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dishonest what would offend normally accepted standards of dishonest
conduct.” 114
To sum up the court‟s approach in ascertaining whether there is „intent to
defraud‟, it is submitted that the court started with general observations that fraud
can be inferred if a company continued to carry on business when the directors
know there were no reasonable prospects of the debts being paid. Later cases then
clarified that fraud could not have been limited to such situations only and would
depend on facts of each case. However, it is settled law that whenever fraud is
involved, it is necessary to prove dishonesty on the part of the directors.
The earlier cases seemed to apply a subjective standard to determine dishonesty,
focusing on the state of mind of the defendant at the time that decisions were
made. However, the cases did not discount the possibility of making an inference
of fraud which suggests an objective test. Some cases have insisted on additional
factors such as misrepresentation, deception or personal gain before fraud can be
inferred. From the latest decisions by the courts, the current position on the test of
dishonesty is whether, on the balance of probabilities, the person in question
knows that what he is doing is dishonest, based on what a reasonable honest man
would regard as dishonest, or whether he is acting recklessly to the detriment of
creditors.
114 [2002] 2 AC 164 at 174 see dissenting judgment by Lord Millet where his Lordship rejected
the use of the combination test and held that it was sufficient to show that the person acted
with the requisite knowledge. He opined that to determine the person‟s state of mind is an
aspect of mens rea and is more appropriate in criminal liability than in civil liability. For civil
liability, he reasoned that it was sufficient if the person realised that his conduct was dishonest
so that it constituted intentional wrongdoing.
The same test was also applied in Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming[1995]
2 AC 378 at 389 and can be seen from the judgments of Lord Nicholls. The judge regarded
acting dishonestly simply to mean “not acting as an honest person would in the
circumstances…..Honesty has a connotation of subjectivity, as distinct from the objectivity of
negligence. Honesty, indeed, does have a strong subjective element in that it is a description of
a type of conduct assessed in the light of what a person actually knew at the time…
Carelessness is not dishonesty. Thus… dishonesty is to be equated with conscious impropriety.
However, these subjective characteristics of honesty do not mean that individuals are free to
set their own standards of honesty in particular circumstances. The standard of what constitutes
honest conduct is not subjective. Honesty is a not an optional scale, with higher or lower
values according to the moral standards of each individual. If a person knowingly appropriates
another‟s property, he will not escape a finding of dishonesty simply because he sees nothing
wrong in such behaviour.”
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