Dishonest Assistance Question and Answer!
Hey all,
I am posting a question on Dishonest Assistance and have provided an outline answer. I would like to ask your opinion on my answer and whether i have missed out key information or made any mistakes. I am aware there are repetition with addressing each individual, although i presume that it is necessary to answer the question. If you have a better way of structuring an answer please let me know
Question
Paul, a sole practitioner solicitor, held large sums of money for a variety of clients in a special client account. He was also the sole trustee of a fund held for the benefit of Christopher and Peter.
Last year, Paul sold some land held by the trust to Kevin for a knockdown price, in exchange for a commission of £10,000. Kevin has built luxury houses on the site and sold them for an enormous profit.
Paul, who was addicted to lottery scratch cards, made regular withdrawals from some money he was holding for Ann in his client account for her house purchase, and used it to satisfy his addiction. Over the course of about six weeks, he withdrew £15,000 and paid it into his own account. Any winnings were also paid into his own account. Both the client account and Paul's own account were held at his local branch of the TSB. The bank manager was suspicious of these transactions, but took no action with regard to Paul's activities.
Last week, Ann phoned Paul to ask why her house purchase had not been completed. She had expected to move in three weeks previously. As soon as he had put the phone down, Paul received a call from Chris telling him that Chris and Peter had heard a rumour that their land had been sold and demanding an explanation. Paul agreed to have a meeting with Chris and Peter at the end of that week.
Paul immediately phoned Harold, his accountant, and asked him to sell all the shares held on trust for Chris and Peter, and to purchase travellers’ cheques in Paul's name. Harold agreed to do so, but said that he would need an additional £2,000 fee because this transaction, being ‘different from what he normally did for Paul’, was not covered by his standard retainer.
Paul is now sunning himself on the Costa del Sol. Chris, Peter and Ann all want to know whether they have any remedies and, if so, against whom.
Outline Answer
Paul has a fiduciary relationship to his variety of clients with whom money is being held in a special client account as a solicitor/client and Christopher and Peter as a trustee/beneficiary.
There has been a breach of trust by Paul by the selling of Christopher and Peters land and shares, withdrawals of money belonging to Ann. Kevin, the bank manager and Harold are regarded as constructive trustees and since there is no point going after Paul, they will be held personally liable if they are found to have dishonestly assisted in the breach of trust. I will be discussing the remedies available to Christopher, Peter and Ann in turn.
1- It is perfectly known that a trustee can buy and sell land, therefore there could be a reasonable explanation as to why Paul sold the land belonging to Christopher and Peter to Kevin. However, Paul failed to provide an explanation to his beneficiary and therefore can be presumed that there is not reasonably explanation, hence why Paul left to Costa del Sol.
Kevin was likely to be aware that the land that was sold to him belonged to Paul’s beneficiaries; therefore, he assisted in the breach of trust. The problem is establishing whether he was dishonest in that breach of trust and it is irrelevant whether Paul was dishonest.
In Royal Brunei v Tan, a Privy Council case, the test for dishonesty was considered to be solely an objective test. Lord Nicholls held that although dishonesty carries a strong “subjective element” it is however necessary to ask whether Kevin’s actions can be considered dishonest in the eyes of an honest and reasonable person and whether they would have acted in the same way.
However in Twinsectra, a House of Lords case, Lord Hutton held that a hybrid test should be used in establishing dishonesty. Therefore, the question is whether Kevin’s actions can be regarded as dishonest by an honest and reasonable person in the same circumstances and whether Kevin himself thought his actions can be considered dishonest in the eyes of an honest and reasonable person.
Twinsectra caused some problems since it moved away from the solely objective test established in Royal Brunei by Lord Nicholls. It was also difficult to establish whether the majority of the House of Lords in their judgements were agreeing with Lord Hutton with regards to adding a subjective element to the objective test or whether to uphold that the objective test is still binding.
Lord Millett in Twinsectra in his dissenting opinion upheld that the test just solely be objective. However, being a dissenting opinion it is not binding.
In Barlow Clowes, a Privy Council case, Lord Hoffman accepted that there was an element of ambiguity in Lord Hutton’s judgement and suggested moving back to the objective test established in Royal Brunei, since a subjective element is not necessary.
This was later approved in Abou-Rahmah; however their judgment with coming up with that approval was problematic. Treacy J at first instance followed the hybrid test in Twinsectra, whilst Rix LJ and Arden LJ made reference to the requirement of “knowledge” on the part of the defendant.
Kevin can be considered to have acted dishonestly by the objective test as he gave Paul commission for the land worth £10,000; therefore an honest person in the circumstances would not have acted in the same way.
A proprietary claim is not available since the land has been built on.
2- The bank has assisted in the breach of trust by moving the £15,000 from Ann’s account and to his personal account. The problem is establishing whether he was dishonest in that breach of trust and it is irrelevant whether Paul was dishonest.
In Royal Brunei v Tan, a Privy Council case, the test for dishonesty was considered to be solely an objective test. Lord Nicholls held that although dishonesty carries a strong “subjective element” it is however necessary to ask whether the bank manager’s failure to take action can be considered dishonest in the eyes of an honest and reasonable person and whether they would have acted in the same way.
However in Twinsectra, a House of Lords case, Lord Hutton held that a hybrid test should be used in establishing dishonesty. Therefore, the question is whether the bank manager’s failure to take action can be regarded as dishonest by an honest and reasonable person in the same circumstances and whether the bank manager himself thought his actions can be considered dishonest in the eyes of an honest and reasonable person.
Twinsectra caused some problems since it moved away from the solely objective test established in Royal Brunei by Lord Nicholls. It was also difficult to establish whether the majority of the House of Lords in their judgements were agreeing with Lord Hutton with regards to adding a subjective element to the objective test or whether to uphold that the objective test is still binding.
Lord Millett in Twinsectra in his dissenting opinion upheld that the test just solely be objective. However, being a dissenting opinion it is not binding.
In Barlow Clowes, a Privy Council case, Lord Hoffman accepted that there was an element of ambiguity in Lord Hutton’s judgement and suggested moving back to the objective test established in Royal Brunei, since a subjective element is not necessary.
This was later approved in Abou-Rahmah; however their judgment with coming up with that approval was problematic. Treacy J at first instance followed the hybrid test in Twinsectra, whilst Rix LJ and Arden LJ made reference to the requirement of “knowledge” on the part of the defendant.
Although the bank manager was suspicious, it is difficult to hold that the bank manager acted dishonestly since it is quite common for money to be moved around in a banking situation; therefore dishonesty assistance would fail.
3- Harold has assisted in the breach of trust by selling the shares and purchasing traveller’s cheques in Paul’s name. The problem is establishing whether he was dishonest in that breach of trust and it is irrelevant whether Paul was dishonest.
In Royal Brunei v Tan, a Privy Council case, the test for dishonesty was considered to be solely an objective test. Lord Nicholls held that although dishonesty carries a strong “subjective element” it is however necessary to ask whether Harold’s actions can be considered dishonest in the eyes of an honest and reasonable person and whether they would have acted in the same way.
However in Twinsectra, a House of Lords case, Lord Hutton held that a hybrid test should be used in establishing dishonesty. Therefore, the question is whether Harold’s actions can be regarded as dishonest by an honest and reasonable person in the same circumstances and whether the bank manager himself thought his actions can be considered dishonest in the eyes of an honest and reasonable person.
Twinsectra caused some problems since it moved away from the solely objective test established in Royal Brunei by Lord Nicholls. It was also difficult to establish whether the majority of the House of Lords in their judgements were agreeing with Lord Hutton with regards to adding a subjective element to the objective test or whether to uphold that the objective test is still binding.
Lord Millett in Twinsectra in his dissenting opinion upheld that the test just solely be objective. However, being a dissenting opinion it is not binding.
In Barlow Clowes, a Privy Council case, Lord Hoffman accepted that there was an element of ambiguity in Lord Hutton’s judgement and suggested moving back to the objective test established in Royal Brunei, since a subjective element is not necessary.
This was later approved in Abou-Rahmah; however their judgment with coming up with that approval was problematic. Treacy J at first instance followed the hybrid test in Twinsectra, whilst Rix LJ and Arden LJ made reference to the requirement of “knowledge” on the part of the defendant.
On the facts, it is quite obvious that Harold knew he was acting dishonestly by asking for the additional £2,000 and admitting that the transaction was “difference from what he normally did for Paul” and an honest and reasonable person in the circumstances would regard Harold’s actions as dishonest.
I am posting a question on Dishonest Assistance and have provided an outline answer. I would like to ask your opinion on my answer and whether i have missed out key information or made any mistakes. I am aware there are repetition with addressing each individual, although i presume that it is necessary to answer the question. If you have a better way of structuring an answer please let me know
Question
Paul, a sole practitioner solicitor, held large sums of money for a variety of clients in a special client account. He was also the sole trustee of a fund held for the benefit of Christopher and Peter.
Last year, Paul sold some land held by the trust to Kevin for a knockdown price, in exchange for a commission of £10,000. Kevin has built luxury houses on the site and sold them for an enormous profit.
Paul, who was addicted to lottery scratch cards, made regular withdrawals from some money he was holding for Ann in his client account for her house purchase, and used it to satisfy his addiction. Over the course of about six weeks, he withdrew £15,000 and paid it into his own account. Any winnings were also paid into his own account. Both the client account and Paul's own account were held at his local branch of the TSB. The bank manager was suspicious of these transactions, but took no action with regard to Paul's activities.
Last week, Ann phoned Paul to ask why her house purchase had not been completed. She had expected to move in three weeks previously. As soon as he had put the phone down, Paul received a call from Chris telling him that Chris and Peter had heard a rumour that their land had been sold and demanding an explanation. Paul agreed to have a meeting with Chris and Peter at the end of that week.
Paul immediately phoned Harold, his accountant, and asked him to sell all the shares held on trust for Chris and Peter, and to purchase travellers’ cheques in Paul's name. Harold agreed to do so, but said that he would need an additional £2,000 fee because this transaction, being ‘different from what he normally did for Paul’, was not covered by his standard retainer.
Paul is now sunning himself on the Costa del Sol. Chris, Peter and Ann all want to know whether they have any remedies and, if so, against whom.
Outline Answer
Paul has a fiduciary relationship to his variety of clients with whom money is being held in a special client account as a solicitor/client and Christopher and Peter as a trustee/beneficiary.
There has been a breach of trust by Paul by the selling of Christopher and Peters land and shares, withdrawals of money belonging to Ann. Kevin, the bank manager and Harold are regarded as constructive trustees and since there is no point going after Paul, they will be held personally liable if they are found to have dishonestly assisted in the breach of trust. I will be discussing the remedies available to Christopher, Peter and Ann in turn.
1- It is perfectly known that a trustee can buy and sell land, therefore there could be a reasonable explanation as to why Paul sold the land belonging to Christopher and Peter to Kevin. However, Paul failed to provide an explanation to his beneficiary and therefore can be presumed that there is not reasonably explanation, hence why Paul left to Costa del Sol.
Kevin was likely to be aware that the land that was sold to him belonged to Paul’s beneficiaries; therefore, he assisted in the breach of trust. The problem is establishing whether he was dishonest in that breach of trust and it is irrelevant whether Paul was dishonest.
In Royal Brunei v Tan, a Privy Council case, the test for dishonesty was considered to be solely an objective test. Lord Nicholls held that although dishonesty carries a strong “subjective element” it is however necessary to ask whether Kevin’s actions can be considered dishonest in the eyes of an honest and reasonable person and whether they would have acted in the same way.
However in Twinsectra, a House of Lords case, Lord Hutton held that a hybrid test should be used in establishing dishonesty. Therefore, the question is whether Kevin’s actions can be regarded as dishonest by an honest and reasonable person in the same circumstances and whether Kevin himself thought his actions can be considered dishonest in the eyes of an honest and reasonable person.
Twinsectra caused some problems since it moved away from the solely objective test established in Royal Brunei by Lord Nicholls. It was also difficult to establish whether the majority of the House of Lords in their judgements were agreeing with Lord Hutton with regards to adding a subjective element to the objective test or whether to uphold that the objective test is still binding.
Lord Millett in Twinsectra in his dissenting opinion upheld that the test just solely be objective. However, being a dissenting opinion it is not binding.
In Barlow Clowes, a Privy Council case, Lord Hoffman accepted that there was an element of ambiguity in Lord Hutton’s judgement and suggested moving back to the objective test established in Royal Brunei, since a subjective element is not necessary.
This was later approved in Abou-Rahmah; however their judgment with coming up with that approval was problematic. Treacy J at first instance followed the hybrid test in Twinsectra, whilst Rix LJ and Arden LJ made reference to the requirement of “knowledge” on the part of the defendant.
Kevin can be considered to have acted dishonestly by the objective test as he gave Paul commission for the land worth £10,000; therefore an honest person in the circumstances would not have acted in the same way.
A proprietary claim is not available since the land has been built on.
2- The bank has assisted in the breach of trust by moving the £15,000 from Ann’s account and to his personal account. The problem is establishing whether he was dishonest in that breach of trust and it is irrelevant whether Paul was dishonest.
In Royal Brunei v Tan, a Privy Council case, the test for dishonesty was considered to be solely an objective test. Lord Nicholls held that although dishonesty carries a strong “subjective element” it is however necessary to ask whether the bank manager’s failure to take action can be considered dishonest in the eyes of an honest and reasonable person and whether they would have acted in the same way.
However in Twinsectra, a House of Lords case, Lord Hutton held that a hybrid test should be used in establishing dishonesty. Therefore, the question is whether the bank manager’s failure to take action can be regarded as dishonest by an honest and reasonable person in the same circumstances and whether the bank manager himself thought his actions can be considered dishonest in the eyes of an honest and reasonable person.
Twinsectra caused some problems since it moved away from the solely objective test established in Royal Brunei by Lord Nicholls. It was also difficult to establish whether the majority of the House of Lords in their judgements were agreeing with Lord Hutton with regards to adding a subjective element to the objective test or whether to uphold that the objective test is still binding.
Lord Millett in Twinsectra in his dissenting opinion upheld that the test just solely be objective. However, being a dissenting opinion it is not binding.
In Barlow Clowes, a Privy Council case, Lord Hoffman accepted that there was an element of ambiguity in Lord Hutton’s judgement and suggested moving back to the objective test established in Royal Brunei, since a subjective element is not necessary.
This was later approved in Abou-Rahmah; however their judgment with coming up with that approval was problematic. Treacy J at first instance followed the hybrid test in Twinsectra, whilst Rix LJ and Arden LJ made reference to the requirement of “knowledge” on the part of the defendant.
Although the bank manager was suspicious, it is difficult to hold that the bank manager acted dishonestly since it is quite common for money to be moved around in a banking situation; therefore dishonesty assistance would fail.
3- Harold has assisted in the breach of trust by selling the shares and purchasing traveller’s cheques in Paul’s name. The problem is establishing whether he was dishonest in that breach of trust and it is irrelevant whether Paul was dishonest.
In Royal Brunei v Tan, a Privy Council case, the test for dishonesty was considered to be solely an objective test. Lord Nicholls held that although dishonesty carries a strong “subjective element” it is however necessary to ask whether Harold’s actions can be considered dishonest in the eyes of an honest and reasonable person and whether they would have acted in the same way.
However in Twinsectra, a House of Lords case, Lord Hutton held that a hybrid test should be used in establishing dishonesty. Therefore, the question is whether Harold’s actions can be regarded as dishonest by an honest and reasonable person in the same circumstances and whether the bank manager himself thought his actions can be considered dishonest in the eyes of an honest and reasonable person.
Twinsectra caused some problems since it moved away from the solely objective test established in Royal Brunei by Lord Nicholls. It was also difficult to establish whether the majority of the House of Lords in their judgements were agreeing with Lord Hutton with regards to adding a subjective element to the objective test or whether to uphold that the objective test is still binding.
Lord Millett in Twinsectra in his dissenting opinion upheld that the test just solely be objective. However, being a dissenting opinion it is not binding.
In Barlow Clowes, a Privy Council case, Lord Hoffman accepted that there was an element of ambiguity in Lord Hutton’s judgement and suggested moving back to the objective test established in Royal Brunei, since a subjective element is not necessary.
This was later approved in Abou-Rahmah; however their judgment with coming up with that approval was problematic. Treacy J at first instance followed the hybrid test in Twinsectra, whilst Rix LJ and Arden LJ made reference to the requirement of “knowledge” on the part of the defendant.
On the facts, it is quite obvious that Harold knew he was acting dishonestly by asking for the additional £2,000 and admitting that the transaction was “difference from what he normally did for Paul” and an honest and reasonable person in the circumstances would regard Harold’s actions as dishonest.
Hope you don't mind me answering, haven't studied this area of law but some things stick out that don't quite seem right.
There has been a breach of trust by Paul by the selling of Christopher and Peters land and shares, withdrawals of money belonging to Ann. Kevin, the bank manager and Harold are regarded as constructive trustees and since there is no point going after Paul, they will be held personally liable if they are found to have dishonestly assisted in the breach of trust.
Firstly, when you say they 'are regarded as constructive trustees' aren't you rather putting the cart before the horse? You haven't shown that they have done anything wrong by this point.
Secondly, what is the bank manager a constructive trustee of? He hasn't received anything from the trust fund, or made a gain in any way. If he has committed dishonest assistance then surely the appropriate remedy against him is equitable compensation, not a constructive trust.
Thirdly, isn't it more correct to say that Kevin may have committed knowing receipt than that he may have committed dishonest assistance?
A proprietary claim is not available since the land has been built on.
Not saying that you are wrong, but this is a statement rather than an explanation. Why could there not be a proprietary claim over the proceeds of the sale at an 'enormous profit'? Even if there isn't a proprietary claim for whatever reason, does that leave the beneficiaries without remedy or do they have a personal claim? Kevin is not bankrupt according to the facts.
On the facts, it is quite obvious that Harold knew he was acting dishonestly by asking for the additional £2,000 and admitting that the transaction was “difference from what he normally did for Paul” and an honest and reasonable person in the circumstances would regard Harold’s actions as dishonest.
And so what are the remedies available?
There has been a breach of trust by Paul by the selling of Christopher and Peters land and shares, withdrawals of money belonging to Ann. Kevin, the bank manager and Harold are regarded as constructive trustees and since there is no point going after Paul, they will be held personally liable if they are found to have dishonestly assisted in the breach of trust.
Firstly, when you say they 'are regarded as constructive trustees' aren't you rather putting the cart before the horse? You haven't shown that they have done anything wrong by this point.
Secondly, what is the bank manager a constructive trustee of? He hasn't received anything from the trust fund, or made a gain in any way. If he has committed dishonest assistance then surely the appropriate remedy against him is equitable compensation, not a constructive trust.
Thirdly, isn't it more correct to say that Kevin may have committed knowing receipt than that he may have committed dishonest assistance?
A proprietary claim is not available since the land has been built on.
Not saying that you are wrong, but this is a statement rather than an explanation. Why could there not be a proprietary claim over the proceeds of the sale at an 'enormous profit'? Even if there isn't a proprietary claim for whatever reason, does that leave the beneficiaries without remedy or do they have a personal claim? Kevin is not bankrupt according to the facts.
On the facts, it is quite obvious that Harold knew he was acting dishonestly by asking for the additional £2,000 and admitting that the transaction was “difference from what he normally did for Paul” and an honest and reasonable person in the circumstances would regard Harold’s actions as dishonest.
And so what are the remedies available?
Original post by Forum User
Hope you don't mind me answering, haven't studied this area of law but some things stick out that don't quite seem right.
Firstly, when you say they 'are regarded as constructive trustees' aren't you rather putting the cart before the horse? You haven't shown that they have done anything wrong by this point.
Secondly, what is the bank manager a constructive trustee of? He hasn't received anything from the trust fund, or made a gain in any way. If he has committed dishonest assistance then surely the appropriate remedy against him is equitable compensation, not a constructive trust.
Thirdly, isn't it more correct to say that Kevin may have committed knowing receipt than that he may have committed dishonest assistance?
Not saying that you are wrong, but this is a statement rather than an explanation. Why could there not be a proprietary claim over the proceeds of the sale at an 'enormous profit'? Even if there isn't a proprietary claim for whatever reason, does that leave the beneficiaries without remedy or do they have a personal claim? Kevin is not bankrupt according to the facts.
And so what are the remedies available?
Firstly, when you say they 'are regarded as constructive trustees' aren't you rather putting the cart before the horse? You haven't shown that they have done anything wrong by this point.
Secondly, what is the bank manager a constructive trustee of? He hasn't received anything from the trust fund, or made a gain in any way. If he has committed dishonest assistance then surely the appropriate remedy against him is equitable compensation, not a constructive trust.
Thirdly, isn't it more correct to say that Kevin may have committed knowing receipt than that he may have committed dishonest assistance?
Not saying that you are wrong, but this is a statement rather than an explanation. Why could there not be a proprietary claim over the proceeds of the sale at an 'enormous profit'? Even if there isn't a proprietary claim for whatever reason, does that leave the beneficiaries without remedy or do they have a personal claim? Kevin is not bankrupt according to the facts.
And so what are the remedies available?
So I only mention that someone is regarded as a constructive trustee when they are guilty of dishonest assistance or received/made a profit from the property?
It is a dishonest assistance question for the seminar, therefore it is primarily that and not knowing receipt (i will attempt an answer soon and post it on here).
As for the proprietary claim, i guess the remedy could be compensation for the worth of the land (whatever that was)?
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