Soton Equity and Trusts - alastairhudson.com

Topic 9: DISHONEST ASSISTANCE AND
UNCONSCIONABLE RECEIPT
General Reading for this topic: Hudson, chapter 20
Exceptionally, the principle of constructive trust will impose a personal liability to account in certain
circumstances. Oakley describes this jurisdiction as being based on equitable compensation - that is,
Equity’s equivalent of common law damages in making orders for payment of money. The principal
category of this personal liability to account is in the area of ‘dishonest assistance’, considered below.
Reference should also be made to the topic of Breach of Trust and in particular to the case of Target
Holdings v. Redferns [1996] 1 AC 421, [1995] 3 All ER 785 HL where Lord Browne-Wilkinson sets out
the application of equitable compensation.
1. Introduction.
STRANGERS TO THE TRUST
A “stranger” in this context is someone who is not a trustee of that trust.
Reading: Hudson, section 20.1
You should read first the introduction to chapter 20 to understand the background to these claims. The
remedy is personal liability to account as a constructive trustee on the basis of being a dishonest
assistant to a breach of trust or being a recipient of property knowing of a breach of trust.
2. Dishonest Assistance
Reading: Hudson, section 20.2
a).
The basis for the action
Lord Selborne LC in *Barnes v. Addy ((1874) 9 Ch. App. 244, 251-252):
“… strangers are not to be made constructive trustees merely because they act as
the agents of trustees in transactions within their legal powers, transactions,
perhaps, of which a Court of Equity may disapprove, unless those agents receive
and become chargeable with some part of the trust property, or unless they assist
with knowledge in a dishonest and fraudulent design on the part of the trustee …”
Agip Africa v. Jackson [1990] Ch 265
b).
The objective test for dishonesty
**Royal Brunei Airlines v. Tan [1995] 2 A.C. 378, [1995] 3 WLR 64; [1995] 3 All ER 97,
per Lord Nicholls:
“… acting dishonestly, or with a lack of probity, which is synonymous, means simply
not acting as an honest person would in the circumstance. This is an objective
standard. ... All investment involves risk. Imprudence is not dishonesty, although
imprudence may be carried recklessly to lengths which call into question the honesty
of the person making the decision. This is especially so if the transaction serves
another purpose in which that person has an interest of his own.”
[1995] 2 A.C. 378, 389:
Before considering this issue further it will be helpful to define the terms being used
by looking more closely at what dishonesty means in this context. Whatever may be
the position in some criminal or other contexts (see, for instance, Reg. v. Ghosh
[1982] Q.B. 1053), in the context of the accessory liability principle acting
dishonestly, or with a lack of probity, which is synonymous, means simply not acting
as an honest person would in the circumstances. This is an objective standard. At
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