To What Extent Can A Claim For Dishonest Assistance Be Made Against Banks When Receiving Fraudulent Bank Payments?

Although claims for dishonest assistance are rare, as fraudulent bank payments have become increasingly common, is this now an area about which financial institutions need to be more savvy? For such a claim to succeed, a prospective claimant would need to show that the financial institution had a dishonest state of mind or the necessary knowledge. Proving such dishonesty is not easy. Similar to claims in conspiracy, the recent decision in Autogas (Europe) Ltd v. Ochocki and Others [2018] EWHC 2345 (Ch) shows the very high bar to prove such a claim. Nevertheless, it is unlikely that this would prevent claims of this nature being brought. In this alert, we consider the factors necessary to bring a claim for dishonest assistance with particular reference to the case of Autogas and its implications for banks.

Fraudulent bank payments

Fraudulent bank payments are becoming increasingly frequent and, as a result, banks continue to see high volumes of claims against them in respect of such payments. The most common source of claims is from their own customers: typically claims for breach of mandate, breach of duty not to facilitate fraud, or breach of advisory duty/duty to provide information. However, banks also face claims from third parties. A claim for dishonest assistance is one such claim.

Dishonest assistance

So what is dishonest assistance and what are its elements? The first point to note is that dishonest assistance is a claim in equity and is a secondary liability. That means it is an indirect liability, where a party assumes legal responsibility for the acts carried out by another party. The elements are: (1) existence of a trust; (2) breach of that trust; (3) assistance by a third party; and (4) dishonesty on the part of that assistant.

Existence of a trust

For the purposes of a dishonest assistance claim, a trust can arise in multiple ways, although the basis of the claim is the existence of a fiduciary duty, i.e. an obligation to act in the best interest of another party. There is no need for an express trust or formal document and, in most cases, it will typically be argued that there is a constructive trust which has arisen informally on the basis of a particular set of facts. A constructive trust is one that arises by operation of law where it would be unconscionable for a person (A) who holds an asset to deny the beneficial interest of another person (B) in that asset.

Depending on the facts of the case, it may be argued that a...