ADD FOOTNOTE TO FIRST PARAGRAPH OF SECTION 28-46:

This passage was cited with approval in Uzinterimpex J.S.C. v Standard Bank plc [2008] EWCA Civ 819.

ADD TO NOTE 44: In Australia the requirement of the defendant's fault has been affirmed.  The argument that the defendant's liability should be strict, and explained on a principle of preventing unjust enrichment, has been specifically rejected: Farah Constructions Pty. Ltd. v Say-Dee Pty. Ltd. [2007] HCA 22; noted Conaglen and Nolan [2007] C.L.J. 515, Ridge and Dietrich (2008) 124 L.Q.R. 26. 

REPLACE FINAL SECTION OF PARAGRAPH WITH THE FOLLOWING:

(3) DISHONEST ASSISTANCE IN BREACH OF TRUST.

(See generally Mitchell, Ch. 6 in Birks and Pretto (eds), Breach of Trust (2002)).

A person who dishonestly assists a trustee in committing a breach of his duty may be liable to the beneficiary.  (The principle is not confined to breaches of trust but extends to breaches by other fiduciaries, such as the duties owed by partners in a fiduciary joint venture (Abou-Rahmah v Abacha [2005] EWHC 2662 (QB), [2006] Lloyd's Rep 484 at [38]) and that owed by a director to his company: Baden v Société Generale [1993] 1 W.L.R. 509 at 573; but see Brown v. Bennett [1999] B.C.C. 525, Goose v Wilson Sandford & Co [2001] Lloyd's Rep. PN 189 and Gencor ACP Ltd v Dalby [2002] 2 B.C.L.C. 734 at 757 where the point was left open.)  His liability is based on his being an accessory to the trustee's wrong and does not depend on his having received any trust property.  It is not necessary that the primary breach of trust committed should be dishonest or fraudulent (Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 A.C. 378). 

The defendant must be proved to have been dishonest in giving his assistance to the trustee's breach.  In applying this standard, it is clear that the defendant is not free to be judged according to his own standards of honesty.  He is judged according the standard of ordinary honest people (Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 A.C. 378).  The authorities have in the past been uncertain about whether the trustee also needs to be aware that his conduct would be regarded as dishonest by this standard.  The better view, which now appears to be accepted in England, is that it is unnecessary for the defendant to take a view on the propriety of his conduct.  (Compare Twinsectra Ltd v Yardley [2002] 2 A.C. 164; [2002] UKHL 165 at [32]-[35] with Barlow Clowes v Eurotrust International Ltd [2005] UKPC 37;[2006] 1 All E.R. 333 at [15]-[16].  In Abou-Rahmah v. Abacha [2006] EWCA Civ 1492, [2007] W.T.L.R. 1, where this passage was cited with approval, Arden L.J. held that the later decision of the Privy Council in the Barlow Clowes case represented the correct interpretation of English law).  A finding that the defendant was dishonest need only involve an assessment of his participation in the light of his knowledge of the facts of the transaction.

The finding of the defendant's dishonesty will depend on how precisely he knew the facts which amounted to the breach of trust, and the extent to which his assistance in the transaction involved a commercially unacceptable risk of knowingly implicating himself in the trustee's wrongful conduct.  For this purpose, knowledge and a deliberate choice by the defendant not to confirm his suspicions are treated alike (Attorney General of Zambia v Meer Care & Desai (a firm)[2008] EWCA Civ 1007 at [21] per Lloyd L.J.) A negligent or incompetent failure to realise the unlawfulness of the transaction that he assists is not enough (Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 A.C. 378, 391-392 per Lord Nicholls). 

It is not necessary that the defendant should appreciate the precise legal significance of the transaction as amounting to a breach of trust.  It is enough that he realises that the person whom he assists is misappropriating money over which he does not have a right of free disposal (Twinsectra Ltd v Yardley [2002] UKHL 165; [2002] 2 A.C. 164 at [137] per Lord Millett; Barlow Clowes v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 All E.R. 333 at [28] per Lord Hoffmann).  But he must have some suspicions about the particular transactions to which he gives his assistance.  A general suspicion, for example, that the transaction is of a kind which was consistent with the possibility of money laundering would not be sufficiently direct to be dishonest (Abou-Rahmah v Abacha [2006] EWCA Civ 1492 at [72] per Arden L.J.; [98] per Pill L.J.). 

If the defendant is proved liable, then he may be required to compensate the trust for losses following from his assistance (Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 A.C. 378) or, possibly, to account for profits which accrue to him as a result of his assistance (Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch), [2007] W.T.L.R. 835).  These two kinds of liability follow from the premise that the defendant is held liable to account as if he were truly a trustee to the claimant.  The description of the defendant as a "constructive trustee" is simply a "formula for equitable relief" which can be recovered from him as a result of his wrongdoing (Selangor United Rubber Estates Ltd v Cradock [1968] 1 W.L.R. 1555 at 1582 per Ungoed-Thomas J.; Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 A.C. 366 at [141]-[143] per Lord Millett who criticises the description of the defendant as "accountable as a constructive trustee", it being more accurate simply to describe the defendant "as accountable in equity"; see para 19-02 above.). 

In relation to losses, once it is proved that the defendant has provided the relevant assistance to the breach of duty, he will be liable for losses resulting from the trustee's breach.  Proof of the specific causal connection between the assistance and the loss is not necessary (Grupo Torras SA v Al Sabah [1999] C.L.C. 1,469 (reversed in part on appeal without comment on this point: [2001] C.L.C. 221).  Cf. Edgington v Fitzmaurice (1885) L.R. 29 Ch.D. 459; Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] A.C. 191), though no doubt the defendant's act would not amount to assistance unless it had some causative effect (Brown v Bennet [1999] B.C.C. 525).  The measure of the defendant's liability will not be reduced by reason of any contributory negligence on the part of the claimant (Corp del Cobre de Chile v Sogemin Ltd [1997] 1 W.L.R. 1396; Standard Chartered Bank v Pakistan National Insurance Corp (Nos 2 and 4) [2002] UKHL 43; [2003] 1 A.C. 959).

In relation to profits, the existence and nature of the defendant's liability remain uncertain.  It seems clear, at least, that the defendant should not be required to hold a profit resulting from his wrongful assistance on a constructive trust, enforceable by a proprietary remedy, unless perhaps it accrued to him through use of the claimant's own property. (Sinclair Investment Holdings SA v Versailles Trade Finance Ltd [2007] EWHC 916 (Ch), [2007] 2 All E.R. (Comm.) 993)  But in principle this limitation should not preclude a personal liability to account for a profit, provided that the claimant proved a sufficiently direct causal connection between the defendant's assistance and the alleged profit.  On this view, the defendant should be only accountable for profits which he has made personally as a result of his assistance (Fyffes Group v Templeman [2002] Lloyds LR 643).  He would not be accountable for profits made directly by the defaulting trustee whom he assists, unless perhaps he were entitled to receive those profits himself but diverted them to the trustee (Ultraframe (U.K.) Ltd v Fielding [2005] EWHC 1638 (Ch), [2007] W.T.L.R. 835 at [1598]-[1600]).  Since he would be treated as if he were a trustee, he could only be held accountable for moneys which he in fact received to the use of the trust.  To hold him liable for the profits of the trustee would be to subvert the proper basis of his accountability by imposing a penalty upon him.