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Fraud and All That: Claims Against Professionals Who Know Too Much (Or Choose to Turn a Blind Eye)

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Fraud and All That: Claims Against Professionals Who Know Too Much (Or Choose to Turn a Blind Eye) Fraud and all that: claims against professionals who know too much (or choose to turn a blind eye) Jamie Smith QC Helen Evans Hannah Daly 4 New Square Professional Liability & Regulatory Conference 4 February 2020 This material was provided for the 4 New Square Professional Liability & Regulatory Conference on 4 February 2020. It was not intended for use and must not be relied upon in relation to any particular matter and does not constitute legal advice. It has now been provided without responsibility by its authors. 4 NEW SQUARE T: +44 (0) 207 822 2000 LINCOLN’S INN F: +44 (0) 207 822 2001 LONDON WC2A 3RJ DX: LDE 1041 WWW.4NEWSQUARE.COM E: [email protected] Jamie Smith QC Call: 1995 Silk: 2015 "A fiercely intelligent silk who approaches a case from all angles.” – Chambers & Partners “Ridiculously hardworking, very perceptive, highly focused and thoroughly charming.” – Legal 500 Jamie’s core practice area are areas are professional liability, insurance and professional discipline. He is ranked in the Directories in each area. On the civil side, many of Jamie’s cases involve allegations of dishonesty and conspiratorial behaviour against professional persons. Jamie led the defence for Mishcon de Reya in the IAP matter, where all claims were dismissed and an indemnity costs order was made – [2018] BCC 751 and [2018] EWHC 1145 (Ch). Jamie also headed up one of the solicitor defence teams in the marathon Accident Exchange litigation. He is currently representing a Midlands practice in respect of a £50m dishonesty/conspiracy claim arising out of a corporate restructuring. Helen Evans Call: 2001 Helen Evans is a leading barrister practising in professional negligence, fraud, commercial, disciplinary and insurance work. Helen is ranked by the legal directories as a leading junior in the fields of professional liability, insurance and professional discipline. In 2019 she was identified by Who’s Who Legal as one of the two most highly regarded juniors at the professional negligence bar. Many of her cases have a company or insolvency element or involve fraud or economic torts. Helen is often instructed to obtain urgent freezing and other injunctions and is a calm and persuasive advocate under pressure. Helen is currently involved in numerous sets of proceedings against solicitors who have misappropriated client funds- or the accountants who did not identify the defalcations. In the last 6 months alone she has appeared at multiple freezing, proprietary, Norwich Pharmacal and committal hearings in cases brought by firms and their insurers. Recent comments from the directories include: “Formidable on paper, on her feet, and in cross-examination.” “Helen Evans stands out as one of the most highly regarded barristers in the field. Peers regard her as “thorough and meticulous” and say she “can unpick the most complicated of cases”.” “Very bright and intuitive, she gives solid commercial advice.” Hannah Daly Call: 2017 Hannah has a broad commercial practice covering litigation and arbitration. She has experience in a range of professional liability claims, civil fraud and offshore commercial and trust disputes. Recent experience includes acting as Junior Counsel in a 4-week High Court trial to defend a firm of accountants accused of negligence and fraudulent misrepresentation. She is currently instructed in a large-scale IT arbitration involving claims for fraud and breach of contract. She also has experience of disciplinary proceedings. Prior to joining Chambers, Hannah worked as a Strategy Consultant with Accenture, focusing on commodity trading and risk management in the mining, energy and soft commodity sectors. She was called to the Bar in 2017 as a Jules Thorn and Queen Mother Scholar of the Middle Temple. Fraud and all that: claims against professionals who know too much (or choose to turn a blind eye) Jamie Smith QC, Helen Evans and Hannah Daly Introduction 1. It seems a long time ago now that Millett LJ told professional practitioners to go back to their simple causes of action at law, in Mothew. First, we had the rise and rise of equity. Now, claimants are developing a strong liking for suing professionals for either knowing too much (or choosing to turn a blind eye). We look below at some aspects of claims for unlawful means conspiracy and dishonest assistance; and offer some comments as to the insurers’ perspective on such claims. Part 1: dishonest assistance The elements of the claim 2. Dishonest assistance gives rise to an equitable personal remedy for compensation. C must show1: a. There is a fiduciary relationship (including a trust); b. There is a breach of duty by the fiduciary; c. D has induced or assisted that breach; and d. D did so dishonestly. 3. The focus of the claim is not upon the ‘primary wrongdoer’, but the ‘secondary’ assister: for example, a solicitor who pays money out from a firm’s client account at the primary wrongdoer’s direction, but in circumstances where he knows the money should not be paid in that way. What is dishonesty? 4. The Supreme Court in Ivey v Genting2 in 2017 laid down what is now accepted to be the prevailing test to determine whether D is dishonest. There are two stages: a. First, the fact-finding tribunal must ascertain the actual state of the individual’s knowledge or belief as to the facts. This is a subjective test. The reasonableness or 1 See, generally, Lewin on Trusts (19th Edn) at paras 40-014 to 40-061. 2 Ivey v Genting Casinos UK Ltd [2017] UKSC 67; [2018] AC 391 (SC) 1 otherwise of his belief is a matter of evidence 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. b. Once that is established, the second question is whether his conduct was honest or dishonest by the standards of ordinary decent people. There is no requirement that D must recognise that what he/she has done is, by those standards, dishonest.3 5. The test in Ivey has since been applied in a number of cases where allegations of dishonesty are brought against professionals. Points to note are: a. In determining D’s actual state of mind, where a professional demonstrates in evidence that they understand the relevant professional obligation, then a tribunal may be slow to accept that they genuinely held an unreasonable belief.4 b. There may be some categories of professionals who are susceptible to other or additional requirements in order to be fixed with dishonesty. In Sofer v. SwissIndependent Trustees SA5, for example, it was necessary for the professional trustee to demonstrate an honest belief that his actions were in the interests of the beneficiaries. c. A ‘bad’ motive is not a prerequisite6, but the absence of motive is an evidential pointer away from dishonesty7. Group Seven v Nasir and ‘blind-eye’ knowledge 6. Knowledge for the purposes of the Ivey test may be actual or ‘blind-eye’. Blind-eye knowledge was examined more closely by the Court of Appeal Group Seven Ltd v Nasir8. Two conditions must be satisfied: a. the existence of a firmly grounded suspicion, which is targeted on specific facts that may exist. Untargeted or speculative suspicion is not enough; b. a conscious decision to refrain from taking any step to confirm the existence of those facts.9 3 Ibid. at [74]. 4 See, for example, Uwen v General Medical Council [2019] EWHC 3483 (Admin). 5 [2019] EWHC 2071 (Ch) 6 SRA v Siaw [2019] EWHC 2737 (Admin) 7 MASNOL v. Cripps Harries LLP [2016] EWHC 2483 (Ch) at para [88] per Mann J. 8 [2019] EWCA Civ 614; [2019] 3 WLR 1011 9 Stated at [59] and [60] in reliance on the dicta in the House of Lords in Manifest Shipping & Co Ltd v Unipolaris Insurance Co Ltd (The Star Sea) [2003] 1 AC 469. 2 7. However, more generalised suspicions falling short of ‘blind-eye’ knowledge may be taken into account when the fact-finding tribunal is making findings about D’s state of mind; and then coming to consider whether that knowledge is objectively dishonest.10 How much does the dishonest assister have to know? 8. The Court of Appeal in Group Seven also tackled another point: was there a minimum content of knowledge that the alleged accessory must possess in order to be held liable for dishonest assistance in breach of trust? 9. Though it was unnecessary for the Court to rule on this,11 it nevertheless gave its provisional view that the Ivey test would be needlessly complicated by the introduction of a minimum content test. 12 So, it would seem, the test of whether you know and what you know, are part and parcel of the same enquiry. The role of causation in dishonest assistance 10. The relevant causal link in these claims is between the loss and the breach which has been dishonestly assisted (not the assistance itself).13 11. The Court of Appeal confirmed that common law limits on causation (remoteness etc) did not apply in claims for dishonest assistance. It is necessary only to show: a. that the conduct in fact assisted the breach of trust; and b. that the loss directly resulted from the breach of trust.14 12. The effect of all this is that it may be possible for the dishonest assister to be liable to an even greater degree than an (honest) defaulting fiduciary, given the Court’s power to award compound interest. 10 Ibid at [61]. 11 Since it had found, and all parties accepted, that any minimum content of knowledge test would be satisfied if the defendant had blind-eye knowledge.
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