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Suspicious minds: Guidance on the test for dishonesty in dishonest assistance claims

In the recent decision of Group Seven & Ors v Notable Services LLP & Ors the English Court of Appeal provided helpful clarity on the test for dishonesty in dishonest assistance claims.  

The facts of the case were that G7 invested the sum of €100m with AIC, which AIC subsequently loaned to Larn. Larn’s solicitors, NS, held the €100m on account to Larn’s order. ML was an accountant at NS and organized for a number of payments to be made from these funds to Larn’s UBO, in the sum of €15m. In return for facilitating these payments, ML received a personal fee of £170,000 from Larn. AIC was subsequently found to have defrauded G7 of the investment funds.

At first instance the English High Court found that ML did not know, or have a ‘blind-eye knowledge’, that Larn was not the beneficial owner of the funds and so his conduct in facilitating the payments did not constitute dishonest assistance.

The Court of Appeal applied the current test for dishonest assistance being, (i) there is a trust, (ii) there is breach of trust, (iii) the defendant assisted with the breach of trust, and (iv) the defendant’s assistance was dishonest. The question before the Court in Group Seven was whether ML had been dishonest in facilitating the payments.

The Court followed the Supreme Court’s test in Ivey v Genting Casinos which adopted a two limbed test for dishonesty, (i) a court must ascertain subjectively the state of the defendant’s knowledge/belief as to the facts; and (ii) once that is established, the question as to whether the defendant’s conduct was honest or dishonest is to be determined applying the objective standards of ordinary decent people.

It was not argued before the Court that ML had actual knowledge that Larn was not beneficially entitled to the funds, accordingly the Court had to determine whether ML had blind-eye knowledge.

The Court adopted a two stage test for establishing blind eye knowledge, (i) the defendant must be suspicious, to be assessed subjectively on the defendant’s actual belief, and (ii) the defendant must make a conscious and deliberate decision not to ascertain the true position.

The Court found that ML had suspicions as to Larn’s entitlement to the investment funds but that he had consciously failed to take steps to ascertain the true position.

The Court’s findings in Group Seven will be of particular concern to directors and trustees who have suspicions as to transactions that are being entered into by a company/trust. There is an onus on anyone harboring suspicions as to a transaction to ensure that they go the extra mile and investigate the true position rather than to turn a blind eye.

Suspicious minds: Guidance on the test for dishonesty in dishonest assistance claims

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