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Published online by Cambridge University Press: 29 May 2015
Determining civil liability for dishonest assistance in breach of fiduciary duty requires courts to consider a combination of subjective and objective factors. Taking into account the person’s experience, intelligence and reasons for acting (subjective factors), did the person have sufficient knowledge of the transaction (subjective factor) so as to render participation in the transaction contrary to ordinary standards of honest behaviour (objective factor)? The piecemeal development of this test, as well as its complexity, led to inconsistency and confusion in application. In 2006, the Privy Council in Barlow Clowes International Ltd (in liq) v. Eurotrust International Ltd clarified that the person accused of dishonest assistance need not actually realise that involvement in the transaction would breach ordinary standards of honesty.
This article assesses how the dishonest assistance test has been applied since Barlow Clowes in two Commonwealth countries: Singapore and Malaysia. The article submits that recent Singaporean and Malaysian judgments have not satisfactorily articulated the various elements of the dishonest assistance test, and thus an attempt is made to provide a clear and concise formulation of the test. The article further posits that while Barlow Clowes indeed added badly needed clarity, it did so only with respect to the particular issue addressed by the Privy Council’s judgment. In other areas no less important – whether there is an active–passive dichotomy between dishonest assistance and knowing receipt, and the nature of wilful blindness in the non-criminal law context – fundamental questions about the contours of the test remain. The article proposes that there should not be an active–passive distinction, and that the test for wilful blindness – a type of dishonest assistance involving suspicion and turning a blind eye – should be revised to contain both subjective and objective elements.
1 The decision referred to is Royal Brunei Airlines Sdn Bhd v. Tan [1995] 3 All ER 97 (“Royal Brunei”). The Judicial Committee of the Privy Council is the highest court of appeal for several Commonwealth countries.
2 The decision referred to is Twinsectra v. Yardley [2002] 2 AC 164 (“Twinsectra”). The House of Lords is the upper chamber of Great Britain’s bicameral legislature. Until 2009, one component of the House of Lords was the Lords of Appeal in Ordinary (commonly called the “Law Lords”), which consisted of a number of judges serving as Britain’s final court of appeal (except on Scottish criminal cases). In 2009, the Supreme Court of the United Kingdom was established and assumed the judicial functions of the House of Lords. Even before the judgment in Twinsectra was issued, commentators had been criticising the lack of clarity from Royal Brunei. See, e.g., Alan Berg, “Accessory Liability for Breach of Trust” (May 1996) 59(3) Modern L. R. 443 at 443.
3 While the dishonest assistance test is often associated with breaches by trustees, in fact the test also applies to assistance in the misappropriation by other fiduciaries, such as company directors or partners. See Mitchell, Charles, “Assistance” in Birks, Peter & Pretto, Arianna, eds., Breach of Trust (Oxford: Hart Publishing, 2002) 139 Google Scholar at 160.
4 See, e.g., David McIlroy, “A Return to Objectivity: The Interpretation of Dishonest Assistance in Barlow Clowes” (1 Mar. 2006) 3 IBFL 125; Shine, Patricia, “Dishonesty in Civil Commercial Claims: A State of Mind or a Course of Conduct?” (2012) 1 JBL 29 Google Scholar at 29; Ryan, Desmond, “Royal Brunei Dishonesty: Clarity at Last?” (Mar/Apr 2006) Conv. 188 Google Scholar at 191.
5 Compare Desmond Ryan, “Royal Brunei Dishonesty: A Clear Welcome for Barlow Clowes” (Mar/Apr 2007) Conv. 168 at 169 with Tan Kiam Peng v. Public Prosecutor [2008] 1 SLR 1 at 42. See also Dietrich, Joachim & Ridge, Pauline, “‘The Receipt of What?’: Questions Concerning Third Party Recipient Liability in Equity and Unjust Enrichment” (2007) 31 Melbourne Univ. L. R. 47 Google Scholar at 80.
6 [2006] 1 All ER 333. The All England Reports version of the case is included in the 2006 Reports but the case was actually decided in 2005.
7 Compare Shine (2012), supra note 4 at 33 and Margaret Halliwell & Prochaska, Elizabeth, “Assistance and Dishonesty: Ring-A-Ring O-Roses” (2006) 70 Conv. 465 Google Scholar with Ryan (2007), supra note 5 at 168 and Lincoln Caylor, et al., “Emergence of the Mareva by Letter: Banks’ Liability to Non-Customer Victims of Fraud” (May 2011) 12 BLI 197.
8 [2010] 2 SLR 589.
9 [2013] 2 MLJ 174.
10 [1874] LR 9 Ch App 244.
11 Barnes v. Addy [1874] LR 9 Ch App 244 at 251-52.
12 [1995] 3 All ER 97 at 109.
13 Ibid. at 107.
14 Ibid.
15 Ibid.
16 Ibid. at 105-07.
17 Ibid. at 106.
18 Ibid. at 101.
19 El Ajou v. Dollar Land Holdings plc [1994] 2 All ER 685 at 700.
20 Bank of Credit and Commerce International (Overseas) Ltd v. Akindele [2001] Ch 437 at 450-54 (“Akindele”).
21 Ibid. at 455. Akindele was significantly weakened by the 2004 House of Lords case, Criterion Properties Plc v. Stratford UK Properties LLC [2004] 1 W.L.R. 1846, which explained that recipient liability principles were not applicable to the Akindele circumstances. Nevertheless, the standard established by the Akindele Court – that the knowledge must be of such a degree as to make retention of the benefit unconscionable – has been upheld in The Law Society for England and Wales v. Isaac & Isaac International Holdings Ltd [2010] EWHC 1670 (Ch) and is the standard used in Singapore. See Wee Chiaw Sek Anna v. Ng Li-Ann Genevieve (sole executrix of the estate of Ng Hock Seng, deceased) and another [2013] 3 SLR 801 at 843.
22 Akindele at 448.
23 [2002] 2 All ER 377.
24 Until 2009, the House of Lords generally acted as the final court of appeal in the United Kingdom, while the Privy Council’s decisions are generally merely persuasive authority, not binding, on United Kingdom courts.
25 Twinsectra at 198.
26 Barlow Clowes at 338.
27 Ibid.
28 [2006] 9 ITELR 401 at 422.
29 [2010] All ER (D) 221.
30 Ryan (2007), supra note 5 at 172.
31 Starglade at para. 25.
32 Application of English Law Act (Cap. 7A), s. 3(1).
33 Civil Law Act 1956 (Act 57), s. 3(1). In Peninsular Malaysia, courts apply English law as administered in England on 7 April 1956; in Sabah, 1 December 1951 (including statutes of general application); and in Sarawak, 12 December 1949 (including statutes of general application).
34 Application of English Law Act (Cap. 7A), s. 3(2); Civil Law Act 1956 (Act 57), s. 3(1).
35 Judicial Committee (Repeal) Act 1994 (Singapore); Courts of Judicature (Amendment) Act 1976 (abolishing criminal and constitutional appeals from Malaysia) and Constitution (Amendment) Act 1983 (abolishing civil appeals from Malaysia).
36 Zage v. Ho at 599.
37 Barlow Clowes at 338.
38 [1992] 4 All ER 161. Originally reported in 1983 as Baden v. Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1983] B.C.L.C. 325, the opinion was subsequently issued “more officially” in 1992. See Howard, Chris, “The Mens Rea Tests for Money Laundering Offence – 1” (1998) 148 NLJ 1818.Google Scholar The elements of Baden and their continued applicability are outside the scope of this article.
39 George Raymond Zage III v. Rasif David [2009] 2 SLR 479 at 492 (“Zage v. Rasif”).
40 [2010] 3 SLR 813.
41 The Singapore High Court is the second highest court in Singapore, after the Court of Appeal. Together they form the Supreme Court of the Republic of Singapore.
42 Swiss Butchery Pte Ltd v. Huber Ernst and others and another suit [2010] 3 SLR 813 at 821-22 (internal citations omitted).
43 Royal Brunei at 105-06.
44 Abou-Rahmah at 425; see also Martin, Jill E., Modern Equity, 19th ed. (London: Sweet & Maxwell, 2012) at 340.Google Scholar
45 [2001] 2 MLJ 332.
46 In Malaysia, the two High Courts – the High Court in Malaya and the High Court in Sabah and Sarawak – are below the Court of Appeal and the country’s highest court, the Federal Court.
47 Industrial Concrete Products Bhd v. Concrete Engineering Products Bhd [2001] 2 MLJ 332 at 365.
48 [2009] MLJU 1251.
49 Darinco Enterprise Sdn Bhd v. Rosman Bin Salim Anor MIB Petroleum & Power Sdn Bhd [2009] MLJU 1251 at 5-6 (judgment page numbers were unavailable; Lexis-Nexis page numbers have been used).
50 Darinco Enterprise v. Rosman at 7.
51 Kuan v. Doran at 209, 210, 211, 219-20.
52 Barnes v. Addy at 251-52. Knowing receipt is not the focus of this article but has been discussed above in Section II.A and will be discussed in some depth below as it contrasts to dishonest assistance.
53 Barlow Clowes at 338. To be clear, this knowledge is actual, not constructive, knowledge. In other words, the defendant must actually have knowledge of the impropriety of the transaction, but he or she does not necessarily need to realise that it is improper. It is enough that an honest person would realise that it is improper.
54 Royal Brunei at 106. Barlow Clowes affirmed the concept. See Barlow Clowes at 337. Sometimes a distinction is made between, on the one hand, wilfully shutting one’s eyes to the obvious and, on the other, wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; sometimes the two are treated as the same. Compare Baden and others v. Sociéte Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161 (distinguishing the two) and Hayton, David, “Personal Accountability of Strangers as Constructive Trustees” (1985) 27 MAL. L.R. 313 Google Scholar at 315 (equating the two).
55 Royal Brunei at 107.
56 Ibid.
57 Starglade at para. 25.
58 Royal Brunei at 107.
59 Whether the defendant’s experience, intelligence and qualities must also be considered in determining circumstance (b) is unclear, but probably they would not. Their applicability may depend on whether wilful blindness requires subjective or objective suspicion of the impropriety. If subjective, considering the defendant’s personal qualities would be unnecessary.
60 Zage v. Rasif at 479.
61 George Raymond Zage III v. Ho Chi Kwong [2010] 2 SLR 589 at 593-94 (“Zage v. Ho”). The price of the 26 pieces was Singapore $1,780,350.
62 Zage v. Rasif at 480. The plaintiffs claimed that Lim knowingly received and/or dishonestly assisted Rasif as well. The Malaysia High Court held Lim liable for dishonest assistance. This part of the judgment was not appealed.
63 The symbol “$” without any country designation refers to Singapore dollars.
64 Dietrich and Ridge argue that recipient liability “should be viewed as a subset of knowing assistance liability” because the defendant’s conduct is wrongful and participatory. Dietrich & Ridge (2007), supra note 5 at 60.
65 Zage v. Ho at 608.
66 Zage v. Ho at 595.
67 Wu, Tang Hang, “Equity and Trusts” (2009) 10 SAL Ann Rev 299 Google Scholar at 309, also noted the distinction.
68 Zage v. Ho at 608 (emphasis added).
69 The Singapore Court of Appeal cited Nolan, Richard, “How Knowing is Knowing Receipt?” (2000) 59(3) Cambridge L. J. 447 CrossRefGoogle Scholar at 447, as its authority for the active-passive dichotomy. Indeed, Nolan does state that “[d]ishonesty describes and qualifies action, not a passive receipt.” He reasons that dishonesty is appropriate for assistance, rather than receipt, because it is a fault element founded on culpable acts. By this, he presumably means that dishonesty somehow requires action, while the knowledge in knowing receipt does not. As support, he cites Royal Brunei. But that decision did not make the active-passive distinction.
70 Dietrich, Joachim, “The Liability of Accessories under Statute, in Equity, and in Criminal Law: Some Common Problems and (Perhaps) Common Solutions” (2010) 43 Melbourne Univ. L. R. 106 Google Scholar at 124.
71 Dietrich & Ridge (2007), supra note 5 at 80.
72 Dietrich (2010), supra note 70 at 125. Dietrich uses the term “knowing assistance” instead of “dishonest assistance.”
73 Ibid. at 124-25 (citing Finn, Paul D., “The Liability of Third Parties for Knowing Receipt or Assistance” in Waters, D. W. M. ed., Equity, Fiduciaries and Trusts (Scarborough, ON: Carswell, 1993) at 199)Google Scholar (emphasis added).
74 See Cuellar, Mariano-Florentino, “Criminal Law: The Tenuous Relationship between the Fight against Money Laundering and the Disruption of Criminal Finance” (2003) 93 J. Crim. L. & Criminology 311 Google Scholar at 327.
75 See ibid. at 330.
76 Agip (Africa) Ltd v. Jackson [1990] Ch 265 at 291-92; Twinsectra at 194.
77 See, e.g., Kris Hinterseer, “The Wolfsberg Anti-Money Laundering Principles” (2001) JMLC 5(1) at 38; Clark, Nicholas, “The Impact of Recent Money Laundering Legislation on Financial Intermediaries” (1996) 14 Dick. J. Int’l L. 467 Google Scholar at 483; Rider, Barry A. K., “The Limits of the Law: An Analysis of the Interrelationship of the Criminal and Civil Law in the Control of Money Laundering” (1999) JMLC 2(3) at 222.Google Scholar
78 Dietrich (2010), supra note 70 at 125.
79 Zage v. Ho at 611.
80 [2013] 1 SLR 173. Although the judgment report is dated 2013, the case was decided in 2012.
81 Yong Kheng Leong and another v. Panweld Trading Pte Ltd and another [2013] 1 SLR 173, 204 (“Yong v. Panweld”).
82 Ibid. at 204-05. Citing Comboni Vincenzo v. Shankar’s Emporium (Pte) Ltd [2007] 2 SLR(R) 1020, the Court held that wilful avoidance of knowledge was sufficient for knowing receipt. Ibid. Yet Comboni v. Shankar’s Emporium relied on the five categories in Baden and others v. Sociéte Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161 to make this determination. These categories were formulated with, as it was called at that time, knowing assistance, rather than knowing receipt, in mind. Martin (2012), supra note 44 at 344. Thus, the inclusion of wilful blindness as a type of knowing receipt is questionable.
83 The total paid was $873,959.20.
84 Yong v. Panweld at 205.
85 As discussed in Section II, the term “knowing assistance” has, over time, become more commonly referred to as “dishonest assistance.” In the discussion herein of Kuan v. Doran, “knowing assistance” is used to reflect the term used by the Court.
86 Kuan v. Doran at 210-11.
87 Ibid. at 212.
88 Ibid. at 212-13.
89 Ibid. at 218.
90 Ibid. at 219. The Court’s use of the term “conscious impropriety” out of its original context is questionable. Although Royal Brunei used the term, it qualified its use by stating that “for the most part dishonesty is to be equated with conscious impropriety.” (emphasis added). As Barlow Clowes has made clear, a defendant need not believe that his or her actions are dishonest, nor even realise that an honest person would consider them to be dishonest.
91 Royal Brunei at 108.
92 “Nelsonian” refers to a famous English one-eyed admiral who held a telescope to his blind eye so that he would not see. See Sue Farran, “Barrett and Sinclair v McCormack – Case Note” (1999) 3 J. So. Pac. L.
93 See, e.g., Husak, Douglas N. & Callender, Craig A., “Wilful Ignorance, Knowledge, and the ‘Equal Culpability’ Thesis: A Study of the Deeper Significance of the Principle of Legality” (1994) 1194 Wis. L. Rev. 29 Google Scholar at 35.
94 Charlow, Robin, “Wilful Ignorance and Criminal Liability” (1992) 70(6) Texas L. R. 1351 Google Scholar at 1352.
95 Luban, David, “Contrived Ignorance” (1998-1999) 87 Geo. L.J. 957 Google Scholar at 959; Williams, Glanville, Criminal Law: The General Part, 2nd ed. (London: Steven & Sons, 1961) at 159.Google Scholar
96 See, e.g., Husak & Callender (1994), supra note 93 at 42.
97 Ibid. at 41-42.
98 Ibid. at 39.
99 Ibid. at 40.
100 See, e.g., Gardner, Simon, “Knowing Assistance and Knowing Receipt: Taking Stock” (1996) 112 L.Q.R. 56 Google Scholar; Harpum, Charles, “Liability for Intermeddling with Trusts” (Mar. 1987) 50(2) Modern L. R. 217 Google Scholar at 218 n. 10.
101 See Shine (2012), supra note 4 at 30, 42-43; Dietrich (2010), supra note 70 at 109.
102 Baden and others v. Sociéte Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161 at 236.
103 See Howard (1998), supra note 38 (citing James & Son Limited v. Smee [1955]) 1 QB 78; Westminster City Council v. Croyalrange [1986] 2 All ER 353; Eagle Trust Plc v. SBC Securities [1992] 4 All ER 488; Polly Peck International plc v. Nadir (No 2) [1992] 4 All ER 769 at 777).
104 Royal Brunei at 106 (emphasis added).
105 Twinsectra at 195 (emphasis added).
106 The Council cited approvingly to the lower court’s statement that a dishonest state of mind “may consist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge.” Barlow Clowes at 337 (emphasis added). See also Charlow (1992), supra note 94 at 1358.
107 Kuan v. Doran at 214.
108 Ibid.
109 Ibid. at 216.
110 Ibid. at 214.
111 Eagle Trust Plc v. SBC Securities Ltd. [1992] 4 All E.R. 488 at 497.
112 Kuan v. Doran at 213-14.
113 Dietrich (2010), supra note 70 at 107.
114 See, e.g., Ryan (2007), supra note 5 at 168; Tang (2009), supra note 67 at 309.
115 Ryan (2007), supra note 5 at 169.
116 See Williams (1961), supra note 95 at 159.
117 See, e.g., Luban (1998-1999), supra note 95 at 969; Husak & Callender (1994), supra note 93 at 42.
118 Zage v. Ho at 609.
119 Ibid.
120 Ibid.
121 Tan Kiam Peng v. Public Prosecutor at 42.