A Guide To Secondary Liability ' Part One: Dishonest Assistance

• Published date: 28 September 2023
• Law Firm: Macfarlanes
• Author: Nikolas Ireland, James Popperwell, Madeleine Brown and Sheila Dines

Claimants who have been the victims of fraud often face the difficulty that the perpetrators have swiftly dissipated the assets.

This means that even if the claimant has a strong case with good evidence, actual recovery of the money or assets of which they have been defrauded may be either very slow and expensive, requiring asset tracing processes that incur significant professional fees, or at worst simply not possible. There may be little practical value in obtaining judgment against such a defendant when what the claimant really wants is to recover its losses. However, fraudsters often have not acted alone...

The fraud might have been facilitated by other parties. Careful thought as to who else might have been involved is worthwhile, as parties with secondary liability might be better able to pay an award of damages if the claimant wins. We published a three-part series on primary liability of multiple wrongdoers in the tort of conspiracy. This two-part series considers some of the forms of secondary liability that might assist a claimant who has been wronged by more than one party. This first article considers dishonest assistance; part two will consider knowing receipt.

What is dishonest assistance?

If a third party (whom we'll call "the defendant") has helped the primary wrongdoer to commit the fraud, that defendant could be liable for dishonest assistance. There are no detailed requirements on the form the help needs to take. What matters is that the defendant has helped in the commission of the fraud, and that the defendant was dishonest in doing so.

A claim for dishonest assistance requires: (i) a breach of trust or fiduciary duty by the primary wrongdoer(s), (ii) the defendant must have assisted the primary wrongdoer(s) in the breach and (iii) the defendant must have had a dishonest state of mind. The first requirement may sound technical, but the law imposes trusts in a variety of situations that render this of broad application. Given that a breach of trust is usually found in fraud cases, it is common to use a claim for dishonest assistance to pursue an accessory wrongdoer in such claims.

As mentioned above, the second requirement, that the defendant has assisted in the breach, is not prescriptive. Anything the defendant did which in fact helped the primary wrongdoer with the fraud in a more than trivial way will count, provided that the defendant had a dishonest state of mind. Helpfully for claimants, it has also been held that the assistance does not have to be given in relation to the original misconduct - even third parties who assist in "the continuing diversion of the money"¹ are liable if the other conditions are satisfied and there is a link between the original misconduct and the assistance. This means that third parties who help with onward dispersion of the proceeds of fraud could be liable.

The final requirement for a successful action in dishonest assistance is proving the defendant's dishonesty. This has been the subject of some important judicial decisions across both the criminal and civil law. Following the Court of Appeal's...