Snehal Dattani & Anor v Messrs Ferns Solicitors

An agent who receives money belonging in law or equity to a third party is not liable as a constructive trustee merely because the agent knows the money is subject to an equitable interest. Liability requires a wrongful act, such as knowingly participating in a breach of trust, intermeddling with trust property, dealing with money knowing that the principal lacks authority, or dishonesty.

Dishonest assistance requires assessment of the defendant’s actual knowledge and beliefs, including any blind-eye knowledge, against the objective standards of honest conduct. Mere suspicion is insufficient for blind-eye knowledge, but suspicions may contribute to the objective assessment of dishonesty. Where the pleaded facts raise an arguable case concerning a solicitor’s knowledge and state of mind, summary determination is generally premature.

The appellants challenged two orders made by Master McQuail in proceedings concerning the transfer of proceeds from the sale of property. The Master struck out claims against the respondent solicitors based on breach of constructive trust and dishonest assistance.

The solicitors had acted on instructions to transfer the net proceeds to one joint owner despite a Form K restriction recording an interim charging order over the other owner’s beneficial interest. The appellants argued that the restriction itself imposed constructive-trust liability, or alternatively that the solicitors’ conduct was dishonest assistance in a breach of trust.

Permission to appeal was granted by Roth J. The central issues were whether constructive-trust liability arose without dishonesty and whether the pleaded case concerning the solicitor’s knowledge and state of mind was suitable for summary disposal.

1. The appeal was allowed in part. The dishonest assistance claim was restored and directed to proceed to trial. The court determined as a preliminary issue that the constructive trust argument based solely on dealing incompatibly with the equitable charge failed.
2. For striking out under CPR 3.4(2)(a), the pleaded case is ordinarily taken as true and must be bound to fail. Summary judgment under CPR 24.2 requires that the claim have no real prospect of success and that there be no other compelling reason for trial. The court must avoid a mini-trial, consider reasonably available trial evidence, and hesitate where fuller factual investigation may affect the result. A short point of law may nevertheless be decided summarily where the evidence is sufficient and the parties have had a proper opportunity to argue it.
3. Following the principles stated in Carl Zeiss Stiftung v Herbert Smith & Co, an agent who receives money belonging to a third party is not accountable as a constructive trustee unless guilty of a wrongful act. Knowledge that money is trust money is insufficient where the agent acts honestly and merely performs the duties of an agent. The constructive trust argument therefore failed.
4. The dishonest assistance claim required a trust, a breach of trust, assistance by the defendant, and dishonest assistance. Dishonesty involves an objective assessment of honest conduct in circumstances known to the defendant, including the defendant’s actual knowledge and beliefs. Blind-eye knowledge requires a suspicion that relevant facts exist and a conscious decision not to confirm them. Suspicion falling short of blind-eye knowledge may still be relevant to the objective assessment.
5. The Form K restriction established knowledge that an interim charging order had been made, although it did not establish whether the order remained effective, the amount secured, or any beneficial interest in the proceeds. The solicitor’s beliefs and any suspicions, and whether proceeding without further inquiry was dishonest, required evidence at trial. The pleaded case was sufficiently particularised.

The question of whether the proceedings should be heard with the claims against the other defendants, and costs, was left for further submissions.

• High Court, Business and Property Courts: Master McQuail made orders dated 9 February 2024 and 26 March 2024 striking out the constructive trust and dishonest assistance claims.
• Chancery Appeals: Roth J granted permission to appeal. Mr Justice Thompsell allowed the appeal concerning dishonest assistance and upheld the preliminary determination rejecting the constructive trust argument based solely on the equitable charge.