| Barlow Clowes International Ltd v Eurotrust International Ltd | |
|---|---|
 | |
| Court | Judicial Committee of the Privy Council |
| Citation(s) | [2005] UKPC 37, [2006] 1 All ER 333 |
| Case history | |
| Prior action(s) | Staff of Government Division of the High Court of Justice of the Isle of Man |
| Keywords | |
| Breach of trust, dishonest assistance | |
Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37 is an English trusts law case, concerning breach of trust and liability for dishonest assistance.
Barlow Clowes International Ltd was in liquidation, after its fraudulent securities scheme was exposed. It took £140m of investors’ money, and paid it into an Isle of Man company where Mr Henwood was a director. The liquidator of Barlow Clowes argued that Mr Henwood had dishonestly assisted the dissipation of the investors’ money.
The deemster (judge on the Isle of Man) held that Mr Henwood was dishonest. The Court of Appeal held that Mr Henwood was not dishonest, and there was no evidence by which the deemster could have found this. Her disbelief at Mr Henwood’s oral testimony and her inferences were not enough.
Lord Hoffmann held Mr Henwood was liable, and the deemster had correctly applied the principles of liability for dishonest assistance. She had stated that Mr Henwood suspected the funds were misappropriated money, and (disapproving Brinks Ltd v Abu-Saleh (No 3) [1996] CLC 133) a person could know and suspect money was being misappropriated and thus be liable without knowing the money was held on trust or even knowing what a trust meant. The findings of fact could be made legitimately. With later transactions he had been informed that the director of Barlow Clowes was misappropriating clients’ money, and no inquiries were made. He held there was an element of ambiguity in Lord Hutton’s decision in Twinsectra Ltd v Yardley . When it was said that ‘what he knows would offend normally accepted standards of honest conduct’ means that what he knows was in objective fact dishonest.
10. Such a state of mind may consist in knowledge that the transaction is one in which he cannot honestly participate (for example, a misappropriation of other people's money), or it may consist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge. [1] Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant’s mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards.’
[...]
15. Their Lordships accept that there is an element of ambiguity in these remarks which may have encouraged a belief, expressed in some academic writing, that Twinsectra had departed from the law as previously understood and invited inquiry not merely into the defendant’s mental state about the nature of the transaction in which he was participating but also into his views about generally acceptable standards of honesty. But they do not consider that this is what Lord Hutton meant. The reference to “what he knows would offend normally accepted standards of honest conduct” meant only that his knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were.
Lord Nicholls, Lord Steyn gave concurring judgments.
Lord Walker and Lord Carswell concurred.
Dishonesty is to act without honesty. It is used to describe a lack of probity, cheating, lying, or deliberately withholding information, or being deliberately deceptive or a lack in integrity, knavishness, perfidiosity, corruption or treacherousness. Dishonesty is the fundamental component of a majority of offences relating to the acquisition, conversion and disposal of property defined in criminal law such as fraud.
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 is an English tort law case on economic loss in English tort law resulting from a negligent misstatement. Prior to the decision, the notion that a party may owe another a duty of care for statements made in reliance had been rejected, with the only remedy for such losses being in contract law. The House of Lords overruled the previous position, in recognising liability for pure economic loss not arising from a contractual relationship, applying to commercial negligence the principle of "assumption of responsibility".
Tracing is a legal process, not a remedy, by which a claimant demonstrates what has happened to his/her property, identifies its proceeds and those persons who have handled or received them, and asks the court to award a proprietary remedy in respect of the property, or an asset substituted for the original property or its proceeds. Tracing allows transmission of legal claims from the original assets to either the proceeds of sale of the assets or new substituted assets.
R v Hinks [2000] UKHL 53 is an English case heard by the House of Lords on appeal from the Court of Appeal of England and Wales. The case concerned the interpretation of the word "appropriates" in the Theft Act 1968. The relevant statute is as follows:
Barclays Bank Ltd v Quistclose Investments Ltd[1968] UKHL 4 is a leading property, unjust enrichment and trusts case, which invented a new species of proprietary interest in English law. A "Quistclose trust" arises when an asset is given to somebody for a specific purpose and if, for whatever reason, the purpose for the transfer fails, the transferor may take back the asset.
English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.
R v Ghosh [1982] EWCA Crim 2 is an English criminal law case setting out a test for dishonest conduct which was relevant as to many offences worded as doing an act dishonestly, such as deception, as theft, as mainstream types of fraud, and as benefits fraud. The test has been revised to an objective test, with rare exceptions, by the Supreme Court in Ivey v Genting Casinos [2017] UKSC 67.
The English law of unjust enrichment is part of the English law of obligations, along with the law of contract, tort, and trusts. The law of unjust enrichment deals with circumstances in which one person is required to make restitution of a benefit acquired at the expense of another in circumstances which are unjust.
Dishonest assistance, or knowing assistance, is a type of third party liability under English trust law. It is usually seen as one of two liabilities established in Barnes v Addy, the other one being knowing receipt. To be liable for dishonest assistance, there must be a breach of trust or fiduciary duty by someone other than the defendant, the defendant must have helped that person in the breach, and the defendant must have a dishonest state of mind. The liability itself is well established, but the mental element of dishonesty is subject to considerable controversy which sprang from the House of Lords case Twinsectra Ltd v Yardley.
Twinsectra Ltd v Yardley[2002] UKHL 12 is a leading case in English trusts law. It provides authoritative rulings in the areas of Quistclose trusts and dishonest assistance.
A Quistclose trust is a trust created where a creditor has lent money to a debtor for a particular purpose. If the debtor uses the money for any other purpose, then it is held on trust for the creditor. Any inappropriately spent money can then be traced, and returned to the creditors. The name and trust comes from the House of Lords decision in Barclays Bank Ltd v Quistclose Investments Ltd (1970), although the underlying principles can be traced back further.
Foskett v McKeown[2000] UKHL 29 is a leading case on the English law of trusts, concerning tracing and the availability of proprietary relief following a breach of trust.
Bishopsgate Investment Management Ltd v Homan [1994] EWCA Civ 33 is an English trusts law case about whether a beneficiary whose fiduciary breaches trust, may trace assets through an overdrawn account to its destination.
Vaughan v Barlow Clowes International Ltd [1991] EWCA Civ 11 is an English trusts law case, concerning tracing.
Barnes v Addy (1874) LR 9 Ch App 244 was a decision of the Court of Appeal in Chancery. It established that, in English trusts law, third parties could be liable for a breach of trust in two circumstances, referred to as the two 'limbs' of Barnes v Addy: knowing receipt and knowing assistance.
Baden v Société Générale pour Favoriser le Developpement du Commerce et de l'Industrie en France [1983] BCLC 325 is an English trusts law case, concerning breach of trust and knowing receipt of trust property. It was most famous for giving rise to the "Baden scale" or the "Baden knowledge scale" following on from the judgment of Peter Gibson J as to the five different types of relevant knowledge in knowing assistance cases. The use of the Baden scale has since fallen out of judicial favour in the United Kingdom.
Brinks Ltd v Abu-Saleh [1996] CLC 133 is an English trusts law case, concerning breach of trust and liability for dishonest assistance. It established an apparently high threshold for liability for dishonest assistance.
Royal Brunei Airlines Sdn Bhd v Tan[1995] UKPC 4 is an English trusts law case, concerning breach of trust and liability for dishonest assistance.
Belmont Finance Corp Ltd v Williams Furniture Ltd [1980] 1 All ER 393 is an English trusts law case, concerning breach of trust and dishonest assistance.
Barlow Clowes International Ltd was a British company, whose fraud and collapse caused an accounting scandal in 1988.