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What is the test for dishonest assistance in New Zealand?
Jessica Palmer, The New Zealand Law Journal, December 2005
In an article entitled "Twinsectra: overruled or clarified?", Ms Palmer comments that a recent Privy Council decision on dishonest assistance has reinstated an objective test.
Royal Brunei Airlines1, which was considered to be the leading case on dishonest assistance, applied an objective test in determining whether the defendant had assisted with a breach of trust.
In Twinsectra2, the House of Lords appeared to import a subjective element into the test, deciding that the defendant's conduct must be both:
- dishonest by the ordinary standards of reasonable and honest people (the objective test); and
- known to the defendant to be dishonest by those standards - the defendant must have "a dishonest state of mind" (the subjective test).
In a recent case3, the Privy Council has reconsidered the test for dishonest assistance, taking into account the decisions in both Royal Brunei and Twinsectra. In its decision, the Privy Council stated that the principles of liability established in Twinsectra were in fact no different to those in Royal Brunei, and clarified that an objective test is applicable.
In the article, Ms Palmer summarises several points made by the Privy Council about the application of the objective honesty standard:
- The defendant's knowledge of the circumstances may be determined by inference.
- It is not necessary for the defendant to know that he or she is assisting a breach of trust.
- The defendant need not know all the details of the breach of trust before he or she can reasonably have grounds to suspect misappropriation.
This means that bank officers must be very careful where there is any suspicion, or any reason to believe that there may be a breach of trust or misappropriation. Failure to investigate further where there may be grounds for suspicion could render the bank liable.
1 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
2 Twinsectra Limited v Yardley [2002] 2 AC 164
3 Barlow Clowes International Limited v Eurotrust International Limited [2004] UKPC 38
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For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.
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This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
