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Published 25 julio 2019
In a key decision of the Court of Appeal, an accountant was found to have dishonestly assisted breaches of trust and fiduciary duty in a very substantial fraud. This case clarifies the new (objective) test for dishonesty in accessory liability for breaches of trust or fiduciary duties. Accountants and other professionals involved in financial transactions should take note as this case is likely to make a finding of dishonesty in accessory liability easier to prove.
Group Seven Limited and others v Notable Services LLP and others  EWCA Civ 614 (11 April 2019)
Following a €100 million fraud on a Swiss company (the Claimant), there was an attempt to launder the proceeds using the client account of a London multi-disciplinary partnership, whose members included an accountant (L). The money was held in the firm’s client account for the benefit of a company owned and controlled by a fraudster (N). Acting on N’s instructions, the firm paid away some €15 million across 40 payments. One of the payments was for £170,000 to a Panamanian company which was L’s ‘personal fee’ for using the firm’s client account to facilitate the making of the other payments.
In earlier proceedings, judgment for over €11 million was obtained against N and his company. N was later convicted of money laundering and sentenced to 14 years’ imprisonment. Unable to recover all its losses, the Claimant then issued proceedings against other parties including L.
The claims against L were for (1) compensation for dishonest assistance for breaches of trust by N’s company in relation to the €100 million in the firm’s client account; and (2) for unconscionable receipt of trust monies.
At first instance, the judge held that, objectively, L knew of facts which would have shown an honest and reasonable man that N was not entitled to the €100m, but crucially L did not know or have “blind-eye knowledge” that the money in the client account was not beneficially owned by N’s company. In the absence of such knowledge, L’s conduct did not constitute dishonest assistance when making payments at the direction of N. That was notwithstanding the judge’s findings that L’s actions formed a central part of the breach of trust and L had obtained his £170,000 in return for deliberately and dishonestly breaking the Solicitors Accounts Rules.
The Claimant appealed.
Three weeks after the first instance decision came the Supreme Court’s clarification of the law on “dishonesty” in Ivey v Genting Casinos (UK) Ltd (2017). Ivey held that dishonesty must be determined by the objective standards of ordinary decent people and whether they would consider the defendant’s conduct dishonest. There is no need to prove that “subjectively” a defendant knew that what he was doing would be regarded as dishonest by honest people (this subjective requirement laid down in R v Ghosh (1982) was discredited and overruled as incorrect).
In light of the Supreme Court’s decision in Ivey, the Court of Appeal in Group Seven reviewed the law on dishonest assistance and unanimously overturned the judge’s conclusion that L’s assistance was not dishonest. The Court held the clear logic of the judge’s unchallenged findings of fact, in particular that L knew facts which would have shown an honest and reasonable man that N was not entitled to the €100 million, as well as L’s receipt of the bribe of £170,000, was that L must have been guilty of dishonest assistance. L’s negotiation of the bribe and his concealment of it from his colleagues (and others), were self-evidently dishonest. Furthermore, since L’s receipt of the bribe was itself dependent on his arranging for the €100 million to be placed into the firm’s client account, it was, in the Court of Appeal’s view, impossible to insulate L’s dishonesty in assisting the making of payments out of the account from his equally dishonest conduct in facilitating the initial receipt of the €100 million into the account. If the judge had stood back and reviewed the position as a whole, the only conclusion to which he could reasonably have come, according to the Court of Appeal, is that L’s conduct was objectively dishonest.
Significantly for future cases involving allegations of dishonest assistance, the Court of Appeal concluded the judge’s finding about the absence of blind-eye knowledge by L as to the beneficial ownership of the €100 million in the hands of N’s company could not stand. L had blind-eye knowledge since he clearly suspected (if he actually did not know) that the money was not N’s and he consciously decided to refrain from taking any steps to confirm the true state of affairs for fear of what he may find.
The Court noted (obiter) a defendant's state of mind may include suspicions of beliefs which fall short of constituting blind-eye knowledge, and this may be relevant to the overall picture to which the objective standard of dishonesty is to be applied.
This is an important decision which is the first to apply the test for dishonesty in accessory liability, following the decision of the Supreme Court in Ivey. The present case clarifies the new test for dishonesty in accessory liability which now amounts to the following:
Going forward, we predict this case is likely to make a finding of dishonesty in accessory liability easier to prove. Accountants and other professionals involved in financial transactions must be alive to the possibility that where they suspect all is “not right”, they face greater exposure to allegations of dishonest assistance.
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