The Banker's Perspective Lord Millett's Dissent in Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164
| Author | Christopher Kirkbride |
| Pages | 179-194 |
Lord Millett’s Dissent in
Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164Christopher Kirkbride10.1 Introduction and background 179
10.2 Facts 182
10.2.1 Course of the litigation 183
10.3 Decision of the majority 184
10.4 Lord Millett’s dissent 186
10.5 Judicial treatment of dishonesty post-Twinsectra 187 10.6 Context, importance and future 189
10.6.1 Obligations imposed on banks 191
10.7 Conclusion 193
10.1 INTRODUCTION AND BACKGROUND
Banks expose themselves, as do other entities, to legal risk. Banks, however, endure a more acute exposure to this risk than other entities because of their unique business, i.e. the receipt of deposits, and their role in running the payments system. When a customer opens a bank account,
Laundering Regulations 2007 (SI 2007/2157), which replaced the Money Laundering Regulations 2003 (SI 2003/3075). The principal obligations respecting the opening of a bank account are contained in Part 2 of the Regulations, regs 5–18, namely Customer Due Diligence (CDD), alternatively ‘Know Your Customer’ (KYC). Banks, among other things, have to ensure that they know who they are dealing with and that they are who they claim to be. Failure to comply with the Regulations exposes banks to civil and criminal liability.
180 Part III – Equity and Property Law
House of Lords in the middle of the 19th century.
considered. This third party liability is achieved through the ‘constructive trust’.
Under the artifice
The requirements of the cause of action in ‘dishonest assistance’ come from the case of Baden Delvaux:
(a) There must be a trust obligation or some other form of fiduciary relationship.
(b) There must be a breach of trust or fiduciary duty.
(c) The defendant accessory must have assisted in that breach of trust or fiduciary duty.
(d) The defendant accessory must have been dishonest.
Of the elements of the cause of action, the matter which has generated most discussion in the cases is that of dishonesty, and the standard necessary in order to show that a party should be liable as an accessory to a breach of trust. For the purposes of this chapter, since so much of the subsequent authorities, and particularly the majority and minority speeches in Twinsectra Ltd v Yardley
turn on its interpretation, the starting point will be taken as Lord Nicholls of Birkenhead’s advice in the Privy Council case of Royal Brunei Airlines Sdn Bhd v Tan (Tan).
The facts of Tan are relatively straightforward. Tan was the Managing Director and principal shareholder of a company (BLT) which was the booking agent for Royal Brunei Airlines (RBA). The arrangement between BLT and RBA was simple. Individuals would book flights through BLT and, periodically, BLT would pay over to RBA the money collected. Thus, BLT held the money on trust for RBA during each period. The relationship began to unravel when, in breach of trust, BLT paid down its own overdraft with the money collected in airline fares, it being assisted in this by Tan. BLT was insolvent with the consequence that RBA pursued Tan as the dishonest accessory to the breach of trust. At first instance, Tan was held liable, a decision which was reversed by the Court of Appeal of Brunei Darussalam. The Privy Council allowed the airline’s appeal.
Lord Nicholls’ advice was seen to provide welcome clarification of the law respecting the dishonesty element of the cause of action. First, the accessory’s knowledge was not to be the key question; knowledge being an ‘inapt’ criterion.
Commerce et de l’Industrie en France SA [1983] BCLC 325.
182 Part III – Equity and Property Law
Dishonesty was the necessary and sufficient ingredient of liability,
Whatever may be the position in some criminal or other contexts ... in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard.
His Lordship continued:
Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.
Thus, the standard against which the accessory is judged is deemed to be an objective one, and though within it there is scope to take account of, ‘personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did’,
The law rested in a relatively settled state after Tan,
10.2 FACTS
Yardley was purchasing land with the help of a loan from Barclays Bank plc. However, difficulties over this loan caused him to turn to a niche loan provider, Twinsectra Ltd. They were reluctant to loan the money, some £1 million, without receipt of an undertaking that the money would be turned to the sole
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