Twinsectra Ltd. v Yardley [2002]

Dishonesty in criminal law

INTRODUCTION

This paper addresses the question of knowing assistance liability in the context of trust law. It will focus specifically on the case of Twinsectra Ltd. v Yardley [2002] (2 All ER 377) and the approach taken by Lord Hutton in that case. The paper will also assess the appropriateness of the test in this context.

KNOWING ASSISTANCE: A DEFINITION

The starting point of any breach of trust is to seek liability against the individual responsible. This is not always possible and so the law has developed liability against a third party if that third party participated to a sufficient extent in the breach of trust. It should be noted that various texts use different labels with some preferring to call it “dishonest assistance” (Hanbury at 306). The crucial question for the courts has been the level of participation required by the third party to become liable.

Traditionally there have been four requirements to successfully impose liability: the existence of a trust, a breach of the trust, assistance, and a state of mind that is now viewed as dishonesty. The seminal case was Royal Brunei Airlines Sdn. Bhd. v Tan [1995] (2 AC 378). Although the focus was on a separate issue, the Privy Council reviewed the authorities and concluded that dishonesty should be read as being “the objective standard of not acting as an honest person would in the circumstances combined with the subjective element of what the defendant actually knew” (per Lord Nicholls)

TWINSECTRA LTD v YARDLEY [2002] (2 All ER 37)

It was the difficulty of defining dishonesty that was one of the focal points of Lord Slynn of Hadley’s opinion in Twinsectra [2002]. In this case the defendant had “shut his eyes to the problems” (Twinsectra [2002] at paragraph 3). The Court of Appeal had held that this form of ignorance was dishonest within the meaning of Tan [1995]. By a 4-1 majority the House of Lords held that the Court of Appeal had misapplied Tan and that Leach’s conduct did not constitute dishonesty.

The crucial legal intricacy was the subtle shift in definition of dishonesty. Speirs (Escape from the Tangled Web 2002) accurately notes that while Lord Hutton purports to follow Lord Nicholls’ definition, in fact the four in the majority move towards a criminal law definition whereby the first question is whether the defendant was dishonest from an objective perspective and second whether they knew, subjectively, that what they did was dishonest. This is the criminal liability test as set out in R v Ghosh [1982] (QB 1053). Lord Nicholls had used a predominantly objective test, with the only subjective components being the circumstances that the defendant was aware of at the time. This was the argument made by the sole dissent of Lord Millett. He was however outvoted and the authority that comes from this case is that the test for dishonesty is a truly combined test with both objective and subjective elements, akin to the test for criminal liability.

EVALUATION

The initial concern is one of procedure: that the Lords have sub-silento over-ruled Tan [1995] under the guise of faithful interpretation. The following concerns though strike more directly to the heart of using a criminal test in these circumstances.

There is an obvious argument against the shift in law that goes to the heart of the distinction between criminal and civil liability. Comparatively criminal law has always required a higher standard to prove a case. This is shown in the burdens of proof; beyond reasonable doubt vis a vie on the balance of probabilities, and also in the tests for establishing intention. For this particular test to be of equal difficulty o the criminal test defeats the traditional purpose of the civil law.

A related concern deals in part with the facts of the case. If the defendant has merely shut his or her eyes as the defendant did in this case, the courts will in fact be seeking an intention on the part of the defendant. Logically, if they deliberately shut their eyes to a situation, a defendant is either unaware of the breach, or intends the consequences and is attempting to evade liability. Because the courts are unwilling to require the high burden of intention (Tan [1995] per Lord Nicholls, affirmed in Twinsectra [2002] per Lord Hutton) it is likely that those who purport a ‘Nelsonian blindness’ will be freed from liability, as happened in this case. Thus, a sophisticated and experienced potential defendant will be encouraged to remain far removed from the trust in the knowledge that the law will protect him or her.

Further the two part Ghosh [1982] test raises complicated issues for judge that traditionally have been left to juries: notably a determination of whether the defendant was aware of the nature of his acts. This is the type of factual interpretation which traditionally has been left to juries, as shown by the use in cases of a criminal nature. It can be argued that it is inappropriate for a judge to answer such a factually based question.

To counter these arguments, it can be said that the more subjective approach would appear to bring the law back into line with the traditional authorities. Traditionally the requisite element was ‘knowledge’ rather than ‘dishonesty’. Knowledge is essentially a subjective issue and as such Twinsectra [2002] can conceivably be viewed as a return to the correct approach, even if the methods of avoiding Tan [1995] do not bear up to scrutiny.

CONCLUSION

In conclusion it can be seen that the 4 Lord majority have moved the definition of dishonesty into the area occupied by criminal law. While this may be easier to apply, there are clearly a number of concerns, not least the confused technique used in interpreting Lord Nicholls opinion in Tan [1995].

BIBLIOGRAPHY

Allen (2001) Textbook on Criminal Law

Published by Blackstone Press

Martin J‘Modern Equity’ 17^th Edition

Published by Sweet and Maxwell

Todd ‘Textbook on Trusts’ 6^th Edition

Published by Palsgrave Publishing.

Watt G‘Cases and Materials on Trusts’ 4^th Edition

Published by Blackstones Press

Speirs A‘Escape from the Tangled Web’ 2002

http://www.ncl.ac.uk/nuls/research/wpapers/speirs1.html

Royal Brunei Airlines Sdn. Bhd. v Tan [1995]2 AC 378

R v Ghosh [1982]QB 1053

Twinsectra Ltd. v Yardley [2002]2 All ER 377