Civil Fraud: Dishonest Assistance

This article expands on our ‘Guide to Civil Fraud’. It provides a walk through guide to the law of dishonest assistance. 

What is dishonest assistance?

The law of dishonest assistance revolves around the principle that individuals who knowingly assist or facilitate dishonest or fraudulent activities should be held accountable. 

Examples include:

• A director causing monies held by the company as trustee to be used for the company’s own business purposes instead and the company being aware;
• Accountants who assist in the misapplication of property by laundering money through bank accounts controlled by them; and
• A solicitor drafting sham agreements which give the appearance of legitimacy to onward payments of the proceeds of fraud.

Establishing liability 

To be liable for dishonest assistance, there must be a breach of trust or fiduciary duty by someone other than the defendant, the defendant must have helped that person in the breach, and the defendant must have a dishonest state of mind.

Breach of fiduciary duty or trust 

So to start with, there must be a trust or fiduciary relationship which has been breached by someone other than the defendant (the wrongdoer). It is the breach of this relationship that would give rise to ‘primary liability’ on the part of the wrongdoer. There is no requirement for the primary liability itself to be dishonest.

Assistance with the breach 

Whether a defendant has assisted in a breach of trust or fiduciary duty is a question of fact and the focus to establish dishonest assistance is on the state of mind of the individual assisting the wrongdoer (otherwise known as the ‘accessory’).

All that is required is dishonest conduct (or an omission) which in fact assists the primary wrongdoer to commit the act which constitutes the breach of trust or fiduciary duty. Conduct can amount to dishonest assistance even if the breach would possibly still have occurred without it. 

Liability will also attach to a defendant who procures, rather than assists in, a breach of trust or fiduciary duty. 

Dishonesty 

The test of dishonesty is objective. In other words, liability will be imposed if the accessory has not acted as an honest person would, in the circumstances, have acted.

Dishonesty can take two forms:

• Actual dishonesty; and 
• ‘Blind eye’ dishonesty. 

Actual dishonesty refers to a defendant’s knowledge that a transaction is one in which he or she cannot honestly participate (for example, the misappropriation of money belonging to others). 

On the other hand, blind eye dishonesty refers to a situation in which a defendant suspects that a transaction is dishonest, but makes a conscious and deliberate decision not to ask questions in order to avoid confirmation of the facts which the defendant has good reason to believe exist. 

In order to determine dishonesty, the Court will consider a range of factors including:

• Nature and size of the transaction; 
• Honest alternatives available to the defendant; 
• Degree of doubt held by the defendant; and
• Consequences on the claimant.

Causation

The Court will consider what loss or damage resulted from the breach of trust or fiduciary duty which has been dishonestly assisted. 

The assistant will not therefore avoid liability by showing that the claimant would have suffered the same loss without his or her assistance. That said, the assistant must have had some causative impact in facilitating the breach of trust or fiduciary duty. 

What remedies are available to a claimant? 

The remedies available are personal and not proprietary. In other words, the remedies aim to address the harm suffered by the claimant who has been wronged as opposed to focusing on recovering a specific property or asset that has been taken or dealt with improperly. The remedies include: 

• Equitable compensation for losses resulting from the breach assisted; and 
• An account of profits (if any) made by the dishonest assister. 

For more information on dishonest assistance, please contact Cara White.