Raunak Vallabhji - 11015322

Introduction:
The equitable principle of knowing assistance in the current day has different
formulations in the jurisdictions of Australia and England. Interestingly
however they developed and diverged from the historic 1874 judgement of
Barnes v Addy1. Part one of this paper explores these developments through
relevant case law and demonstrates how the current divergent positions came
to be. At present time, the English position on knowing assistance established
in Royal Brunei Airlines Sdn Bhd v Tan2 is the superior position as it is free of
the strict formulations of Barnes v Addy and provides a more substantive,
conscience based approach to determining accessory liability. Part two of this
paper critically compares and contrasts the current positions in Australia and
England and seeks to establish the above claims.

Part 1: The development of

knowing assistance in
Australia and England.
Barnes v Addy the second limb: knowing
assistance.
In 1874, the English Court of Appeal handed down its judgment in Barnes v
Addy3. The significance and implications of this decision are debated to this
day.4 However, despite these advances in its interpretation, Barnes v Addy
remains a key, historical jurisprudential framework in determining accessorial
liability.5
1 Barnes v Addy (1874) 9 Ch App 214, 251.
2 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.
3 Barnes v Addy (1874) 9 Ch App 214, 251.
4 Dan Butler, Equitable Remedies for participation in a breach of
directors fiduciary duties: the mega litigation in Bell v Westpac;
Butler; (2013) 31 C&SLJ 307.

Raunak Vallabhji - 11015322

Barnes v Addy defined two grounds or limbs of accessorial liability for a
breach of trust or fiduciary duty. The first limb, knowing receipt, refers to the
situation in which a third party receives charge over trust property. The second
limb, and the focus of this paper, knowing assistance, renders a third party
liable if that third party assists with knowledge in a dishonest and fraudulent
design on the part of the trustee6. It is important to note, the term assistance
as defined by Jacobs Law of Trusts in Australia is not characterised as
causation of the breach:
There is certainly assistance, if in the absence of steps being taken by
the third party, the breach of duty by the fiduciary could not have
occurred.7
As such the key elements of the second limb are:8

A dishonest and fraudulent design by the trustee or fiduciary.

An element of knowledge on the part of the defendant.
Assistance by the defendant towards the dishonest and fraudulent
design of the trustee or fiduciary.

These three elements (in particular the first two) are the central themes in this
paper and are key in demonstrating the subsequent, varying formulations of
the second limb of Barnes v Addy in Australia9 and England.10

Consul Development knowing assistance in

Australia.
The Australian High Court case of Consul Development Pty Ltd v DPC
Estates Pty Ltd11 affirmed the second limb of knowing assistance in Barnes v
5 Pauline Ridge, Equitable accessorial liability: Moving beyond Barnes v
Addy (2014) 8 J Eq 28.
6 Barnes v Addy (1874) 9 Ch App 214, 251-2.
7 J D Heydon and M J Leeming, Jacobs Law of Trusts in Australia
(LexisNexis Butterworths, 7th ed, 2006) 291 [1339].
8 Barnes v Addy (1874) 9 Ch App 214, 251-2.
9 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.
10 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.
11 Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR
373.

Raunak Vallabhji - 11015322

Addy. This was done in a very formulaic fashion12 with little departure from the
elements of Barnes v Addy, in that a third parry must:
Assist with knowledge in a dishonest and fraudulent design on the
part of the trustee.13
In reaching this affirmation, Gibbs J and Barwick J, clarified the applicable
level of knowledge required for a third party to be liable. In their judgement,
they created what has been interpreted as a spectrum of additional categories
of knowledge in furtherance of the broader categories of actual and
constructive knowledge.14
More recent authorities15 reconcile this spectrum with the now wellestablished Baden scale of knowledge16 put forward in the case of Baden,
Delvaux and Lecuit v Socit Gnrale pour favoriser le Dvloppement du
Commerce et de lIndustrie en France. 17 The scale consists of five categories
of knowledge:
1. Actual knowledge.
2. Wilfully shutting ones eyes to the obvious.
3. Wilfully and recklessly failing to make such inquiries as an honest
and reasonable person would make.
4. Knowledge of circumstances, which would indicate the facts to an
honest and reasonable person.
5. Knowledge of circumstances, which would out an honest and
reasonable person on inquiry.

12 Ridge, above n 8.
13Barnes v Addy (1874) 9 Ch App 214, 251-2.
14 Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR

373, [398] [412].

15 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
16 Baden, Delvaux and Lecuit v Socit Gnrale pour favoriser le
Dvloppement du Commerce et de lIndustrie en France [1992] 4 All ER
279.
17 Ibid.

Raunak Vallabhji - 11015322

As Consul pre-dated Baden, the degree of knowledge required was not
considered in the exact terms of the Baden Scale. However this paper will
show the spectrum of knowledge described by Gibb J and Stephens J was
analogous.
Stephens J can be interpreted in relation to the third Baden category when he
stated that when a third party that has:
Conscientiously refrained from inquiry for fear lest he learn of
fraud[,]18
he or she would in fact fall into the scope of knowledge required.
Gibb J is alluding to constructive knowledge i.e. the fourth Baden category in
the following:
It would not be just that a person who had full knowledge of all the
facts could escape liability because his own moral obtuseness
prevented him from recognizing an impropriety that would have been
apparent to an ordinary man.19

Gibbs J can be said to be alluding to the fifth Baden category in the following:
it is going too far to say that a stranger will be liable if the
circumstances would have put an honest and reasonable man on
inquiry, when the stranger's failure to inquire has been innocent and he
has not wilfully shut his eyes to the obvious.20
As such, the judgements of Gibbs J and Stephen J are readily interpreted as
accepting the first four elements of the Baden Scale and rejecting the last
element, which alludes to constructive notice.

18 Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR
373, [412].
19 Ibid., [398].
20 Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR
373, [398].

Raunak Vallabhji - 11015322

Thus, at the time of Consul, the elements of knowing assistance established
in Barnes v Addy held firm.

Royal Brunei English laws step away from

Barnes v Addy
The English decision in Royal Brunei Airlines Sdn Bhd v Tan21 fundamentally
altered the test for knowing assistance and directly challenged the elements
set out in the second limb of Barnes v Addy.22
Knowledge
On the subject of knowledge, Lord Nichols renounced the use of the Baden
levels of knowledge and replaced the concept with an overarching test of
dishonesty. This less formulaic test considered all the relevant circumstances
of the case including the third parties knowledge of the circumstances to
determine whether their actions could be categorised as objectively dishonest.
Although knowledge is a crucial factor in this test of dishonesty, it is not the
source of liability. Liability stems from an all-encapsulating, objective test of
dishonest conduct.23
The objective nature of this test was deeply emphasised in Royal Brunei, his
lordship stated:
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.24

21 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.

22 Susan Barkerhall Thomas, Knowing Receipt and Knowing Assistance:
Where Do We Stand (1997) UNSW law journal 20(1).
23 Philip Podzebenko, Redefining Accessory Liabitlity: Royal Brunei
Airlines Sdn Bdh v Tan (1996) 18 Sydney L. Rev. 234.
24 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 [389].

Raunak Vallabhji - 11015322

Despite this ruling, as well as precedent for an objective dishonesty test in
England,25 it was challenged and deemed to contain a subjective element in
the case of Twinsectra Limited v Yardley26 however it was re-instated as being
purely objective with the Privy Council decision in the case of Barlow Clowes
International Ltd v Eurotrust International Ltd. 27

Dishonest and fraudulent design

Royal Brunei also alleviated the requirement for a dishonest and fraudulent
design on the part of the trustee. Lord Nichols stated:
His [the trustees] state of mind is essentially irrelevant to the question
of whether the third party should be made liable.28
As an alternative, a fault-based29 methodology to liability was established.
What matters is the nature of his fault, not the trustees.30
His Lordship held that the traditional rule provided inadequate protection in
circumstances where the trustee was innocent but the assistant was
dishonest.31 This paper agrees that it is rational that the liability of a third party
is in fact greater when there is an innocent trustee. In these instances the
third party possesses a closer causal connection 32 to the liability and carries
the entirety of fault.33 Although this is a rare occurrence, it would be unjust to
deny a beneficiary the ability to impute liability onto a guilty third party
because the trustee is innocent.
The move away from the strict formulations of Barnes v Addy has resulted in a
more substantive, all-encapsulating approach to determining accessory
liability. The fault based methodology and emphasis on dishonesty as a
25 Carl Zeiss Stiftung v Herbert Smith & Co (no2) [1969] 2 Ch 276. ; Agip

(Africa) Ltd v Jackson [1992] 4 All ER 385.

26 Twinsectra Limited v Yardley [2002] 2 AC 164.
27 Barlow Clowes International Ltd v Eurotrust International Ltd (in liq)
[2006] 1 All ER 333.
28 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 [385].
29 Ibid.
30 Ibid.
31 Rob Chambers, 'Knowing Receipt: Frozen In Australia' (2007) 2 J Eq 40.
32 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 [69].
33 Chambers, above, n28.

Raunak Vallabhji - 11015322

touchstone to liability stops the law from being limited by technical questions
of knowledge and hurdles of dishonest/fraudulent design of the trustee.

Farrah Constructions Barnes v Addy upheld.

The case of Farrah Constructions Pty Ltd v Say-Dee Pty 34 took place over a
decade after the ruling in Royal Brunei, providing opportunity for the
Australian High Court to solidify its position on knowing assistance in light of
the developments in the English law.
Knowledge
A bench of five judges re-emphasised the decision in Consul Development,
and explicitly reconciled the knowledge requirement to the Baden scale,
stating that only levels one to four would apply to impute liability.35 As such,
the law in Australia remains tethered to the element of knowledge, with further
clarity provided by the Baden scale of knowledge.
Dishonest and fraudulent design
Furthermore, the high court affirmed its previous position in Consul, requiring
a trustee to have a dishonest or fraudulent design in order for liability to be
imputed upon a third party36. The previous decision of Royal Brunei was
considered, however no comment was made in terms of its validity in terms of
the given case. However, while discussing knowing receipt, the court, in
obiter, did generally state that intermediate courts of appeal should not
attempt to develop the law given the long standing English authority 37 and the
decisions of the previous decisions38 of the high court39.

34 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.
35 Ibid., [176].
36 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

[180].
37 Barnes v Addy (1874) 9 Ch App 214, 251.
38 Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR
373.
39 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
[134].

Raunak Vallabhji - 11015322

Part 2: The superiority of the

English position
A quick comparison of how the law stands in
Australia and England today
In terms of the knowledge component, Farah affirmed the requirement of
knowledge in accordance with category one to four of the Baden Scale and
held that such knowledge is enough to impute liability to a third party. On the
other hand, Lord Nichols in Royal Brunei adamantly rejected the formulaic
approach to knowledge in Consul and the Baden Scale of knowledge. The
new overarching principle of dishonesty involves an objective test to
determine if one acted dishonestly. Whilst this may encapsulate an element of
knowledge, it is no longer the cornerstone to impute liability to a third party.
In terms of dishonest or fraudulent design on behalf of the trustee, Royal
Brunei discredits this requirement opting for a fault-based approach. The
actions of the trustee are no longer relevant when a third party is at fault due
to his or her dishonesty.

Advantages of the Australian position

The key advantage to the formulaic approach of the Australian courts is the
degree of clarity that ensues from the use of knowledge as a corner stone to

Raunak Vallabhji - 11015322

impute liability. The Baden Scale is now well defined and has case law to
support it. The English approach in Royal Brunei is slightly marred by
ambiguity arising from its objective test of dishonesty. Although dishonesty
has been further defined in cases after Royal Brunei,40 the court, when
considering whether a reasonable person would be held to have acted
dishonestly in the given context, has some variance in its interpretation.
This was observable in the two decisions of Agip (Africa) Ltd v Jackson 41 and
Equiticorp Finance Ltd (in liq) v Bank of New Zealand. 42
In Agip a court of appeal held that an experienced accountant did in fact
possess a guilty mind when he set up a series of shelf companies into which
a fiduciary deposited vast amounts of money stolen from the employer.43
In contrast, the case of Equiticorp held that a senior partner of a law firm who
had created shelf companies, in which stolen funds were deposited, was not
dishonest.44
Arguments as to the differing occupations of the defendants in above cases
are not substantive. In Royal Brunei Lord Nichols specifically stated:
Honesty is not an optional scale with higher or lower values according
to the moral standards of each individual.45
Given the factual similarity of the two cases, the strictly objective nature of the
test and the comparable positions of knowledge both parties held, the result in
an ideal legal landscape should be similar.

Advantages of the English position

40 Barlow Clowes International Ltd v Eurotrust International Ltd (in liq)

[2006] 1 All ER 333.
41 Agip (Africa) Ltd v Jackson [1992] 4 All ER 385.

42 Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32

NSWLR.
43 Lee Aitken, 'Unforgiven: Some thoughts on Farah Constructions Pty Ltd
v SayDee Pty Ltd' (2007) 29 Aust Bar Rev 195.
44 Ibid.
45 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 [389].

Raunak Vallabhji - 11015322

The reformulation of the second limb of Barnes v Addy in Royal Brunei,
alleviated the need for a fiduciary or a trustee to have perpetrated a dishonest
or fraudulent design before a third party can be held liable.
The term dishonest or fraudulent design was clarified in recent Australian
cases after Farah. The case of The Bell Group Ltd (in liq) v Westpac Banking
Corporation46 lowered the threshold for this test by taking a more literal
approach from the classic threshold of morally reprehensible. 47
Drummond JA stated:
Conduct by a trustee or fiduciary that involves a breach of duty will
be sufficient to constitute dishonest and fraudulent conduct. 48
Despite this clarification and the lowering of the threshold in the recent Bell
case, the requirement of a dishonest design does not adequately protect
beneficiaries49 as guilty third parties could escape liability due to the
innocence of the trustee.50 This argument is largely criticised due to the vague
existence of knowing inducement in Australia. 51 Cases of knowing
inducement are said to effectively fill the gap left by the knowing assistance by
allowing third party liability for inducing an innocent breach of trust, i.e. one
without a dishonest/fraudulent design by the trustee. The recent case of
Othman v Stanley & Ors52 held a third party liable for inducing a breach of
trust where the trustee was innocent.
However, the concept of knowing inducement is vague at best and not
engrained in equity.53 As such, this paper seeks to argue that the entire
mechanism of holding a guilty third party liable with an innocent fiduciary is
46 The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9)(2008)
255 FLR 1.

47 Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1

WLR 155.
48 The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9)(2008)
255 FLR 1 [2123].
49 Rob Chambers, 'Knowing Receipt: Frozen In Australia' (2007) 2 J Eq 40.
50 Podzebenko, above, n 21.
51 Ibid.

52 Othman v Stanley & Ors [2012] VSC 211.

53 Alison Gurr, 'Accessory Liability and Contribution, Release and
Apportionment' [2010] MULR 481.

Raunak Vallabhji - 11015322

unnecessarily complicated. The fault-based approach of the Privy Council is
far more straightforward.

The over refinement and stringent nature of

Barnes v Addy
Australian reluctance to absolve the dishonest or fraudulent
design element
The reason for this reluctance, in my opinion, is largely a jurisprudential
question. The liability stemming from knowing assistance is derivative from an
initial breach of a fiduciary duty. As such the liability of the third party must be
secondary.54 The Australian position maintains knowing assistance is
secondary liability by requiring a primary breach of a trust or fiduciary
relationship by another.55
However this has been criticised and this paper agrees with such insights.
Kirby Js dissent in Equitcorp was supportive of the Abandonment of the
jurisprudence in Barnes v Addy.56 Requiring a primary breach, yet allowing
the entirety of the liability to be rendered on a third party is inconsistent and
not secondary in nature as the liability is not subordinate in a monetary
sense.57 Kirby J held that the Australian approach failed to share risks
equitably58 and as such he maintained that for justice to be done to both the
third party and the beneficiaries, the law should hold liable the participants in
the breach.59
54 Ibid.
55 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 [382].
56 Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR
[105].
57 Gurr, above, n49, 507.
58 Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR
[105].
59 Ibid.

Raunak Vallabhji - 11015322

Conclusion: The English position better allows the court of equity to be

a court of conscience
Barnes v Addy on the facts was a case involving a family conflict in midVictorian England.60 Its stringent applicability to cases concerning modern
commercial matters is questionable.
The Hon Gummow AC scrutinised the over refined and over specialised
nature of the jurisprudence in Barnes v Addy and critiqued the tendency to
take passages in older courts and apply them as if they were statutory
enactments.61. He recommended conceptual synthesis such as that in Royal
Brunei to keep the legal system functioning as a coherent whole. 62
The move away from the strict formulations of Barnes v Addy has resulted in a
more substantive, all-encapsulating approach to determining accessory
liability. Whilst test of dishonesty in Royal Brunei falls victim to the natural
variations of judgement involved in any objective test, fault based liability
avoids the constraints of the unreasonable jurisprudential mandates in Barnes
v Addy and directs courts of equity to respond strictly to unconscientious
conduct. This effectively stops the law from being limited by technical
questions of knowledge and hurdles of dishonest or fraudulent design of the
trustee. It is for these reasons and the arguments above; this paper maintains
the English position of knowing assistance is superior.

60 Walker R, Dishonesty and Unconscionable Conduct in Commercial Life

Some Reflections on Accessory Liability and Knowing Receipt (2005)
27(2) Syd LR 187.
61 Hon William Gummow AC, Knowing assistance (2013) 87 ALJ 311.
62 Gummow, above, n 57, [319].

Raunak Vallabhji - 11015322

Bibliography
Journal articles:
Aitken, Lee, 'Unforgiven: Some thoughts on Farah Constructions Pty
Ltd v SayDee Pty Ltd' (2007) 29 Aust Bar Rev 195.
Butler, Dan, Equitable Remedies for participation in a breach of
directors fiduciary duties: the mega litigation in Bell v Westpac;
Butler; (2013) 31 C&SLJ 307.
Chambers, Rob, 'Knowing Receipt: Frozen In Australia' (2007) 2 J Eq
40.
Gummow, Hon William Knowing assistance (2013) 87 ALJ 311.
Gurr, Alison, 'Accessory Liability and Contribution, Release and
Apportionment' [2010] MULR 481.
Podzebenko, Philip, Redefining Accessory Liabitlity: Royal Brunei
Airlines Sdn Bdh v Tan (1996) 18 Sydney L. Rev. 234.
Ridge, Pauline, Equitable accessorial liability: Moving
beyond Barnes v Addy (2014) 8 J Eq 28.
Thomas, Susan, Knowing Receipt and Knowing Assistance: Where
Do We Stand (1997) UNSW law journal 20(1).
Walker, R, Dishonesty and Unconscionable Conduct in Commercial
Life Some Reflections on Accessory Liability and Knowing Receipt
(2005) 27(2) Syd LR 187.
Cases
Agip (Africa) Ltd v Jackson [1992] 4 All ER 385.
Baden, Delvaux and Lecuit v Socit Gnrale pour favoriser le
Dvloppement du Commerce et de lIndustrie en France [1992] 4
All ER 279.

Raunak Vallabhji - 11015322

Barlow Clowes International Ltd v Eurotrust International Ltd (in liq)
[2006] 1 All ER 333.
Barnes v Addy (1874) 9 Ch App 214, 251.
Carl Zeiss Stiftung v Herbert Smith & Co (no2) [1969] 2 Ch 276.
Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR
373.
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32
NSWLR.
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.
Othman v Stanley & Ors [2012] VSC 211.
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.
Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR
155.
The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9)
(2008) 255 FLR 1.