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Rachel Blair, Senior Associate

Group Seven Limited & Ors v Notable Services LLP & Ors: Court of Appeal considers and applies test for dishonesty in dishonest assistance claim

Client Alerts30/05/2019

The Court of Appeal has handed down judgment in Group Seven Limited & Ors v Notable Services LLP & Ors [2019] EWCA Civ 614, considering and applying the two stage test of dishonesty restated and clarified by the Supreme Court in Ivey v Genting [2017] UKSC 67 in proceedings for dishonest assistance of a breach of trust.

Background

The case concerned an elaborate fraud against Group Seven Limited, who were enticed to make a payment of €100m to Allied Investment Corporation Limited (AIC). AIC in turn transferred the money to Larn Limited, a company owned and controlled by fraudster Mr Luis Nobre and his co-conspirators.

In return for a bribe of £170,000, Mr Martin Landman, an accountant member of legal disciplinary practice Notable Services LLP, agreed to allow the firm’s client account to be used to hold the €100m for the benefit of Larn.

Two honest members of Notable, Mr Meduri and Ms Ciserani, made a number of checks as to the source of the funds, including obtaining a reference from a Mr Othman Louanjli, who was an employee of Liechtensteinische Landesbank (Switzerland) Limited (the “Bank”). 

Notable made 49 payments totalling €12.25m on Mr Nobre’s instructions before the fraud was discovered. Mr Nobre was jailed for 14 years for money laundering and other offences. Earlier civil proceedings found Mr Nobre and Larn liable for the balance of the stolen funds. Group Seven then brought proceedings against Notable, Mr Landman, the Bank, Mr Louanjili and others.

First Instance Decision

At first instance Morgan J found that Mr Landman deliberately and dishonestly breached the Solicitors’ Accounts Rules by providing banking facilities through Notable’s client account and that he unconscionably received the sum of £170,000. However, he had taken external advice from the Law Society and another firm; and his colleagues had dealt with investigating the source of the funds. The judge found that he was not liable for dishonest assistance because he did not have actual or “blind eye knowledge” that Larn was not the beneficial owner of the €100 million. Mr Landman was therefore not liable for dishonest assistance.

There were a number of appeals. The Bank challenged the findings of fact and Group Seven challenged the legal test applied for dishonest assistance.

Court of Appeal Decision

In Ivey the Supreme Court confirmed that the test for dishonesty was as follows:

"When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”

The Supreme Court’s judgment in Ivey was handed down three weeks after Morgan J’s first instance decision. The Court of Appeal applied the two-stage test in Ivey in determining whether Mr Landman’s assistance was dishonest.

The key issue was whether Mr Landman had the requisite knowledge that the €100m was not Larn’s to deal with as it wished. There had been no argument that Mr Landman had actual knowledge and so it fell to be considered whether he had “blind eye knowledge”.

The Court of Appeal overturned Morgan J’s findings of fact, and found that Mr Landman did have blind eye knowledge. The Court of Appeal held that the judge at first instance had attached insufficient weight to Mr Landman’s unconscionable receipt of the £170,000 bribe. It held that Mr Landman must have turned a blind eye or had suspicions as to the beneficial ownership of the €100m, but consciously refrained from taking any steps to confirm the true position.

The Court of Appeal found as follows:

"Ultimately, in our view, Mr Landman is condemned by his own actions, which speak for themselves. Had he been acting honestly, he would not have negotiated the £170,000 bribe with Mr Nobre, nor would he have taken steps to conceal it from his colleagues, Stewarts Law and the Law Society, nor would he have given perjured evidence about all these matters to the Judge at the trial…

For similar reasons, we find ourselves reluctantly driven to the conclusion that the Judge’s finding in [460] about the absence of blind-eye knowledge by Mr Landman as to the beneficial ownership of the €100 million in the hands of Larn cannot stand. 

…we are satisfied that Mr Landman must have had blind-eye knowledge that the €100 million was not beneficially owned by Larn, and that the money was not at Larn’s free disposal. The Judge’s undisputed primary findings create an irresistible inference that Mr Landman clearly suspected (if indeed he did not actually know) that the money was not Larn’s, and that he consciously decided to refrain from taking any step to confirm the true state of affairs for fear of what he might discover. On that footing, the conclusion that Mr Landman had the requisite dishonesty to support the dishonest assistance claims must in our judgment follow…”

The Court of Appeal also noted that suspicions which fall short of blind-eye knowledge are still relevant as they go to the defendant’s subjective beliefs and may then fall to be considered under the second stage of the test in determining objectively whether he was dishonest.

Comment

The Court of Appeal’s decision is a rare example of the Court overturning a first instance judge’s findings of fact, despite Mr Landman being cross examined for over six days, during which he was never questioned about whether he had blind eye knowledge that the funds were not Larn’s to do with as they pleased.

The decision provides a useful illustration of how the law of dishonest assistance will be applied following the Supreme Court’s decision in Ivey. However, it raises a number of questions.

The Court of Appeal’s judgment has effectively equated the test for dishonest assistance in breach of trust with the test of knowledge for unconscionable receipt. It is uncertain where that leaves the law on dishonest assistance because while unconscionable receipt is based on the restitution of property; accessory liability (such as breach of trust) is not.

There are also implications for the law on accessory liability. The Court of Appeal has held (obiter) that in a case where the breach of trust is the misappropriation of funds, it is not necessary for the claimant alleging dishonest assistance to prove that the defendant had actual or blind eye knowledge that the trustee was not entitled to deal with the funds as if they were his own. That raises an issue as to whether the law does and should distinguish between (i) the content of knowledge and (ii) the standard of knowledge the defendant must have. Arguably Ivey deals with the standard of knowledge; but does not deal with the content of knowledge required i.e. what the defendant needs to know in order to be liable for dishonest assistance. This may require further consideration by the Court.

For more information, please contact Rachel Blair.