Group Seven Ltd v Notable Services LLP [2019] EWCA Civ 614

Facts

• Group Seven Limited and others alleged that Notable Services LLP and other defendants assisted in a fraudulent scheme orchestrated by a third party, Mr. Louanjli.
• The scheme involved the misappropriation of funds from the claimants, purportedly for investment in a bond-issuing program.
• The defendant professional advisers, including accountants and advisers, were accused of enabling the fraud by preparing misleading financial statements and failing to conduct adequate due diligence.
• The advisers' involvement continued despite potential warning signs, such as a lack of a formal mandate and insufficient documentation surrounding the transactions.
• The defendants claimed to have acted in good faith and denied awareness of the fraud.

Issues

1. Whether the defendant professional advisers could be held liable for assisting in a breach of trust or fiduciary duty through dishonest assistance.
2. Whether liability for dishonest assistance requires proof that the defendants had knowledge of the fraudulent nature of the scheme.
3. Whether the conduct of the advisers satisfied the legal threshold for dishonesty as applied to professional advisers.

Decision

• The Court held that professional advisers can be liable for dishonest assistance if their conduct meets the objective standard of dishonesty, even if they were not direct beneficiaries of the breach.
• It was found that the defendants failed to act with due diligence despite awareness of circumstances warranting suspicion, such as the absence of mandates and lack of transparency.
• The Court concluded that the advisers’ conduct constituted dishonest assistance, as it fell below the standard expected of professionals and satisfied the legal test for dishonesty.
• Liability was found to attach regardless of whether the advisers received direct benefit, focusing instead on their role and state of mind.

Legal Principles

• Accessory liability (or secondary liability) arises when a party assists in a breach of trust or fiduciary duty.
• The standard for dishonest assistance is objective, assessing the defendant’s conduct against that of ordinary reasonable people, per Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37.
• Liability is not conditioned on direct benefit but on knowledge, awareness of circumstances, and failure to act honestly.
• Professional advisers must act with integrity and perform adequate due diligence to avoid liability for dishonest assistance.

Conclusion

The Court of Appeal clarified that professional advisers may be held liable for dishonest assistance in breaches of trust where their conduct falls short of objective standards of honesty and due diligence, reinforcing the importance of ethical conduct in professional advisory roles.