Twinsectra Limited v Yardley and Others

Money advanced for a specified purpose is held on trust where, on an objective construction of the arrangements, the recipient may use it solely for that purpose and lacks free disposal. The payer's failure to appreciate that the arrangements create a trust is immaterial. The fund remains the payer's property, subject to a power to apply it properly.

Dishonest assistance requires conduct which is dishonest by ordinary standards and the defendant's awareness that it is dishonest by those standards. Knowledge of the facts alone, negligence, blinkered conduct or an honest misunderstanding does not suffice. Deliberate blindness may establish dishonesty where the defendant avoids inquiry into suspected facts. An appellate court should disturb a trial judge's assessment of a witness's honesty only exceptionally.

Twinsectra advanced £1 million against a solicitor's undertaking that the money would be retained and used solely to acquire property. The solicitor transferred the fund to Mr Leach, another solicitor, who disbursed £357,720.11 for other purposes on his client's instructions. Twinsectra alleged breach of trust and dishonest assistance.

Carnwath J held that the undertaking created no trust and, in any event, that Mr Leach had been misguided but not dishonest. The Court of Appeal, reported at [1999] Lloyd's Rep Bank 438, reversed both conclusions. The issues before the House were whether the restricted-purpose undertaking created a trust, what dishonesty meant for accessory liability, and whether the Court of Appeal could reverse the trial judge's assessment of Mr Leach's state of mind.

1. Disposition. By a majority of four to one, the House allowed Mr Leach's appeal, set aside the Court of Appeal's judgment against him and restored Carnwath J's dismissal of the claim against him. Lord Slynn, Lord Steyn, Lord Hoffmann and Lord Hutton formed the majority. Lord Millett dissented on accessory liability.

2. The restricted-purpose trust. All five Law Lords concluded that the undertaking created a trust. Per Lord Hoffmann, the terms of the undertaking, construed objectively, prevented the money from being at Mr Yardley's free disposal. The fund remained Twinsectra's money, held subject to a power to apply it by way of loan for acquiring property. Subjective failure to intend or recognise a trust was irrelevant. A power is sufficiently certain if the court can determine whether a proposed application falls within it.

   Lord Millett analysed this type of arrangement as a resulting trust arising from the outset. The lender retains the beneficial interest, while the recipient has only a limited power or duty to use the fund for the stated purpose. Lord Hutton expressly agreed with his reasons on the trust issue, while Lord Hoffmann independently adopted the same trust-and-power structure.

3. Dishonest assistance. Per Lord Hutton and Lord Hoffmann, with Lord Slynn and Lord Steyn agreeing, Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 required the combined test. The conduct must be dishonest by the ordinary standards of reasonable and honest people, and the defendant must realise that it is dishonest by those standards. A person cannot avoid liability by setting a personal standard of honesty, but knowledge of the facts making the conduct wrongful does not alone establish dishonest assistance.

4. Application and appellate review. Deliberately avoiding inquiry into suspected facts may constitute dishonesty. Mr Leach, however, already knew the relevant facts. Carnwath J's references to shutting his eyes described a blinkered or misguided approach to professional responsibilities, not deliberate avoidance of knowledge. The judge was entitled, after hearing extensive cross-examination, to find that Mr Leach honestly believed the money was at his client's disposal. The Court of Appeal applied too strict a test and was not entitled to substitute its assessment of his state of mind. A retrial was unnecessary because the evidence had been fully deployed and the trial judge probably applied the correct test.

5. Lord Millett's dissent. Lord Millett considered that actual knowledge of the arrangements restricting the fund, coupled with intentional participation in an unauthorised dealing, should suffice. Awareness that ordinary people would call the conduct dishonest should not be required for civil accessory liability. He would have reduced the Court of Appeal's award by £22,000, representing fees properly paid in connection with property acquisitions, and otherwise dismissed the appeal.

• House of Lords: By a four-to-one majority, allowed Mr Leach's appeal and set aside the judgment against him. The House affirmed that the restricted-purpose undertaking created a trust but restored Carnwath J's dismissal of the dishonest-assistance claim.
• Court of Appeal: Allowed Twinsectra's appeal in [1999] Lloyd's Rep Bank 438. It held that the undertaking created a trust, reversed the finding that Mr Leach was not dishonest and entered judgment against him for £379,720.11 and interest.
• High Court: Carnwath J dismissed the action. He held that the undertaking created no trust and found that Mr Leach, although misguided and having shut his eyes to the implications, was not dishonest. A report citation is not stated in the judgment.