When team work goes bad: Claims in dishonest assistance

Team work may well make the dream work, but it can also lead to directors and senior office holders becoming unwitting parties to another’s wrongdoing. In corporate governance, maintaining the integrity of fiduciary relationships is essential.

Individuals can exploit their positions for personal gain. When a fiduciary or trustee breaches their duties, they may involve others to help them carry out the wrongdoing. The legal doctrine of dishonest assistance holds individuals who knowingly aid such a breach accountable – even if they did not directly commit the wrongful act themselves.

In cases of fraud within a commercial setting, it is common for multiple parties, entities, and transactions to be involved. Although strong evidence may exist, and a judgment may be obtained against the primary wrongdoer, sometimes recovering assets from them can often be a slow and difficult process.

Where a fraudster has acted in collaboration with others, it is important to consider pursuing claims for dishonest assistance, either alongside claims against the primary wrongdoer or independently, as part of the broader strategy for redress. A party who is liable for dishonest assistance is personally liable to account for any loss caused by the breach.

A claim for dishonest assistance arises where:

• there is a breach of trust or fiduciary duty by someone other than the defendant
• the defendant must have helped that person in the breach
• the defendant must have a dishonest state of mind

Thus, dishonest assistance arises when a third party (the “defendant”) dishonestly helps the primary wrongdoer with a breach of trust or fiduciary duty. The fact that the claimant and the defendant are not known to one another or have no formal legal relationship does not stop the potential for liability to arise.

The first element is that there must be a breach of duty by the trustee/fiduciary. A trust is an arrangement where one party, the trustee, holds and manages property or assets on behalf of another party, according to the terms of the trust. A fiduciary relationship arises where a party is entrusted with the responsibility to act in the best interests of another party. Such relationships include for example principals and agents (including companies and their directors), solicitors and their clients and banks and their clients. The breach by the trustee/fiduciary need not be dishonest. This is because the liability of the defendant is fault-based and what matters is the nature of their fault not that of the trustee/fiduciary.

The next element is that the defendant must have assisted in, induced or procured the breach. This will be a matter of fact. The assistance does not need to be the sole cause of the breach but it must have played more than a minimal role in the breach being carried out. It is not necessary for a defendant to have actually handled or received any assets.

Key to success in such a claim, and often the point which causes the most difficulty, is establishing that the defendant was dishonest. Dishonesty here means not acting as an honest person would in the circumstances. That is assessed objectively, having regard to what the defendant actually knew at the time, rather than what a reasonable person would have known or appreciated. Importantly, a defendant cannot escape liability by simply turning a wilful blind eye to the conduct because an honest person does not deliberately close their eyes and ears, or deliberately not ask questions, to avoid learning something they would rather not know, and proceed regardless. However, a defendant does not have the required state of mind if they merely suspect what is going on.

It does not need to be proven that the defendant was aware of the details of the underlying fraud, that a trust existed, and/or they knew the facts which give rise to the trust. It is enough that they simply knew they were assisting the trustee/fiduciary to do something they were not entitled to do.

Allegations of dishonest assistance must be clearly pleaded and supported by strong evidence. Vague claims will be insufficient. The evidential burden to prove dishonest assistance is the civil balance of probability test. However, because a claim of dishonesty is serious and more improbable, clear evidence will be required to meet the civil standard of proof.

Speak to an expert

Our team of expert commercial litigators have considerable experience dealing with fraud and establishing dishonesty in such cases. We can guide you through the complexities of bringing a dishonest assistance claim, ensuring that all the necessary facts are carefully pleaded and supported by robust evidence. Contact us on 0800 652 8025 or send an enquiry.