Lecturer in Law

Newcastle Law School

a.c.speirs@ncl.ac.uk

© Copyright 2002 Alistair Speirs.
First published in Web Journal of Current Legal Issues.

* I am grateful to Professor Allen, Dr Alison Dunn, Ian Dawson, and Richard Mullender and the anonymous referee for their comments on earlier drafts of this article.

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This casenote examines the House of Lords judgment in Twinsectra Ltd v Yardley and Others [2002] UKHL 12. The case raised two important questions relating to trusts for decision by the House. The first was whether a commercial loan made by the claimant became the subject matter of a 'Quistclose trust' by virtue of the terms of the loan. The second, which arose only if the first question was answered affirmatively, was whether a solicitor, through whose client account the loan monies passed, was liable for assisting in a breach of this trust. Importantly, this second question required the House to reconsider the issue of what type of accessory culpability should result in liability. In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 the Privy Council held that liability turned upon whether the defendant had been dishonest rather than, as had formerly been the case, whether he had knowledge of the circumstances of the breach of trust. In a number of cases after Tan courts have struggled with the appropriate definition of dishonesty in this equitable setting. In Twinsectra the majority in the House has given a definition which many will find surprising.

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Contents

Introduction
Facts
The first instance and Court of Appeal decisions

The existence of a trust
Dishonest assistance
Knowing receipt

The decision of the House of Lords

A Quistclose trust?
Certainty
Dishonest assistance
The combined test
Lord Millett's speech

Conclusion

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A claimant whose aim is to recover a loss accrues a number of benefits from a finding that his property is the subject matter of a trust. Such a finding may permit him to recover the property itself and opens up the possibility of bringing a personal action against trustees and any person who has received the property or has assisted in its misapplication.

In Twinsectra the claimant company sought to recover money paid over as a loan. The appeal to the House of Lords concerned the personal liability of a solicitor who had transmitted the loan monies to his client. Liability would only follow if it could be established, firstly, that the money was subject to a trust and, secondly, that the defendant solicitor had dishonestly assisted in a breach of this trust by forwarding the money to his client.

As to the first condition of liability, the existence of a trust, it is well established that a loan and a trust can co-exist. An example of such co-existence is to be found in the case which has lent its name to a trust arising out of a loan, Barclays Bank Ltd v Quistclose Investments Ltd (or Quistclose Investments Ltd v Rolls Razor Ltd) [1970] AC 567. The extra ingredient required to elevate a loan to such a Quistclose trust is an intention that the money advanced be used for a particular purpose rather than being at the general disposal of the borrower. In Quistclose itself this extra ingredient was supplied by the bank's stipulation that the loan be employed in paying a dividend to shareholders. The House's decision in Twinsectra provides some welcome clarification of the principles underlying, and workings of, a Quistclose trust.

The claimant's second hurdle was establishing that the solicitor was personally liable to repay part of the loan. The circumstances in which a stranger to a trust may become accountable for a breach of trust are traditionally traced back to the speech of Lord Selborne in Barnes v. Addy (1874) LR 9 Ch App 244 in which he identified two classes of persons who are liable: those who 'receive and become chargeable with some part of the trust property' and those who 'assist with knowledge in a dishonest and fraudulent design on the part of the trustees' (p. 251-252). These two categories of liability subsequently became identified, respectively, as 'knowing receipt' and 'knowing assistance'. In the appeal to the House in Twinsectra it was the latter category which was at issue.

Following Barnes v. Addy it was possible to identify four preconditions to 'knowing assistance' liability:

In the Privy Council decision Royal Brunei Airlines Sdn Bhd v Tan[1995] 2 AC 378 Lord Nicholls held that this area of liability required revision in two respects. Firstly by omitting 'fraudulent' in (ii) and secondly by substituting 'dishonesty' for 'knowledge of the breach' in (iii). The first of these revisions has been welcomed as the correction of an error which grew out of Lord Selborne's dictum cited above (see, e.g. Hanbury & Martin 2001,p.308). The second, contrary to Lord Nicholls' assertion that 'in most situations there is little difficulty in identifying how an honest person would behave' (p.389), has proved more problematical. In particular, courts have reached different answers to the question of whether liability follows only from a realisation by the defendant that he was acting dishonestly or whether it is sufficient that the defendant's actions would be regarded as dishonest according to an objective yardstick. It is for the resolution of this question that the House's decision in Twinsectra is both most important and controversial.

The transaction which was the subject matter of this appeal was a loan of £1 million made by Twinsectra to Mr. Yardley, a property developer. These facts were complicated by various side issues (see my note on the Court of Appeal decision, Speirs 2000). The complications can reasonably be ignored for the purposes of analysis of the House's decision which concerned only the liability of Yardley's solicitor, Mr. Leach.

Twinsectra made over the loan to a solicitor, Sims, who was associated withYardley, although not acting for him in this transaction. Sims gave his undertaking to Twinsectra that the money would be used solely for the acquisition of property and that he would retain the money until it was so applied. In breach of this undertaking Sims paid the money to Leach who passed it on to his client, Yardley.

At first instance Carnwath J held that the loan monies were not subject toa trust. Since the claims against Leach depended upon the existence of a trust, it followed from his finding that Leach was not liable to make good any of Twinsectra's loss.

The Court of Appeal reached the opposite conclusion to that of Carnwath J in respect to the existence of a trust (Twinsectra Ltd v Yardley [1999] Lloyd's Rep Bank 438). The undertaking that the money would be used solely for the acquisition of property was sufficient to invoke a trust.

Once the Court of Appeal had held that the Twinsectra loan was subject to a trust the liability of Leach depended upon a single issue. Since the other three elements, trust, breach and assistance were in place, liability hinged on whether Leach had been 'dishonest' as measured against the somewhat uncertain yardstick of the opinion of Lord Nicholls in Tan.

Although his decision that there was no trust made it unnecessary, Carnwath J did make findings on the issue of dishonesty on the part of Leach. He held that Leach, although not dishonest, had closed his eyes to the implications ofthe undertaking.

The Court of Appeal reversed this finding in respect of dishonesty, holding that Carnwath J had fallen into error by ascribing a subjective meaning to the test of dishonesty laid down in Tan. It was sufficient that Leach had, in the Court's view, fallen short of the high standards of honesty to be expected of a solicitor. Accordingly, Leach was held personally liable for the considerable portion of the loan which was not applied to the purchase of property under the Tan principle of 'dishonest assistance'.

In the Court of Appeal, Leach was further held liable in respect of sums received by his firm as payment of fees. This claim was not, however, pursued further and before turning to the House's decision it should be explained why that was so.

During the hearing before the House it was conceded, by counsel for the claimant company, that Leach had been wrongly held liable for 'knowing receipt'. Although three of the conditions for liability applied (the existence of a trust, knowledge and receipt) the fourth, breach of trust, did not. The payments to Leach were in respect of fees charged for work done in acquiring property and therefore did not breach the undertaking given by Sims. Consequently, the House was not required to, and did not, provide any analysis of this head of liability. As explained below (see under 'Lord Millett's speech'), however, one obiter comment by Lord Millett (at HL, para.105) suggests that he would be willing to reassess the basis of liability for knowing receipt.

As noted above, the House was required to address two issues, the existenceof a trust and the basis of liability for 'dishonest' (formerly 'knowing') assistance. There is no overlap between these two issues and they are best dealt with separately.

Their Lordships were unanimous in holding that the Court of Appeal was correct to reverse Carnwath J on the question of whether the loan, coupled with Sims' undertaking, created a trust. The only speech to provide a detailed analysis of this question was that of Lord Millett (HL, paras. 68-103), who,although dissenting from the House's decision on the second issue, provides the authoritative statement on the first.

The fundamentals of the Quistclose trust are simply stated. Where L makes a loan to B and stipulates that the money is to be used for a particular purpose and that purpose is not carried out, or becomes impossible to carry out, then a trust in favour of L exists. What has been less clear is the precise nature of the Quistclose trust. In the Court of Appeal Potter LJ, giving the only substantive judgment, held that a 'Quistclose trust is in truth a 'quasi-trust'' which is not required to satisfy 'the usually strict requirements for a valid trust so far as 'certainty of object' (sic) is concerned' (CA, para. 76). The problem which Potter LJ appeared to be trying to circumvent when he labelled the Quistclose trust a 'quasi-trust' is the general requirement that trusts conform to the 'beneficiary principle'.

The beneficiary principle requires of a trust that it have ascertainable human beneficiaries in order to be valid (see Morice v Bishop of Durham(1805) 10 Ves 522). The permitted exceptions are charitable trusts and a limited number of non-charitable purpose trusts. At first sight the Quistclose trust appears to offend against the beneficiary principle. The trust seems to fall into the category of non-permitted purpose trusts, the purpose being to pay a creditor (e.g. Carreras Rothmans Limited v FreemanMatthews Treasure Ltd [1985] Ch 207), a dividend (Quistclose) or, in the case of Twinsectra, to purchase property.

In the note on the Court of Appeal decision (Speirs 2000) it was argued that a better analysis than that of Potter LJ was provided in the article written by Millett QC, as he then was (Millett 1985). It is therefore unsurprising that the analysis of Lord Millett, as he now is, provides welcome clarification.

Lord Millett's starting point was to ask where the beneficial interest of the Quistclose trust lies. He identified four possible answers: (i) the lender, (ii) the borrower, (iii) the contemplated beneficiary (i.e. the end user, such as a creditor (Carreras Rothmans) or shareholder(Quistclose)) or (iv) in suspense, pending failure of the stipulated purpose. Having admitted to being pre-disposed to giving the first answer, Lord Millett analysed and rejected the other three. That the borrower does not have the beneficial interest is clear from the fact that on the borrower's bankruptcy the property does not vest in the trustee-in-bankruptcy. The third possibility cannot provide a general answer because in many cases there will be no 'contemplated beneficiary' but instead the purpose will be entirely abstract, as was the case in Twinsectra itself. The idea that the beneficial interest was in suspense ignored the role of the resulting trust; a resulting trust arises automatically where property is transferred without an intention on the part of the transferor to pass the beneficial interest (or the entire beneficial interest) to the transferee. The resulting trust mops up any undisposed of beneficial interest directing it back to the transferee, in a Quistclose trust the lender. One is therefore led back to the first, favoured answer.

Lord Hoffmann's less detailed analysis reached the same conclusions as Lord Millett's and is in no way inconsistent with it (see HL, para.13). Lords Steyn and Slynn agreed with Lord Hoffmann while Lord Hutton found himself in agreement with both Lord Hoffmann and Lord Millett on this point. We therefore have unanimous House of Lords authority that a Quistclose trust is a form of resulting trust (see HL, para.100). The beneficial interest of the loan monies remains with the lender; the borrower merely has a power to use the lender's money for the stipulated purpose. If the power is not used or becomes otiose one is simply left with the resulting trust. There is therefore no need to distinguish between a primary trust to carry out the purpose and a secondary trust by which the lender receives the beneficial interest of the loan money; the beneficial interest in the loan money at no stage leaves the lender.

One can argue that the Quistclose trust, as described by Lord Millett, is misidentified here as a 'resulting' trust. A resulting trust carries with it a connotation of the equitable interest returning to the transferor. Birks identifies the etymology of 'resulting' as the Latin verb 'resalire', to jump back (Birks 1989 (1) , p.60). Thus, the definition of a resulting trust given in Hanbury & Martin is 'a situation in which a transferee is required by equity to hold property on trust for the transferor... [t]he beneficial interest results, or comes back to the transferor ...'(Hanbury & Martin 2001, p.237). The resulting trust is, on this definition, a form of equitable boomerang. The objection to the categorisation of the Quistclose trust by Lord Millett as 'an entirely orthodox example of the kind of default trust known as a resulting trust' is that the lender 'does not part with the entire beneficial interest in the money' (HL, para. 100). To continue the analogy, there is no need to employ a boomerang because the lender never lets go of the stick. Rather than identifying the Quistclose trust as a resulting trust it might be better to acknowledge that it is simply an express trust created by the terms of the loan (see e.g. Hudson 2001,p.310).

Students of the law of trusts are introduced to the requirements of certainty at an early stage. The standard authority is Knight v Knight (1840) 3 Beav 148 in which Lord Langdale MR stated that a transfer of property subject to a stipulation creates a trust if the words used are imperative and if the property and objects (i.e. persons intended to be benefited) are sufficiently identified. This dictum is usually reduced to the phrase that the three certainties must be present: certainty of intention, subject matter and objects.

As explained in my previous note (Speirs 2000), Potter LJ exhibited confusion when he referred to 'certainty of object' in relation to the purpose for which the loan was made (CA, para. 76). If Potter LJ did have in mind the requirement of 'certainty of objects' then, on Lord Millett's analysis of a Quistclose trust, there is no problem. The trust does have 'certainty of objects'; the beneficiary is the lender. It also has certainty of subject matter, the loan monies. The only remaining issue is whether there is certainty of intention.

The task of a court when asking whether a disposition exhibits certainty of intention is to examine the words and conduct of the proposed settlor to see if these conform to an intention to create a trust. It is not necessary that the settlor have a subjective intention to create a trust, it is sufficient that he exhibit an intention which can be interpreted by the court, in accordance with the relevant legal principles, as an intention to create a trust. Thus, when Constance said to Paul 'this money is as much yours as mine' (Paul v Constance [1977] 1 WLR 527 at 532) he did not subjectively 'intend to create a trust' but nevertheless he created an express trust. Similarly, in a Quistclose trust one must look to the terms of the loan to determine whether there is certainty of intention. This is provided by the requirement that the money be used only for the stipulated purpose. This condition was satisfied in Twinsectra by Sims' undertaking that 'the money would be used solely for the acquisition of property and for no other purpose' (per Lord Millett at para. 75, HL)

One other point falls under the heading of certainty of intention. It was suggested in the Court of Appeal that the declaration by the lender of a purpose was not enough, by itself, to create a trust. Potter LJ stated that some additional element was required, usually segregation of the loan monies from the borrowers' other assets (see CA, para. 74). This dictum was not followed by Lord Millett; the only question is 'whether the parties intended the money to be at the free disposal of the recipient' (HL, para. 74). This correctly relegates the issue of segregation of funds to an evidential role in determining whether there was certainty of intention on the lender's part (see HL, para.95).

The one issue which does not fall within the purview of certainty of intention is whether the purpose is sufficiently well defined. It will be recalled that both Carnwath J and Potter LJ considered that the intended purpose of the loan must be sufficiently certain in order for a trust to be created. The difference in outcome between the two judgments lay in the finding of Potter LJ that the phrase 'acquisition of property' was a sufficiently clear statement of purpose (CA, para 82). Lord Millett's analysis of the Quistclose trust reveals that lack of certainty of purpose operates in the opposite direction to that supposed by Carnwath J and Potter LJ. The purpose for which the loan is granted delimits the power given to the borrower over the lender's money. If a power is not defined in such a way that a court can enforce it then the power fails. One is then left with only the bare trust by which the borrower holds the loan monies on trust for the lender. The borrower can do nothing except return to the lender the legal title to the loan monies. Thus, contrary to what was thought at first instance and in the Court of Appeal 'uncertainty works in favour of the lender, not the borrower' (per Lord Millett at para. 101, HL).

As stated at the beginning of this section the House was unanimous that the undertaking which the plaintiff sought and received from Sims did give rise to a Quistclose trust in respect of the loan. This laid the foundation for considering whether liability attached to Leach as a result of his role in Sims' breach of trust. Leach clearly had 'assisted' in this breach of trust by passing the loan monies on to his client. The only remaining question was whether Leach had been 'dishonest'.

The House was not, of course, bound by the decision in Tan; the 'advice' of the Privy Council has only persuasive authority in English courts. It was therefore open to their Lordships to revisit the question of whether dishonesty or knowledge was the better basis for liability. This was not, however, the route taken by the majority. Lords Slynn, Steyn, Hoffmann and Hutton were each content to base their speeches upon their interpretation of the opinion of Lord Nicholls in Tan. For the majority, then, the issue became what definition of dishonesty had Lord Nicholls employed. Lord Millett's powerful dissent ranged more widely than merely seeking an answer to this narrow question.

Lord Hutton identified three possible standards of dishonesty: purely subjective, purely objective and what he identified as a 'combined test'. The first of these requires a court to consider whether a defendant has been dishonest according to his own standards of honesty. A 'purely objective' test employs 'the ordinary standards of reasonable and honest people' as a yardstick against which to measure the defendant's conduct. The 'combined test' requires a court to establish 'that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised by those standards his conduct was dishonest' (HL, para. 27).

The majority agreed, against the weight of considerable evidence to the contrary, that it was the latter, 'combined' standard of dishonesty to whichLord Nicholls was referring in Tan.

Lord Hutton's description of the content of his 'combined test' is identical to the questions a jury must answer in a criminal case to determine whether the defendant has been dishonest: 'Was what was done dishonest according to the standards of reasonable honest people? If so, did D realise that what he was doing was by those standards dishonest?' (see e.g. Allen 2001, p.428). This criminal standard of dishonesty was laid down by the Court of Appeal in R v Ghosh [1982] QB 1053. The clearest evidence that this is not what was intended by Lord Nicholls is found in the passage in which he draws a distinction between the criminal standard and the standard of dishonesty which he considered should give rise to accessory liability:

Lord Hutton, however, considered that Lord Nicholls, in this passage, was drawing a distinction between the standard which should apply to accessory liability and the purely subjective standard identified above, citing the following passage from Lord Nicholls speech:

At first sight, this passage does appear to provide support for theconclusion of the majority. However, the fact that Lord Nicholls pointed out that the test is not 'purely subjective' does not, logically, lead one to theconclusion that he intended for a part subjective and part objective test. The distinction Lord Nicholls drew between the Ghosh test and the test for liability of an accessory in the passage above should preclude this conclusion. Further, a little later, in a passage not cited by Lord Hutton, Lord Nicholls stated that:

'The only answerto these questions [what should an honest person do] lies in keeping in mindthat honesty is an objective standard. The individual is expected to attain thestandard which would be observed by an honest person placed in thosecircumstances. It is impossible to be more specific.' (p.390)

The very limited extent to which Lord Nicholls intended his test of dishonesty to be subjective, it is submitted, is to be found in the following passage:

'Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time.The court will also have regard to personal attributes of the third party, suchas his experience and intelligence, and the reason why he acted as he did.'(p.391).

It seems reasonably clear from these latter two passages that Lord Nicholls did intend a combined test but not the combined test found in Ghosh and the speech of Lord Hutton. Rather, it is submitted, what he intended was a test which asked the question 'Would an honest and reasonable person, having the characteristics (such as the experience and intelligence) and knowledge of the defendant, have acted in the way in which the defendant did'. A negative answer to this question would lead to the conclusion that the defendant was dishonest in the context of accessory liability. Support for this assertion can be found in text books (see e.g. Hanbury & Martin 2001, p.309; Hudson 2001, p.310) and articles (e.g. Stafford 2001, p.14).

This test would be familiar to the criminal bar not because it accords with the Ghosh test of dishonesty but because it is similar to the test which has been applied when asking whether a defendant has a defence of provocation to murder. This test is objective in that the question is 'whether the provocation was enough to make a reasonable man do as the defendant did' but permits characteristics of the accused (such as age or addiction) to be attributed to the reasonable man (see e.g. R v Morhall [1996] AC 90 but note the confusion engendered by R v Smith (Morgan) [2001] 1 AC 146, see Allen 2001, p.310-314).

Perhaps the most conclusive support for this objective test is to be found in the facts of Tan itself. It will be recalled that the case came to the Privy Council after the Court of Appeal of Brunei Darussalam allowed Tan's appeal on the grounds that it had not been established that the trustee, BorneoLeisure Travel Sdn. Bhd. (BLT), was guilty of fraud or dishonesty (p.393). Since Tan was the controlling mind of BLT this amounts to a finding that Tan wasnot dishonest under the definition employed by the Court of Appeal of Brunei. Lord Nicholls' decision that Tan was liable for dishonest assistance is therefore explicable only if an objective test is applied. Nowhere in the judgment in Tan does one find any exploration whatsoever of the question which Lord Hutton, effectively, asserts that Lord Nicholls was applying: 'did Tan realise that what he was doing was dishonest according to the standards of reasonable honest people?' When it came to applying his test Lord Nicholls stated:

In short, the best evidence that Lord Nicholls, giving his decision in Tan, did not intend a subjective test (or, as Lord Hutton defined it, a 'combined' test) was that he most clearly did not apply a subjective test. The only evidence relating to Tan's state of mind pointed away from subjective dishonesty on his part. The Brunei court had held that the evidence revealed 'a sorry tale of mismanagement and broken promises' but not fraud or dishonesty. The passage cited above demonstrates that Lord Nicholls must have applied an objective test. There is there no reference to the defendant's state of mind beyond his knowledge of the facts.

In Twinsectra, the majority condemned the reversal by the Court ofAppeal of the finding of the first instance judge that the defendant had not been dishonest (see HL, paras. 5, 8, 43). This was represented as a reversal, by an appellate court, of a finding of fact made by a trial judge which, of course, should only occur in exceptional circumstances (HL, para. 43). Apparently entirely overlooked is the fact that this alleged reversal of a finding of fact is exactly what had occurred in Tan. On this point the decisions of the Court of Appeal of Brunei (Tan) and Carnwath J (Twinsectra), on the one hand, and those of Lord Nicholls (Tan) and Potter LJ (Twinsectra), on the other, are in alignment. This congruence suggests that the majority of the House were wrong in their interpretation of Lord Nicholls' speech for the following reason. If Potter LJ is to be criticised for reversing a finding of fact then the same criticism should be levelled at Lord Nicholls. Simply put, the Court of Appeal of Brunei held, effectively, that Tan was not dishonest but Lord Nicholls held that he was. However, it is clear that Lord Nicholls did not see himself as reversing a finding of fact. The answer to this conundrum is that both Potter LJ and Lord Nicholls were not disturbing findings of fact but were applying a different definition of dishonesty from that employed by the lower courts. The only way in which Lord Nicholls' decision in Tan can be explained is that he applied a definition more disadvantageous to the respondent than that applied by the lower court. Just as in Twinsectra, the lower court applied a subjective test and was reversed because it was held, on appeal, that an objective test should have been applied. Logically, this analysis leads one to the conclusion that Lord Nicholls applied an objective test when he held, contrary to the decision of the Court of Appeal of Brunei, that Tan had been 'dishonest'.

Further evidence, should it be needed, of Lord Nicholls' meaning in Tan is provided by his extra-judicial writing. In 1998, writing about dishonest receipt and dishonest assistance Lord Nicholls stated:

'In both casesliability is triggered by the same degree of fault: dishonesty, conduct which anhonest person would regard as dishonest behaviour (see the Brunei Airlinescase at 389-391). In both cases the issue, which is essentially a juryquestion, is whether the third party, placed as he was and acting as he did forthe reason he did, attained the standards of an honest person'. (Lord Nicholls1998, p.243)

There can be no doubt that Lord Nicholls intended an objective test, a testbased upon improper conduct and not upon a guilty mind.

For these reasons it is submitted that the sole dissenting speech, that of Lord Millett, is to be preferred to that of the majority.

Lord Millett's starting point was to consider the bases of liability for the two forms of third party liability (HL, paras. 104-107). 'Knowing receipt' is based upon the beneficiary's right to recover property in the hands of the third party. Its basis is therefore restitutionary. By contrast, 'dishonest assistance' is based upon the fault of the third party. The beneficiary is entitled to compensation from the third party because of the latter's fault. Statements to the same effect can be found in Tan (p.385-386). The only controversial element to be found here is Lord Millett's obiter suggestion that liability for 'knowing receipt' might follow the general restitutionary principle that the recipient should be strictly liable, notwithstanding absence of knowledge, subject to a defence of change of position (HL, para. 105). Lord Millett's musings on this point, and his comment that rationalisation of this branch of law is 'much needed' (HL, para. 52), will hearten those who have long argued that the liability of a recipient is a strict restitutionary liability(see e.g. Birks 1989 (2)).

In analysing the content of the fault element of 'dishonest assistance' Lord Millett put the Tan decision in its historical context. Lord Nicholls' replacement of knowledge with dishonesty represented a rejection of negligence-based liability in favour of a requirement of intentional wrongdoing. Lord Millett was in no doubt that Lord Nicholls did not intend to introduce the criminal standard of dishonesty; he found 'no trace in Lord Nicholls' opinion that the defendant should have been aware that he was acting contrary to objective standards of dishonesty' (HL, para. 118).

The resolution of the question of the proper basis of liability was, as Lord Millett recognised, entirely open to the House. He therefore addressed the issue from first principles and came down firmly in favour of an objective test.Among his reasons were the unsuitability, generally, of a mens rea element tocivil liability, the history of this area of liability which was concerned withan intentional act coupled with knowledge and a comparison with the closely related tort of wrongful interference with contract. This latter reason provides important support for Lord Millett's contention that the correct test is an objective one. Equity traditionally imposes a higher standard of conduct than the common law. The majority decision, however, requires a claimant to establish a dishonest state of mind if alleging 'dishonest assistance' but, by comparison, there is no such requirement if the claimant alleges wrongful interference with the performance of a contract. This point is made most strongly by the conclusion that, had it been pleaded, Leach would have been liable for the latter tort (see HL, para. 144).

The problems which have arisen since Tan were traced by Lord Millett to a reluctance to label a defendant 'dishonest' based merely upon wrongful conduct rather than a guilty mind. Lord Hutton used precisely this reluctance to bolster his argument that 'dishonesty' should be given a subjective meaning, considering that 'it would be less than just for the law to permit a finding that a defendant had been "dishonest" in assisting in a breach of trust where he knew of the facts which created the trust and its breach but had not been aware that what he was doing would be regarded by honest men as being dishonest' (HL, para. 35). However, as Lord Millett pointed out, the correct resolution of this problem is to change the language employed, rather than subvert settled principles of equity (HL, para. 125). For that reason and because, as events had proved, the label dishonesty was 'conducive to error' Lord Millett would have abandoned the term and retreated to the pre-Tan label of knowledge (HL, para.134).

Given that Leach knew the terms of Sims' undertaking and that by the terms of that undertaking the money was not to be paid over to Yardley except for the acquisition of property Lord Millett would have held Leach liable for 'knowing assistance'. The fact that Leach did not know that the terms of the undertaking created a trust was immaterial. In fact, as noted above, absence of a trust would not have absolved Leach from potential liability based upon his interference with the performance of the contract.

The decision in Twinsectra is to be welcomed for the clear exposition given by Lord Millett of the principles of a Quistclose trust. The approach taken at first instance and in the Court of Appeal revealed considerable confusion. The Quistclose trust is not some form of hybrid or sui generis purpose trust. It is a perfectly ordinary trust whereby the borrower holds the loan for the benefit of the lender and is granted a power to apply the loan in a defined way. It is submitted that this is an express trust and not, as has been held by the House, a resulting trust but it is conceded that little flows from this categorisation. Unlike express trusts, resulting trusts are exempt from the formality requirements of the Law of Property Act 1925 s.53. However, given that the underlying loan is unlikely to involve attempted parol assignment of either an interest in land or an equitable interest, it is difficult to conceive of circumstances in which a Quistclose trust could fall foul of this provision. One issue touched on by Lord Millett only briefly (HL, para. 100) is whether the lender can demand the return of the loan monies prior to the purpose becoming impossible to carry out. The rule in Saunders v Vautier (1841) 4 Beav 115 would appear to apply; the lender is absolutely entitled and may therefore call for the transfer of the legal title at any time. This entitlement, however, will besubject to the contractual terms of the loan. Where there is no contract an estoppel may prevent the Quistclose beneficiary from employing the rule in Saunders v Vautier.

Much less welcome, it is submitted, is the majority decision that the touchstone of accessory liability is subjective dishonesty. First, it seems perfectly clear that this was not the 'dishonesty' which Lord Nicholls envisaged in Tan. It is most difficult to understand how the majority concluded that Lord Nicholls meant liability to be based upon the criminal standard ofdishonesty when he expressly drew a distinction between the two. It is not credible that Lord Nicholls used the word 'objective' when he meant 'subjective'. Lord Hutton's argument that he was merely drawing a distinction between R v Ghosh and a purely subjective basis of liability is far-fetched. Nowhere in the law does one find a purely subjective basis of liability being applied. It is especially hard to see how the majority reached this conclusion in light of Lord Millett's carefully argued analysis.

Nevertheless, the beneficiary who seeks to recover from an accessory must now establish that the defendant knew that what he was doing was dishonest by the standards of reasonable honest people. This requirement to establish the state of mind, as opposed to the state of knowledge, of the defendant undoubtedly weakens the protection which equity affords to beneficiaries. Leach's escape leaves equity the poorer.

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