Stokors SA & Ors v IG Markets Ltd & Anor

Dishonest assistance requires participation in a breach of trust or fiduciary duty and dishonesty. Dishonesty is assessed by a two-stage inquiry: the court determines what the defendant actually knew or understood, then applies an objective standard of ordinary honest conduct to that state of mind. Suspicion, deliberate failure to inquire, reckless disregard of others’ rights and commercially unacceptable conduct may establish dishonesty, but mere carelessness or poor judgment does not. A defendant need not know the precise breach, identify the victim or understand the technical concept of a trust. Where dishonesty is not proved, a knowing-receipt claim founded on the same alleged unconscionability also fails.

Four investors claimed their losses from IG Markets Ltd after Echelon Wealth Management Ltd entered liquidation. They alleged that IG employees dishonestly assisted Echelon’s breaches of fiduciary duty by accepting and operating an omnibus CFD account despite deficits on individual and header accounts, and by permitting client funds to be used in support of other positions.

The claimants also advanced a knowing-receipt claim against IG. IG brought a Part 20 claim against Craigcrook Management Services Ltd concerning a letter stating that one claimant’s funds would be segregated. The central issues were whether the IG employees were dishonest and, if so, whether IG was liable in dishonest assistance or knowing receipt.

1. Applicable principles. The court accepted the established requirements for dishonest assistance: a trust or fiduciary obligation, a breach, assistance or inducement, and dishonesty. Assuming without deciding that a breach of fiduciary duty could suffice without a breach of trust strictly so called, the court adopted the two-stage dishonesty test in Barlow Clowes International Ltd v Eurotrust International Ltd: ascertain the defendant’s actual knowledge and understanding, then assess the conduct objectively by ordinary standards of honesty.
2. Dishonesty may arise from deliberate closing of the eyes or ears, suspicion coupled with a conscious decision not to inquire, commercially unacceptable conduct, or reckless disregard of others’ rights. The defendant need not know the precise fraud, the identity of the victim or victims, or the meaning of a trust.
3. Application. The evidence did not establish that Mr Russell or Mr Elgarf suspected that Echelon’s clients in surplus were exposed to loss. Their reliance on the contractual structure, Echelon’s representations, additional collateral, market conditions and the credit department’s assessment was honest. Mr Utley likewise honestly misunderstood the significance of Echelon’s regulatory permissions and did not suspect that the account structure endangered clients. His failures to investigate further were not dishonest.
4. The claims against IG for dishonest assistance were therefore dismissed. The knowing-receipt claim failed because it relied on the same alleged knowledge and unconscionability.
5. The Part 20 issues concerning Craigcrook’s duty, causation, remoteness and contribution were left undetermined because the claim against IG had failed.