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Twinsectra Ltd v Yardley

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Twinsectra Ltd v Yardley

Twinsectra Ltd v Yardley
Court House of Lords
Date decided 21 March 2002
Citation(s) [2002] UKHL 12, [2002] 2 AC 164 , [2002] 2 All ER 377
Judge(s) sitting Lord Slynn, Lord Steyn, Lord Hoffmann, Lord Hutton and Lord Millett
Keywords
Full text from parliament.uk

Twinsectra Ltd v Yardley [2002] dishonest assistance.

Facts

An entrepreneur named Mr Yardley, and two associated solicitors Mr Leach and Mr Sims, was sued by Twinsectra Ltd for failing to repay a £1m loan. Mr Yardley had said he needed the loan for property investments in a site near Apperley Bridge, Bradford. He had also been owed £1.5m by Mr Sims from previous dealings. Twinsectra Ltd said it would only provide the loan if Mr Yardley's solicitor provided a guarantee. Mr Yardley asked his first solicitor, Paul Leach of Godalming to do this, but Leach refused. Then he asked Mr Sims, who accepted. They agreed that if Mr Sims took on the loan onto his own account, then the prior debt would be considered repaid. In addition, Mr Sims agreed with Twinsectra Ltd that he would only pass on the £1m loan money to Yardley for buying the property. The contractual clause said,

However, after Mr Sims got the money and he passed it to Leach, and Leach passed the money to Mr Yardley, Yardley used £357,720.11 of the money for other things. Twinsectra Ltd sued them all, arguing the money was bound by a Quistclose trust. Mr Sims was in breach of trust although he was bankrupt, and so Mr Leach was alleged to have dishonestly assisted the breach. He argued he believed he held the money to Yardley’s order.

The trial judge found that Leach was not dishonest because he honestly believed that the undertaking did not run with the money. However, he made a contradictory finding that Leach had deliberately shut his eyes.

Judgment

Quistclose trust

The leading judgment was given by Lord Millett, whose judicial analysis closely mirrored that which he suggested twenty years previously in an article in the Law Quarterly Review.[1]

The key issue, according to Lord Millett, in upholding the trust concept is ascertaining where the beneficial interest in the money lies. Lord Millett suggests that there are four possible answers: (1) the lender, (2) the borrower, (3) the ultimate purpose, and (4) no-one, in the sense that the beneficial interest remains "in suspense". His Lordship then analysed all of the foregoing, and determined that the beneficial interest remains with the lender, until the purpose for which the funds are lent is fulfilled. The only other reasoned decision was Lord Hoffmann, who agreed with Lord Millett, though disagreed as to whether it was an express or resulting trust.

Furthermore, Lord Millett spent some time considering the necessary intention. It has long been settled law that a person need not have a specific intention to create an express trust, so long as the court can determine from the person's intention that a beneficial entitlement should be conferred which the law (or equity) will enforce. So in Twinsectra where there was a solicitor's undertaking that the money should only be used for one purpose so that the money is not at the borrower's free disposal, this was held to be sufficient intent.

It was held that a Quistclose trust existed and Sims held the money on trust for Twinsectra. Therefore, there was a breach of trust; but Sims had gone bankrupt, which necessitates a dishonest assistance claim against a third party.

Dishonest assistance

The trial judge held that Leach was not dishonest as he honestly believed that the undertaking did not run with the money, even though he deliberately shut his eyes to the risk of the loan money being misapplied. The Court of Appeal, recognizing the contradiction in finding, went behind the judge's finding and held that Leach was dishonest.

On appeal the House of Lords upheld the judge's finding that Leach was not dishonest and therefore dismissed the claims. Lord Hutton delivered the leading judgment. He considered three possible tests in the area of accessory liability: a purely subjective test, a purely objective test and a "combined test". He interpreted Lord Nicholls in Royal Brunei Airlines v Tan to have articulated a combinest test: for a person to be held liable as an accessory to a breach of trust, he had to have acted dishonestly by the ordinary standards of reasonable and honest people and have been himself aware that by those standards he was acting dishonestly. He rejected the purely subjective test outright, and rejected the purely objective test as his Lordship regarded a finding by a judge that a defendant has been dishonest as a grave finding, particularly against a professional man. Therefore, he considered it "less than just for the law to permit a finding that a defendant had been "dishonest" in assisting in a breach of trust where he knew of the facts which created the trust and its breach but had not been aware that what he was doing would be regarded by honest men as being dishonest". Lord Hutton rejected Lord Millett's dissenting judgment as his Lordship considered Lord Millett to have adopted a purely objective test.

Lord Hoffmann delivered a concurring judgment. He said that the defendant must be conscious of the fact that he was "transgressing ordinary standards of honest behaviour" in order to be liable for dishonest assistance. He rejected Lord Millett's dissenting judgment on the ground it departed from Royal Brunei.

Therefore, he majority held that Leach did not satisfy the subjective limb of the combined test and hence was not dishonest.

On the other hand, Lord Millett delivered a strong dissenting judgment, maintaining that Royal Brunei decided that the test of dishonesty is largely objective, although account must be taken of subjective considerations such as the defendant’s experience and intelligence and his actual state of knowledge at the relevant time. But it is not necessary that he should actually have appreciated that he was acting dishonestly; it is sufficient that he was. The question is whether an honest person would appreciate that what he was doing was wrong or improper, not whether the defendant himself actually appreciated this. His Lordship gave 3 reasons for this:

  1. Consciousness of wrongdoing is an aspect of mens rea and an appropriate condition of criminal liability: it is not an appropriate condition of civil liability.
  2. The objective test is in accordance with Barnes v Addy and the traditional doctrine.
  3. The claim for “knowing assistance” is the equitable counterpart of the economic torts. These are intentional torts; negligence is not sufficient and dishonesty is not necessary. Liability depends on knowledge. A requirement of subjective dishonesty introduces an unnecessary and unjustified distinction between the elements of the equitable claim and those of the tort of wrongful interference with the performance of a contract.

By applying the Royal Brunei test, Lord Millett held that Leach was dishonest.

See also

Notes

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