Remedies against third parties: recipient and accessory liab...

Learning Outcomes

This article explains the criteria for establishing accessory liability for dishonest assistance in breach of trust or fiduciary duty, including:

• the four core elements of accessory liability (breach, assistance, dishonesty, and causation) and how they interact in exam scenarios;
• how to recognise a qualifying breach of trust or fiduciary duty capable of grounding an accessory claim;
• what amounts to sufficient "assistance" by a third party, distinguishing positive acts from mere negligence or passive involvement;
• the objective test for dishonesty from key authorities (Royal Brunei, Barlow Clowes) and how it is applied in practice;
• the treatment of causation, loss and equitable compensation, including typical remedies and limits on recovery against accessories;
• differences between accessory liability and recipient liability in terms of mental element, receipt of property and range of remedies;
• how common factual patterns involving professionals, banks and advisers are likely to be analysed in SQE1-style multiple-choice questions;
• typical exam traps, such as confusing blind-eye knowledge with simple carelessness, or assuming proprietary relief is available against dishonest assistants.

SQE1 Syllabus

For SQE1, you are required to understand the principles governing the liability of third parties who assist in breaches of trust. This knowledge is essential for advising on potential remedies and identifying liable parties beyond the trustee, with a focus on the following syllabus points:

• The necessary components for establishing accessory liability.
• The requirement of a breach of trust or fiduciary duty as a prerequisite.
• What constitutes 'assistance' by a third party in the context of a breach.
• The objective test for 'dishonesty' as applied to the accessory.
• The distinction between accessory liability and recipient liability.
• The personal nature of the remedy against a dishonest assistant and the unavailability of proprietary claims against them.
• Time limits: the general six-year limitation for claims against third parties and the role of laches and concealment.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is NOT an essential element for establishing accessory liability?
   1. A breach of trust or fiduciary duty by the trustee.
   2. Assistance in the breach by the third party.
   3. Receipt of trust property by the third party.
   4. Dishonesty on the part of the third party.
2. How is 'dishonesty' primarily assessed in the context of accessory liability according to current case law?
   1. Purely subjectively, based on the accessory's own moral standards.
   2. Purely objectively, based on the standards of reasonable and honest people, regardless of the accessory's knowledge.
   3. Objectively, based on the standards of reasonable and honest people, considering the accessory's actual knowledge and experience.
   4. Based on whether the accessory intended to cause loss to the beneficiaries.
3. Can a third party be liable as an accessory if they did not know they were assisting in a breach of trust, but knew they were participating in an illegal scheme?
   1. No, specific knowledge of the trust breach is required.
   2. Yes, if their participation in the illegal scheme was dishonest.
   3. No, unless they directly received trust property.
   4. Yes, but only if the trustee also acted dishonestly.

Introduction

When a trustee breaches their duties, beneficiaries primarily look to the trustee for remedies. However, equity may also hold a third party liable if they played a role in that breach. This is known as accessory liability, or liability for 'dishonest assistance'. It targets individuals who facilitate or assist a trustee's wrongdoing, even if they never personally receive trust property. Understanding the criteria for accessory liability is critical for determining the full scope of potential claims arising from a breach of trust. The modern approach is fault-based: the focus is on whether the third party’s conduct, viewed against what they actually knew and their position, fell below the standards of ordinary honest people.

Establishing Accessory Liability

For a third party (the accessory) to be held liable for dishonestly assisting in a breach of trust or fiduciary duty, four key elements must be established. The absence of any one element means the claim will fail.

Breach of Trust or Fiduciary Duty

There must first be a breach of trust or a breach of fiduciary duty committed by a trustee or fiduciary. Without an initial breach, there can be no liability for assisting in one.

Key Term: Breach of trust
Any act or omission by a trustee which is inconsistent with the terms of the trust agreement or the duties imposed on the trustee by law.

The breach itself does not need to be dishonest on the part of the trustee. A trustee might breach their duties negligently or even innocently, but if a third party dishonestly assists in that breach, accessory liability can still arise. The “breach” gateway is not confined to express trusts: it also includes breaches of fiduciary duty outside the strict trustee–beneficiary context (for example, a company director or personal representative misapplying assets subject to fiduciary obligations). For the purpose of accessory liability, what matters is that a fiduciary obligation existed and was breached; the assistant’s personal fault is then assessed separately.

Practical examples of breaches that can ground accessory claims include unauthorised investments, misapplication of funds, self-dealing, preferring some beneficiaries improperly, or distributing to a person with no entitlement. A claim can be advanced even where the original trustee is insolvent or unavailable; the accessory claim is independent of the trustee’s solvency.

Assistance by the Third Party

The third party must have assisted the trustee or fiduciary in committing the breach.

Key Term: Assistance
Conduct by a third party that helps, enables, or facilitates the trustee's breach of trust or fiduciary duty.

Assistance usually involves a positive act, such as transferring funds improperly, preparing false documents, structuring transactions or entities to conceal misapplication, opening accounts to receive misapplied funds, or providing advice that is implemented to bring about the breach. Professionals (for example, solicitors, accountants, and bankers) are often implicated because their services can be used to execute or disguise the breach.

Merely passive acquiescence is generally not enough, although two important refinements apply:

• Deliberate “blind-eye” inaction: where the third party wilfully shuts their eyes to obvious impropriety (or deliberately fails to make enquiries an honest person would make), their inaction may amount to assistance if it facilitates the breach.
• Passive assistance may suffice in exceptional cases: while courts typically look for positive acts, passive assistance can be enough where inaction in the face of knowledge materially enables the breach to occur or continue, such as failing to intervene where a person has taken on a role that carries responsibilities in relation to trust assets.

Assistance spans acts before, during, or after the breach. Prior acts can “set up” the breach (e.g., creating a vehicle to receive misapplied funds). Acts during the breach bring it about (e.g., executing transfers). Acts after the breach, such as helping to conceal the misapplication or dissipate assets, may still count if they make the breach effective (for instance, rendering recovery impracticable).

The assistance must be more than trivial: there must be a real (albeit not necessarily dominant) contribution to the occurrence or effectiveness of the breach. Routine processing in a genuinely mechanical capacity, absent any red flags and with no reason to suspect wrongdoing, will not usually amount to culpable assistance.

Dishonesty

This is often the most essential and contested element. The third party's assistance must have been dishonest.

Key Term: Dishonesty
In the context of accessory liability, this refers to conduct which is dishonest according to the objective standards of ordinary decent people, given the actual knowledge and experience of the defendant.

The leading cases, such as Royal Brunei Airlines v Tan and Barlow Clowes International Ltd v Eurotrust International Ltd, have established an objective test for dishonesty.

Key Term: Objective test
A legal standard based on what a reasonable person would think or do in the same circumstances, rather than the subjective viewpoint of the individual involved.

The court asks: knowing what the defendant actually knew at the time, would an ordinary, honest person consider their conduct to be dishonest? It is not necessary for the defendant to realise that their conduct would be regarded as dishonest by others; the focus is on the objective assessment of their actions given their subjective knowledge. Factors such as the defendant's experience and intelligence are relevant in assessing what they knew and understood about the transaction they were assisting.

This test is now settled law. It aligns with the principle that dishonesty is judged by ordinary standards, assessed against the defendant’s actual state of knowledge and characteristics (such as seniority and competence). Motive (for example, loyalty to a client or desire to keep a business relationship) is not a defence if the conduct itself is dishonest by objective standards.

It is not necessary for the accessory to know the precise details of the trust or the specific breach. Knowledge that they are assisting in an improper or illegal scheme can be sufficient to ground a finding of dishonesty. Deliberately turning a blind eye to obvious impropriety (for example, ignoring unexplained rapid movements of client money or clear inconsistencies with a trust deed) is a frequently cited hallmark of dishonest assistance. In contrast, mere negligence, error of judgment, or failure to appreciate the legal significance of facts (without more) will not usually satisfy the dishonesty element.

Causation and Loss

Although often treated as implicit, there must be a causal connection between the dishonest assistance and loss to the trust. The assistance must have a sufficient causal impact on the breach so that it contributed to the loss or to making the misapplication effective. The measure of relief is equitable compensation to reflect the loss caused by the breach in which the accessory participated. The remedial aim is restorative: to put the trust estate in the position it would have been in had the breach not occurred, so far as money can do it.

As a practical matter:

• An accessory will be liable to compensate for the loss caused by the breach they assisted. Where there are multiple wrongdoers (e.g., trustee and assistant), they may be sued for the whole loss, with issues of contribution between wrongdoers dealt with separately.
• Courts generally award simple interest on sums due. Compound interest may be considered where the circumstances justify it (for example, where the breach involved deliberate wrongdoing and profits have been made using misapplied funds).
• Account of profits against a dishonest assistant is exceptional. The mainstream remedy is equitable compensation measured by loss to the trust. An account of profits may be contemplated only where the assistant’s profits are closely connected to the dishonest assistance and equity requires stripping them, but this is not the norm.

Worked Example 1.1

A solicitor is instructed by a trustee client to transfer trust funds to an account in the trustee's personal name, in clear violation of the trust deed which the solicitor has seen. The solicitor suspects this is improper but carries out the instruction without question to avoid upsetting the client. The trustee then dissipates the funds.

Is the solicitor likely to be liable as an accessory?

Answer:
Yes, potentially. A breach of trust has occurred. The solicitor actively assisted by enabling the transfer. The key issue is dishonesty. Given the solicitor's professional knowledge and sight of the trust deed, an ordinary honest solicitor, knowing the transfer was to the trustee's personal account in breach of the deed, would likely view carrying out the instruction without further inquiry as dishonest. The solicitor's motive (keeping the client happy) is irrelevant to the objective assessment of dishonesty.

Worked Example 1.2

A bank employee processes a series of unusual, rapid transfers out of a known trust account initiated by the trustee. The employee finds the pattern odd but does not escalate the matter, assuming internal compliance checks would flag any issues. The transfers were part of a fraudulent scheme by the trustee.

Did the employee 'assist' the breach? Was the assistance 'dishonest'?

Answer:
Assistance is likely established, as processing the transfers facilitated the breach. Dishonesty is less clear. Applying the objective test: did the employee know enough facts that their failure to escalate was conduct falling below the standard expected of an ordinary honest bank employee in their position? If their failure to act was a conscious decision to ignore clear warning signs ('wilful blindness'), it might be deemed dishonest. If it was mere negligence or adherence to standard procedure without appreciating the significance of the pattern, it likely would not meet the dishonesty threshold.

Worked Example 1.3

A trustee asks their accountant to incorporate a company and open an account to receive a large payment. The accountant strongly suspects the plan is part of an unlawful tax evasion scheme and that the monies are being diverted from a trust, but proceeds, being told it is “urgent and confidential.” The trustee later absconds with the funds.

Is the accountant exposed to accessory liability even if they did not know the precise trust arrangements?

Answer:
Likely yes. There was a breach of trust; the accountant’s acts (forming the company and opening the account) were indispensable assistance. Dishonesty is satisfied if, given the accountant’s knowledge and professional experience, an ordinary honest person would have refused to participate or would have insisted on clarifying the propriety of the arrangement. It is not necessary for the accountant to have known the full trust details: participation in an improper scheme with conscious impropriety can suffice.

Worked Example 1.4

Two partners in a firm act for a trustee. Partner A actively executes a transfer of trust funds to an offshore account owned by the trustee. Partner B discovers the pending transfer and realises it appears to breach the trust deed, but decides to do nothing so as not to “interfere” in a matter A is handling. The transfer completes and the funds are lost.

Can Partner B be liable for dishonest assistance based on inaction?

Answer:
Potentially. Although assistance normally requires a positive act, passive assistance may suffice where inaction in the face of knowledge materially enables the breach. If Partner B knowingly allowed the transaction to proceed, deliberately turning a blind eye to obvious impropriety and failing to act in circumstances where speaking up would likely have prevented the loss, a court could find dishonest assistance.

Worked Example 1.5

Following a misapplication of trust funds, a consultant is retained to “clean up” the paper trail. They create backdated documents and circulate false minutes to justify payments already made. They were told the exercise was “to regularise internal records” and chose not to probe further despite clear discrepancies.

Is post-breach conduct capable of amounting to dishonest assistance?

Answer:
Yes, if the concealment forms part of making the breach effective, for example by frustrating recovery or enabling the misapplication to stand. Fabricating records plainly assists the breach. If the consultant’s conduct, assessed against what they actually knew, falls below the standards of ordinary honest people, dishonesty is made out.

Distinguishing from Recipient Liability

It is important to distinguish accessory liability (dishonest assistance) from recipient liability (knowing receipt).

Accessory liability focuses on the fault of the third party in enabling the wrongdoing, whereas recipient liability focuses on the unjust enrichment of the third party receiving misapplied trust assets. An accessory is liable personally to compensate for the loss caused by the breach they assisted. By contrast, a knowing recipient may face both a personal claim and a proprietary claim to recover traceable property or its value, depending on how the property is held or has been substituted.

In recipient liability, the critical mental element is whether the recipient’s knowledge (actual or constructive) made it unconscionable to retain the benefit. The relevant time is while they were in receipt of the property. If they had no such knowledge until after dissipating it, personal liability may not attach. None of this is required for dishonest assistance, which does not depend on receipt at all and focuses instead on the assistant’s dishonest facilitation of the breach.

Limitation periods also differ in important ways. Claims against dishonest assistants and knowing recipients are generally subject to a six-year limitation period. The special “no limitation” rule applicable to actions against trustees for fraudulent breaches does not typically extend to third-party accessories or recipients. Nevertheless, time may be extended where there is deliberate concealment or where laches applies to bar stale equitable claims on the facts.

Exam Warning

Do not confuse the tests for accessory liability and recipient liability. Accessory liability requires dishonesty based on an objective standard. Recipient liability requires knowledge making retention unconscionable. While related, they are distinct concepts with different requirements. Also keep in mind that dishonest assistance yields a personal remedy only; there is no automatic proprietary claim because the accessory typically never received the trust property.

Key Point Checklist

This article has covered the following key knowledge points:

• Accessory liability holds a third party accountable for dishonestly assisting a trustee or fiduciary in a breach of their duties.
• Four elements are required: a breach of trust/fiduciary duty, assistance by the third party, dishonesty by the third party, and a causal link to loss.
• Assistance usually requires a positive act that facilitates the breach; deliberate blind-eye inaction can sometimes suffice if it materially contributes to the breach.
• Dishonesty is judged objectively based on the standards of ordinary decent people, considering the defendant's actual knowledge and experience.
• It is not necessary for the accessory to know the precise trust or the exact terms breached; awareness of an improper or illegal scheme can suffice.
• The remedy against a dishonest assistant is a personal claim in equity for equitable compensation (with interest). A proprietary claim is generally not available because the accessory does not receive the property.
• Claims against third-party accessories and recipients are generally subject to a six-year limitation period, though equitable doctrines such as laches and rules on concealment may affect timing.
• It is distinct from recipient liability, which involves receiving trust property transferred in breach of trust.

Key Terms and Concepts

• Breach of trust
• Assistance
• Dishonesty
• Objective test