Introduction
The case of Group Seven Limited & Ors v Notable Services LLP & Ors [2019] EWCA Civ 614 addresses the liability of professional advisers for assisting in a breach of trust or fiduciary duty. This judgment, delivered by the Court of Appeal, examines the principles governing accessory liability, particularly in the context of dishonest assistance. The court considered whether professional advisers, such as accountants and solicitors, could be held accountable for their role in enabling breaches of trust, even if they did not directly benefit from the wrongdoing. The case highlights the importance of professional integrity and the legal consequences of failing to act with due diligence when advising clients involved in potentially fraudulent activities. The judgment clarifies the legal thresholds for establishing dishonesty and the extent to which professional advisers must ensure their actions do not enable breaches of trust.
Legal Framework for Accessory Liability
Accessory liability, also known as secondary liability, arises when a party assists in the commission of a wrongful act, such as a breach of trust or fiduciary duty. In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, the Privy Council established that liability for dishonest assistance requires proof of dishonesty on the part of the accessory. This principle was further refined in Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37, which held that dishonesty is assessed objectively, considering the defendant’s knowledge and state of mind. The court in Group Seven Limited applied these principles to determine whether the defendants’ conduct met the threshold for dishonest assistance.
The case also considered the role of professional advisers in enabling breaches. Professional advisers, such as accountants and solicitors, owe a duty of care to their clients and must act with integrity. However, when their actions inadvertently or knowingly assist in a breach of trust, they may be held liable. The court emphasized that liability is not contingent on the adviser’s direct benefit from the breach but on their awareness of the circumstances and their failure to act honestly.
Factual Background of the Case
The claimants, Group Seven Limited and others, alleged that the defendants, Notable Services LLP and others, had assisted in a fraudulent scheme orchestrated by a third party, Mr. Louanjli. The scheme involved the misappropriation of funds from the claimants, which were purportedly invested in a bond-issuing program. The defendants, who provided accounting and advisory services, were accused of enabling the fraud by preparing misleading financial statements and failing to conduct adequate due diligence.
The claimants argued that the defendants’ actions constituted dishonest assistance, as they had knowingly or recklessly enabled the breach of trust. The defendants, however, contended that they had acted in good faith and were unaware of the fraudulent nature of the scheme. The court was tasked with determining whether the defendants’ conduct met the legal standard for dishonesty and whether they could be held liable for their role in the breach.
Analysis of Dishonesty in Professional Advisers’ Conduct
The court’s analysis focused on the defendants’ state of mind and the objective standard of dishonesty. Drawing on the principles established in Royal Brunei Airlines and Barlow Clowes, the court assessed whether the defendants had acted dishonestly by the standards of ordinary, reasonable people. The court considered the defendants’ knowledge of the circumstances, including the unusual nature of the transactions and the lack of proper documentation.
The court found that the defendants had failed to exercise due diligence in their professional duties. Despite being aware of red flags, such as the absence of a formal mandate for the bond-issuing program and the lack of transparency in the financial arrangements, the defendants proceeded with their involvement. The court concluded that their conduct fell below the standard expected of professional advisers and constituted dishonest assistance.
Implications for Professional Advisers
The judgment in Group Seven Limited has significant implications for professional advisers, particularly in the context of financial and legal services. The case highlights the importance of conducting thorough due diligence and maintaining professional integrity when advising clients. Advisers must be vigilant in identifying potential red flags and ensuring that their actions do not enable breaches of trust or fiduciary duty.
The case also highlights the legal risks associated with failing to act honestly. Professional advisers who assist in breaches, whether knowingly or recklessly, may face liability for their actions. The judgment serves as a reminder that advisers must prioritize ethical conduct and exercise caution when dealing with complex or high-risk transactions.
Conclusion
The Court of Appeal’s judgment in Group Seven Limited & Ors v Notable Services LLP & Ors [2019] EWCA Civ 614 provides a comprehensive analysis of the principles governing accessory liability for professional advisers. The case clarifies the legal thresholds for establishing dishonesty and emphasizes the importance of due diligence and professional integrity. By holding the defendants accountable for their role in enabling a breach of trust, the judgment highlights the legal obligations of professional advisers and the consequences of failing to act with honesty and care. This decision serves as a reference point for future cases involving accessory liability and the responsibilities of professional advisers in preventing breaches of trust.
