Twinsectra v Yardley [2002]

Twinsectra Ltd v Yardley [2002] UKHL 12 is a seminal case in English trusts law, providing authoritative rulings on Quistclose trusts and the concept of dishonest assistance. The case involves Twinsectra Ltd's pursuit of a £1 million loan from Mr Yardley, facilitated through solicitors Mr Sims and Mr Leach, and the subsequent breach of trust.

Twinsectra Ltd lent £1 million to Mr Sims, with the condition that it would only be disbursed to Mr Yardley if guaranteed. Despite Mr Leach's initial refusal to provide the guarantee, Mr Sims accepted the loan and gave the money to Mr Yardley without adhering to the specified conditions. Mr Yardley breached the agreement by using a portion of the money to pay off personal debts. Twinsectra Ltd sued Mr Yardley to recover the funds and also implicated both solicitors, arguing that the money was subject to a trust, Mr Sims breached the trust, and Mr Leach dishonestly assisted the breach.

The House of Lords unanimously held that the money from Twinsectra Ltd was held on an express trust by the solicitors. This trust was established through the terms of the agreement between Twinsectra Ltd and Mr Sims. The undertaking clearly indicated that the money was not at Mr Yardley's free disposal and was to be utilised solely for the acquisition of property.

However, the controversial aspect emerged in the assessment of Mr Leach's dishonesty. The House of Lords, in a divided decision, held that Mr Leach had not been dishonest enough for accessory liability, sparking academic debate and subsequent scrutiny.

Lord Hoffmann emphasised that the terms of the trust were found in the undertaking between Twinsectra Ltd and Mr Sims. He regarded the money as held in trust for Twinsectra Ltd but subject to a power to apply it as a loan to Mr Yardley in line with the undertaking. Lord Hoffmann rejected the notion that the undertaking was too vague, maintaining that it specified the purpose of acquiring property.

Regarding dishonesty, Lord Hoffmann aligned with the majority, emphasising that the defendant must be conscious of transgressing ordinary standards of honest behaviour to be liable for dishonest assistance. He rejected the dissenting judgment of Lord Millett on the grounds that it departed from the principles established in Royal Brunei Airlines v Tan [1995].

Lord Hutton focused on the tests for accessory liability, considering subjective, objective, and combined tests. He interpreted Royal Brunei Airlines v Tan as articulating a combined test, requiring a person to act dishonestly by the ordinary standards of reasonable and honest people and to be aware of their dishonesty. Lord Hutton rejected a purely subjective test outright, considering it less than just for the law to permit a finding of dishonesty where the defendant was unaware that their actions would be regarded as dishonest.

Lord Millett dissented, maintaining that the test of dishonesty is largely objective, with considerations for the defendant's experience and intelligence. He argued that it is not necessary for the defendant to have appreciated their dishonesty; it is sufficient that they were. Lord Millett's dissenting judgment aligned with a more purely objective test.

The case significantly contributes to the understanding of Quistclose trusts and the nuanced concept of dishonest assistance. It highlights the complex interplay between the terms of trust agreements, the intention to create a trust, and the standard of dishonesty required for accessory liability. The divergent perspectives within the House of Lords have spurred ongoing academic discussions on the nature of resulting trusts, the role of intention, and the appropriate test for assessing dishonesty in cases of accessory liability.