High bar to discharge burden of proof in dishonest assistance claim (Autogas (Europe) Ltd v Ochocki)

High bar to discharge burden of proof in dishonest assistance claim (Autogas (Europe) Ltd v Ochocki)

This case considered the legal test and evidential burden required to succeed with a claim for dishonest assistance in relation to a breach of duty by a fiduciary. The case reiterated that the assistance must be more than minimal, must enable the breach to be committed and must be dishonest. It also re-affirmed that the test for dishonesty involves assessing a party’s state of mind and considering whether that state of mind was dishonest as against the standards of ordinary people. The court decided that while the claimant’s arguments were not without force, they had not discharged the burden of proving that the defendants were dishonest. Written by Tracey Spence, professional support lawyer at Eversheds Sutherland (International) LLP.

Autogas (Europe) Ltd v Ochocki and others [2018] EWHC 2345 (Ch) (7 September 2018)

What are the practical implications of the case?

Allegations of dishonest assistance must be carefully pleaded and supported by cogent evidence.

The test for dishonesty is whether, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. ‘There must be some fact which tilts the balance and justifies an inference of dishonesty and that fact must be both pleaded and proved,’ Three Rivers District Council v Bank of England [2001] UKHL 16, per Lord Millett at paragraph 186. That means that while it is not necessary to plead dishonesty expressly, it is necessary to plead the primary facts supporting an inference of dishonesty. In the absence of those facts, the claim will fall.

In this case, the claimant alleged ‘collusive dishonesty,’ not ‘contingent dishonesty’ by the defendants. The former term means that the defendants were aware from the start that there was a breach by a fiduciary and that their cooperation was required for it to work. The latter term is where a party is alerted to factors along the way that would suggest a breach by a fiduciary and turns a blind eye. By pleading the case as one of ‘collusive dishonesty,’ the claimant needed to ensure that position could be proved by supporting evidence.

The evidential burden to prove dishonest assistance is the civil balance of probability test—the same test as for allegations of negligence. However, a claim of dishonesty is more serious and improbable than an allegation of negligence so more cogent evidence will be required to satisfy the civil standard of proof. Where, as in this case, the claim against the defendants rests on inferences drawn from the primary facts, those inferences must be sound and not speculative.

What was the background?

The case involved an alleged ‘VAT Acquisition Fraud’ perpetrated through chains of sales of German electricity. The claimant supplied electricity to OCH which was owned by the first and second defendants. The third defendant was the daughter of the second defendant and was OCH’s administrator. The transactions between HCX (who sold the electricity to the claimant), the claimant and OCH were part of a longer chain. The pattern of the sales was suspicious with the ultimate buyer often paying less than the original sale price at the top of the chain.

HCX was registered in the Netherlands so no VAT was payable on its supply to the claimant but VAT was payable in respect of the claimant’s supply to OCH. Despite the claimant’s invoices specifying their UK bank account, payments (including VAT) were made to non-UK bank accounts in HCX’s name. HCX did not account to the claimant for the payments and the claimant was therefore unable to pay the VAT due to HMRC, resulting in the claimant’s insolvency. HMRC also sought a reassessment of OCH’s VAT liabilities and reached a settlement with OCH and the second defendant (HMRC Settlement).

The claimant (acting by the liquidator) had obtained judgment against its de facto directors on the basis that they had allowed the transfer of assets to HCX (including trading profits and VAT) which were not repaid (the Earlier Proceedings).

The claimant now sought damages against the three individuals (the defendants) who were involved in OCH at the time when it traded with the claimant, on the ground that the defendants had dishonestly assisted in the fraud. The way that the claim was ultimately put imputed collusion by the defendants with the primary fraudsters, ie that there had to be have been within OCH at least one ‘rotten apple’ who would co-operate with irregular or suspicious trading patterns and payment requests and would not ask too many questions or alert the authorities to anything untoward (see para [9]).

Note, the findings of primary fraud in the Earlier Proceedings in respect of the dealings between the claimant and HCX were not binding in the present case but no attempt was made by the defendants to argue that those findings were wrong. The key issue was therefore whether the defendants had provided dishonest assistance in the primary fraud.

The relevant law for establishing liability as an accessory on the ground of dishonest assistance was considered at paras [11]-[19].

What did the court decide?

The claim failed. While the court accepted there was ‘assistance’ thus rejecting the defendants’ argument on causation, the claimant failed to prove dishonesty.

The court highlighted problems with the pleaded case (on a ‘collusion’ basis) as there was an absence of direct evidence of collusion and it did not consider that the primary facts supported an inference of dishonesty.

It set out a number of factors it considered (which carried varying degrees of weight) in deciding if dishonesty could be inferred. These included:

  • a lack of evidence that the defendants knew the transactions were not normal commercial transactions or that they knew the general pattern of the trades further up the chain
  • that the fraud could have been achieved without the defendants’ involvement by simply abstracting the assets from the claimant
  • the fact that a lack of concern by OCH in relation to how the payments were to be made could be explained because they were new to the energy trade
  • the fact that the basis of the HMRC Settlement was inconsistent with an allegation of fraud against OCH
  • that there was no adverse evidence concerning the defendants’ prior character
  • the general impression of the defendants’ demeanour and manner when giving evidence, and
  • a lack of a convincing motive for the dishonesty

The defendants’ argument that the claimant be stopped from bringing the claim on the basis of the HMRC Settlement was firmly rejected as the claimant was not a party to that agreement.

Case details

  • Court: High Court, Chancery Division
  • Judge: H.H. Judge Keyser Q.C
  • Date of judgment: 7 September 2018

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