•    BCCI v Akindele [2001] Ch 437
Facts:    BCCI was a famous bank that operated around the world in tax havens and collapsed under corruption. Before BCCI fell apart, and before it was known that it was corrupt, a particular Nigerian businessman entered into a transaction with the Cayman Islands operation of the bank. As far as he was concerned, he would lend the bank 10 million pounds, and after two years, the bank would pay him back the money plus 10% interest. This was an extraordinarily good deal. Two years later, Akindele redeemed the loan and got back some 16 million pounds. The trouble was, it came to light that the bank was corrupt and it went into liquidation. Liquidators decided to investigate this deal to see where they could get some money from. The documentation of the deal demonstrated that this was an overall scam. The argument made against Akindele was that he signed these documents and knew the nature of what the bank was trying to do (committing a fraud against the regulators and other borrowers). Hence, it was argued that he had knowledge of a breach of fiduciary duty by these bank directors.

Held:    He was not held liable as a knowing recipient.

Although he knew the facts and knew the structure of the transaction, it was legitimate for him to adopt the views he held. He had no reason to assume that the people acting with him were not authorised to act for the bank. He did not have to make further enquiries (under the indoor management rule) as to whether the directors were breaching their fiduciary duties.

The test for liability proposed by the English Court of Appeal is that the recipient must have a “state of knowledge such as to make it unconscionable for him to retain the benefit of the receipt.”

Hence, simply knowing the facts, which if inquired into, would put you on notice of fraud or reveal breach of fiduciary duty, is not enough. You actually need to have a state of knowledge of your own, such as to make it unconscionable to retain the benefit of the receipt.

Hence, the view in Nelson is no longer the correct view. The view in Nelson is a stricter test than the view in BCCI.

2)    “Knowing assistance” (“accessory” or “dealing” cases)

•    This is where a constructive trust is imposed on a third party to a fiduciary relationship, who has assisted a fiduciary in a dishonest design, and with knowledge of the wrongful nature of the conduct
•    A person dealing with trust property or assisting in a breach of trust will become a constructive trustee if they do so “dishonestly”. Note that the duties of constructive trustee include personal obligations to account (even where the trust property itself has passed beyond that person’s hands)
•    These are situations where trust property has been dissipated, and we are looking for someone in our own jurisdiction who we can pin the loss on (e.g. a solicitor)
•    Elements
1.    Existence of a fiduciary duty (as trustee or otherwise)
2.    A dishonest and fraudulent design by the fiduciary
3.    The assistance by the third party in that design
4.    Knowledge

•    Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
•    Belmont Finance Corp v Williams Furniture Ltd (No 2) [1980] 1 All ER 393
•    Royal Brunei Airlines v Tan [1995] 2 AC 378
•    Twinsectra v Yardley [2002] 2 AC 164

•    Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Facts:    An employee (who worked for a property development company) had information about property development opportunities. He told that to a clerk of a solicitor’s firm, and told him that his company would not pursue these opportunities, so they should pursue it themselves. This was a complete lie. The question was what level of knowledge did that solicitor’s clerk need to have? If he was tested against a constructive notice test (fifth category in Baden), he would have been held liable as a constructive trustee.

Held:    The court held that he was not liable. He did not have to make
such enquiries.

Barwick CJ said courts should not be too ready to impose these onerous levels of constructive notice (as in real estate law) in commercial dealings. In these situations, we do not have to go to the extra level of constructive notice, which would put an honest and reasonable person on enquiry.

What kind of “knowledge” is required?

•    Baden, Delvaux & Lecuit v Societe General [1983]

Peter Gibson J (single judge, English):

The “Baden Delvaux five-scale classification of knowledge” (which Jacobs complains demonstrates the “zenith” of complexity):

(i)    Actual knowledge
o    To use the Consul Developments example, if you actually know that the particular opportunity has come to you because an employee is sneaking this information from his employer, you have actual (subjective) knowledge and are liable as a knowing assistant

(ii)    Deliberate ignorance (‘wilful blindness’)
o    This is where you do not want to avert your attention to something, because you know that if you look, you will see
o    It is where you deeply suspect something, but deliberately do not ask, because you do not want to say that you know (moral obtuseness)
o    This is still in realm of actual knowledge on the spectrum

(iii)    Wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make
o    If this is the case, you will be held liable as a dishonest person

(iv)    Knowledge of circumstances which would indicate the facts to an honest and reasonable person
o    This is the BCCI situation. It is where you know circumstances that would indicate that there is something fishy to an honest and reasonable person (but you yourself do not actually know that you have done something wring)
o    Here, you already know the facts, and simply need to come to the conclusions

(v)    Knowledge of circumstances which would put an honest and reasonable person on inquiry
o    This is the real property standard (constructive notice)
o    It is where you do not actually know the facts, but you are under a positive obligation to make enquiries to ascertain those facts
o    This standard does not apply to these cases requiring a personal obligation to account

•    Royal Brunei Airlines v Tan [1995] (PC) 2 AC 378
Facts:    A travel agent received ticket money, but did not hold it on trust to pay the airlines (he used it to pay his personal expenses). The company went bust.

The travel agent is a separate legal person from the company (he is an assistant). The test for the liability of the knowing assistant does not depend on proving that the primary trustee had any kind of fraudulent conduct (i.e. it is not necessary to prove some intentional breach of trust by the travel company before you can have knowing assistance of it. We can go directly to the conduct of the assistant). The travel agent can be liable as a knowing assistant if he has the requisite level of knowledge.

Held:    Criticised the Badens Delvaux classification as “best forgotten”. Lord Nicholls articulated a test of “dishonesty”.

Lord Nicholls:    The assistant is committing a wrong, and they are going to be imposed with personal liability to compensate for the wrong. Our law requires there to be some fault on behalf of the assistant. The fault here is dishonesty.

The courts have consistently rejected subjective moral standards of dishonesty. The view here is that there is an objective standard of dishonesty. You need to have acted in a way that the ordinary reasonable person would have regarded as dishonest. Here, the reasonable travel agent would have realised that it was dishonest to spend this money in breach of a trust which he knew was in place in favour of the airlines.

•    What does “dishonesty” involve?
•    Consider the majority (Hoffman LJ and Hutton LJ) in Twinsectra – the assistant must realise that the conduct would be dishonest by ordinary standards of honest and reasonable people. This is described as a “combined” test of subjective and objective elements. But see also Millett’s LJ vigorous assertion of a purely objective standard.

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