Twinsectra Ltd v Yardley
Encyclopedia
Twinsectra Ltd v Yardley [2002] UKHL 12 is a leading case in English trusts law
. It provides authoritative rulings in the areas of Quistclose trust
and dishonest assistance
.
in Godalming
, acted for Mr Yardley in the purchase of a property for which financing was required. Barclays Bank had initially agreed to provide the financing, but there were delays in obtaining the loan. As a result, alternative financing was obtained from Twinsectra Ltd. Twinsectra required Leach to provide an undertaking to the effect that he would guarantee the payment of the loan. Leach refused, but another solicitor, Sims, agreed. Later, the loan from Barclays Bank came through, and the Twinsectra loan was no longer required for the property purchased. However, Yardley and Sims went ahead with the loan as Sims owed Yardley money, and Sims would assume the principal liability on the loan. This was unknown to Twinsectra and Leach. Leach had been shown a draft of the proposed undertakings, which also required the money be applied solely for the acquisition of property and for no other purpose. Sims handed the money over to Leach, who paid it out on Yardley's instructions. Substantial monies that had been advanced were diverted to other uses. When Yardley defaulted on the loan and Sims went bankrupt, Twinsectra Ltd sued Leach for dishonest assistance in a breach of trust by Sims.
The trial judge found that Leach was not dishonest because he honestly believed that the undertaking did not run with the money. However, he made a contradictory finding that Leach had deliberately shut his eyes.
, whose judicial analysis closely mirrored that which he suggested twenty years previously in an article in the Law Quarterly Review
.
The key issue, according to Lord Millett, in upholding the trust concept is ascertaining where the beneficial interest in the money lies. Lord Millett suggests that there are four possible answers: (1) the lender, (2) the borrower, (3) the ultimate purpose, and (4) no-one, in the sense that the beneficial interest remains "in suspense". His Lordship then analyzed all of the foregoing, and determined that the beneficial interest remains with the lender, until the purpose for which the funds are lent is fulfilled. The only other reasoned decision was Lord Hoffman
, who agreed with Lord Millett, though disagreed as to whether it was an express or resulting trust.
Furthermore, Lord Millett spent some time considering the necessary intention. It has long been settled law that a person need not have a specific intention to create an express trust, so long as the court can determine from the person's intention that a beneficial entitlement should be conferred which the law (or equity) will enforce. So in Twinsectra where there was a solicitor's undertaking that the money should only be used for one purpose so that the money is not at the borrower's free disposal, this was held to be sufficient intent.
It was held that a Quistclose trust
existed and Sims held the money on trust for Twinsectra. Therefore, there was a breach of trust; but Sims had gone bankrupt, which necessitates a dishonest assistance claim against a third party.
On appeal the House of Lords upheld the judge's finding that Leach was not dishonest and therefore dismissed the claims. Lord Hutton delivered the leading judgment. He considered three possible tests in the area of accessory liability: a purely subjective test, a purely objective test and a "combined test". He interpreted Lord Nicholls in Royal Brunei Airlines v Tan to have articulated a combinest test: for a person to be held liable as an accessory to a breach of trust, he had to have acted dishonestly by the ordinary standards of reasonable and honest people and have been himself aware that by those standards he was acting dishonestly. He rejected the purely subjective test outright, and rejected the purely objective test as his Lordship regarded a finding by a judge that a defendant has been dishonest as a grave finding, particularly against a professional man. Therefore, he considered it "less than just for the law to permit a finding that a defendant had been "dishonest" in assisting in a breach of trust where he knew of the facts which created the trust and its breach but had not been aware that what he was doing would be regarded by honest men as being dishonest". Lord Hutton rejected Lord Millett's dissenting judgment as his Lordship considered Lord Millett to have adopted a purely objective test.
Lord Hoffman delivered a concurring judgment. He said that the defendant must be conscious of the fact that he was "transgressing ordinary standards of honest behaviour" in order to be liable for dishonest assistance. He rejected Lord Millett's dissenting judgment on the ground it departed from Royal Brunei.
Therefore, he majority held that Leach did not satisfy the subjective limb of the combined test and hence was not dishonest.
On the other hand, Lord Millett delivered a strong dissenting judgment, maintaining that Royal Brunei decided that the test of dishonesty is largely objective, although account must be taken of subjective considerations such as the defendant’s experience and intelligence and his actual state of knowledge at the relevant time. But it is not necessary that he should actually have appreciated that he was acting dishonestly; it is sufficient that he was. The question is whether an honest person would appreciate that what he was doing was wrong or improper, not whether the defendant himself actually appreciated this. His Lordship gave 3 reasons for this:
By applying the Royal Brunei test, Lord Millett held that Leach was dishonest.
English trusts law
English trusts law is the original and foundational law of trusts in the world, and a unique contribution of English law to the legal system. Trusts are part of the law of property, and arise where one person gives assets English trusts law is the original and foundational law of trusts in the...
. It provides authoritative rulings in the areas of Quistclose trust
Quistclose trust
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 is a leading property, unjust enrichment and trusts case, which invented a new species of proprietary interest...
and dishonest assistance
Dishonest assistance
Dishonest assistance, or knowing assistance, is a type of third party liability under trust law. It is usually seen as one of two liabilities established in Barnes v Addy, the other one being knowing receipt...
.
Facts
Mr Paul Leach, a solicitorSolicitor
Solicitors are lawyers who traditionally deal with any legal matter including conducting proceedings in courts. In the United Kingdom, a few Australian states and the Republic of Ireland, the legal profession is split between solicitors and barristers , and a lawyer will usually only hold one title...
in Godalming
Godalming
Godalming is a town and civil parish in the Waverley district of the county of Surrey, England, south of Guildford. It is built on the banks of the River Wey and is a prosperous part of the London commuter belt. Godalming shares a three-way twinning arrangement with the towns of Joigny in France...
, acted for Mr Yardley in the purchase of a property for which financing was required. Barclays Bank had initially agreed to provide the financing, but there were delays in obtaining the loan. As a result, alternative financing was obtained from Twinsectra Ltd. Twinsectra required Leach to provide an undertaking to the effect that he would guarantee the payment of the loan. Leach refused, but another solicitor, Sims, agreed. Later, the loan from Barclays Bank came through, and the Twinsectra loan was no longer required for the property purchased. However, Yardley and Sims went ahead with the loan as Sims owed Yardley money, and Sims would assume the principal liability on the loan. This was unknown to Twinsectra and Leach. Leach had been shown a draft of the proposed undertakings, which also required the money be applied solely for the acquisition of property and for no other purpose. Sims handed the money over to Leach, who paid it out on Yardley's instructions. Substantial monies that had been advanced were diverted to other uses. When Yardley defaulted on the loan and Sims went bankrupt, Twinsectra Ltd sued Leach for dishonest assistance in a breach of trust by Sims.
The trial judge found that Leach was not dishonest because he honestly believed that the undertaking did not run with the money. However, he made a contradictory finding that Leach had deliberately shut his eyes.
Quistclose trust
The leading judgment was given by Lord MillettPeter Millett, Baron Millett
Peter Julian Millett, Baron Millett, PC, QC is a British former judge and barrister.The son of Denis and Adele Millett was educated at Harrow School, London and Trinity Hall, Cambridge, where he received a Master of Arts in classics and law in 1954. From 1955 to 1957, he served as Flying Officer...
, whose judicial analysis closely mirrored that which he suggested twenty years previously in an article in the Law Quarterly Review
Law Quarterly Review
The Law Quarterly Review is an academic legal periodical published by Sweet & Maxwell. It was first published in 1885...
.
The key issue, according to Lord Millett, in upholding the trust concept is ascertaining where the beneficial interest in the money lies. Lord Millett suggests that there are four possible answers: (1) the lender, (2) the borrower, (3) the ultimate purpose, and (4) no-one, in the sense that the beneficial interest remains "in suspense". His Lordship then analyzed all of the foregoing, and determined that the beneficial interest remains with the lender, until the purpose for which the funds are lent is fulfilled. The only other reasoned decision was Lord Hoffman
Leonard Hoffmann, Baron Hoffmann
Leonard Hubert "Lenny" Hoffmann, Baron Hoffmann, PC is a retired senior British judge. He served as a Lord of Appeal in Ordinary from 1995 to 2009...
, who agreed with Lord Millett, though disagreed as to whether it was an express or resulting trust.
Furthermore, Lord Millett spent some time considering the necessary intention. It has long been settled law that a person need not have a specific intention to create an express trust, so long as the court can determine from the person's intention that a beneficial entitlement should be conferred which the law (or equity) will enforce. So in Twinsectra where there was a solicitor's undertaking that the money should only be used for one purpose so that the money is not at the borrower's free disposal, this was held to be sufficient intent.
It was held that a Quistclose trust
Quistclose trust
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 is a leading property, unjust enrichment and trusts case, which invented a new species of proprietary interest...
existed and Sims held the money on trust for Twinsectra. Therefore, there was a breach of trust; but Sims had gone bankrupt, which necessitates a dishonest assistance claim against a third party.
Dishonest assistance
The trial judge held that Leach was not dishonest as he honestly believed that the undertaking did not run with the money, even though he deliberately shut his eyes to the risk of the loan money being misapplied. The Court of Appeal, recognizing the contradiction in finding, went behind the judge's finding and held that Leach was dishonest.On appeal the House of Lords upheld the judge's finding that Leach was not dishonest and therefore dismissed the claims. Lord Hutton delivered the leading judgment. He considered three possible tests in the area of accessory liability: a purely subjective test, a purely objective test and a "combined test". He interpreted Lord Nicholls in Royal Brunei Airlines v Tan to have articulated a combinest test: for a person to be held liable as an accessory to a breach of trust, he had to have acted dishonestly by the ordinary standards of reasonable and honest people and have been himself aware that by those standards he was acting dishonestly. He rejected the purely subjective test outright, and rejected the purely objective test as his Lordship regarded a finding by a judge that a defendant has been dishonest as a grave finding, particularly against a professional man. Therefore, he considered it "less than just for the law to permit a finding that a defendant had been "dishonest" in assisting in a breach of trust where he knew of the facts which created the trust and its breach but had not been aware that what he was doing would be regarded by honest men as being dishonest". Lord Hutton rejected Lord Millett's dissenting judgment as his Lordship considered Lord Millett to have adopted a purely objective test.
Lord Hoffman delivered a concurring judgment. He said that the defendant must be conscious of the fact that he was "transgressing ordinary standards of honest behaviour" in order to be liable for dishonest assistance. He rejected Lord Millett's dissenting judgment on the ground it departed from Royal Brunei.
Therefore, he majority held that Leach did not satisfy the subjective limb of the combined test and hence was not dishonest.
On the other hand, Lord Millett delivered a strong dissenting judgment, maintaining that Royal Brunei decided that the test of dishonesty is largely objective, although account must be taken of subjective considerations such as the defendant’s experience and intelligence and his actual state of knowledge at the relevant time. But it is not necessary that he should actually have appreciated that he was acting dishonestly; it is sufficient that he was. The question is whether an honest person would appreciate that what he was doing was wrong or improper, not whether the defendant himself actually appreciated this. His Lordship gave 3 reasons for this:
- Consciousness of wrongdoing is an aspect of mens reaMens reaMens rea is Latin for "guilty mind". In criminal law, it is viewed as one of the necessary elements of a crime. The standard common law test of criminal liability is usually expressed in the Latin phrase, actus non facit reum nisi mens sit rea, which means "the act does not make a person guilty...
and an appropriate condition of criminal liability: it is not an appropriate condition of civil liability. - The objective test is in accordance with Barnes v Addy and the traditional doctrine.
- The claim for “knowing assistance” is the equitable counterpart of the economic tortsEconomic tortsEconomic torts are torts that provide the common law rules on liability for the infliction of pure economic loss, such as interference with economic or business relationships.Economic torts protect people from interference with their trade or business...
. These are intentional torts; negligence is not sufficient and dishonesty is not necessary. Liability depends on knowledge. A requirement of subjective dishonesty introduces an unnecessary and unjustified distinction between the elements of the equitable claim and those of the tort of wrongful interference with the performance of a contract.
By applying the Royal Brunei test, Lord Millett held that Leach was dishonest.