Dishonest Assistance & Knowing Receipt | Civil Fraud
In a previous article, ‘Understanding Civil Fraud | Common Categories Explained’ we outlined the key differences between civil and criminal fraud, and highlighted common civil fraud claims that are regularly pursued through civil courts.
In this article, we focus on two further civil fraud claims in which a third party may become accountable for another person’s fraudulent actions. These claims can arise where a third party has assisted in the breach of a fiduciary duty or has received money or assets disposed of by the party who acted in breach of fiduciary duty or trust.
Such claims may be of benefit in a number of instances involving financial misconduct, such as where a claim against the primary wrongdoer may be pointless because that person has left the Jurisdiction, or where the funds have been dissipated and there are no available assets against which a Judgment could be enforced.
Stuart Southall of KANGS explains the offences of ’Dishonest Assistance’ and ‘Knowing Receipt’.
Background to Dishonest Assistance & Knowing Receipt Offences
‘Dishonest Assistance’ evolved from the equitable principle that strangers to a trust should not profit from or facilitate breaches of trust. In Barnes v Addy (1874) LR9 Ch App 244 two categories of ‘Knowing Assistance’ were identified being:
- assisting with knowledge of a breach and
- receiving trust property with knowledge of a breach, now known as ‘Knowing Receipt’.
In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, the Privy Council confirmed that it is the dishonesty of the third party which is important. Dishonesty or absence of dishonesty on the part of the trustee is irrelevant when establishing the assistant’s liability.
Dishonest Assistance
Dishonest Assistance is an equitable wrong which arises when a person, with a dishonest state of mind, assists or facilitates another in breaching a fiduciary duty.
The assisting party becomes personally liable for any losses caused by the breach, even though no direct fiduciary obligation is present. Accordingly, beneficiaries are able to pursue remedies against anyone who knowingly participates in wrongdoing which is harmful to the trust.
The Claimant must show:
- the existence of a trust or fiduciary relationship between the primary wrongdoer and the beneficiary,
- an actual breach of obligations,
- the defendant must have provided assistance more than minimal or causally irrelevant to the breach,
- the assistance must have been dishonest, which may be actual or ‘blind eye’, also known as ‘wilful blindness’ dishonesty, where a person suspects a dishonest act but deliberately avoids establishing the true position.
‘Wilful blindness’ dishonesty has been further expanded to include the actions of a company, where a directing mind acted dishonestly.
A claim for dishonest assistance can be brought even in circumstances where the defendant has not received any property transferred in the breach of a duty.
Knowing Receipt
Such claims are not brought against the primary wrongdoer, but against those who have assisted one or more other parties breach a fiduciary duty or have received money or assets disposed of in breach of fiduciary duty or trust.
Also known as a claim for ‘unconscionable receipt’, it is not necessary to show dishonesty on the part of the defendant. The court will be required to determine whether or not it was unconscionable for the defendant to retain the benefit of the receipt, being aware of the breach of trust.
The Claimant must show, in order to prove ‘a knowing receipt’ on the part of a Defendant:
- a disposal of his trust assets in breach of fiduciary duty,
- the beneficial receipt by the Defendant of assets which are traceable as representing the assets of the Claimant, and
- knowledge on the part of the Defendant that the assets he received arise from a breach of fiduciary duty.
In Byers v Saudi National Bank [2022] EWCA Civ 43, the Court of Appeal stated that in order to successfully pursue a claim of ‘Knowing Receipt’ the Claimant must have enjoyed a beneficial interest in the asset at some point when it was in the hands of a Defendant who, at that time, had knowledge of the breach of trust.
If the Claimant's beneficial interest in the property is extinguished by the transfer, then a claim will not succeed.
Remedies
The remedies available to an innocent party in civil proceedings include:
- recovery of assets,
- rescission of a contract,
- compensation by way of damages,
- repayment of money,
- an account of profits.
How Can We Help?
The equitable doctrines outlined above remain highly relevant when tackling financial misconduct, especially where primary wrongdoers have dissipated assets or absconded abroad, making those who have provided improper assistance the only likely opportunity for relief.
The Civil Fraud team at KANGS is highly experienced in assisting clients involved in disputes concerning trust funds of any nature, whether seeking the recovery of misappropriated funds or defending allegations of the misuse of trust funds.
Our team provides expert and pro-active advice in the pursuit of the best available outcome as quickly and economically as possible.
If you need assistance dealing with claims of civil fraud, or any other type of corporate crime and business dispute, please do not hesitate to get in touch. We would be delighted to hear from you, contact our team using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through video conferencing or telephone.
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