court will order that the defendant must restore the trust property.
Where the property is no longer held by the defendant, they would likely be ordered to pay the value of the property to the claimant.
So long as there is no double-recovery, a claim for knowing receipt could be brought against the recipient alongside a claim for breach of trust against the trustee for damages.
Claims can be brought against a party even where the property has not received the property (whether trust property or transferred in breach of fiduciary duty).
In order to succeed in a claim for ‘dishonest assistance’, a claimant must show that there has been:-
- a breach of trust; or
a breach of fiduciary duty owed.
- dishonesty by the third party defendant.
It was held in FM Capital Partners Ltd v Marino & Others  EWHC 1768 that the requirements for a claim are that:-
- a trust or fiduciary obligation owed by the trustee / fiduciary to the claimant;
- a breach by the trustee or fiduciary (such breach need not be dishonest);
- the third party must have assisted in the breach being carried out (even if it was not inevitable that loss would have been caused); and
- the third party must have acted dishonestly when assisting.
The test for ‘dishonesty’
This is based on the standards of an ordinary honest person in the circumstances of the defendant. The court must have regard to all of the circumstances known to the defendant at the time and consider the personal attributes of the defendant (e.g. why they did what they do).
The evidential burden is the usual civil burden of proof: on the balance of probabilities.
A court will require strong evidence to persuade it to make a finding of fact in relation to ‘dishonesty’ given the serious nature of such an allegation. Inferences that may be relied upon must be sound and not speculative.
The defendant’s knowledge of the transaction must be such that their involvement goes against normally acceptable standards of honest conduct.
A company can be held to have acted dishonestly if its directors (or persons with such authority) act dishonestly.
The initial breach of trust does not need to have been dishonest.
What is ‘assistance’?
An indication from the court is that some deliberate intervention or intentional intrusion is required, and not just an omission to act.
An analogy has been drawn by the courts between a person knowingly procuring a breach of contract and their liability to the innocent party.
Further authority indicates: that assistance is "simply conduct which in fact assists the fiduciary to commit the act which constitutes the breach of trust or fiduciary duty" and that a claimant does not have to show that the defendant’s conduct inevitably causes loss.
The assistance does not have to be in relation to the original breach or diversion of property, it can be at any point in the continuing diversion of the property.
As such, a claim can be brought against someone advising on a transaction resulting in a breach of trust or fiduciary duty (e.g. solicitors, accountants, financial advisors).
Receipt of trust property
There is no requirement for the defendant to have received property as a result of a breach of fiduciary duty or trust (contrary to ‘knowing receipt’ claims).
For a claim to succeed, there must be some loss to the trust or beneficiary of the fiduciary duty.
A party assisting in a breach of trust or fiduciary duty will be personally liable to the beneficiaries of that fiduciary duty for any loss caused by the breach.
Bringing a claim
There are strict requirements as to the way claims for ‘dishonest assistance’ and ‘knowing receipt’ are pleaded.
The test for ‘dishonesty’ is not straightforward and should be carefully considered before embarking on litigation.
The aggrieved party may wish to consider other action such as freezing injunctions.
How we can help
We specialise in civil fraud, both advising on and recovering for aggrieved parties and defending claims brought against (alleged) primary wrongdoers and third-parties.