QUEENS BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
Sitting as a judge of the Queen's Bench Division
| DESPINA PAPAMICHAEL||Claimant|
|- and -|
|NATIONAL WESTMINSTER BANK plc|
(Formerly trading as NATWEST GLOBAL FINANCE MARKETS)
|Defendant/Part 20 Claimant|
Elizabeth Gloster QC and Pushpinder Saini (instructed by Mishcon De Reya) for the Defendant/Part 20 Claimant
Richard Millett (instructed by Hill Taylor Dickinson) for the Part 20 Defendant
Hearing dates : 22-25, 30,31 July; 7,8,10,11 October and 20 November 2002
Crown Copyright ©
His Honour Judge Chambers QC :
"The Bank does not advance the case that the present claim by Mrs. Papamichael is made in execution of a conspiracy between Mrs. Papamichael and her husband, Mr. Paparounis, to defraud the Bank, or that she is making a fraudulent claim herself."
The lottery win
The fate of the lottery money
"10(b) … (Mrs Papamichael) had knowledge that Mr Paparounis had some form of currency dealing arrangement with the Bank and knew that he was sending this money from the joint account in connection with that purpose; …"
"A few months ago I became aware that my defendant husband had unbeknown to me become involved in personal matters of mine of a financial nature and due to his negligence I am in danger of sustaining a massive financial loss. It should be noted that I never interfered in his financial affairs and indeed have never asked him to give me details of his business affairs, since in any case he was and is an experienced businessman very active in Greece and abroad, occupied with international transport etc.
Whereas during the first three years of our marriage our relationship was harmonious, the aforementioned interference of my defendant husband in my financial affairs resulted in damage to our relationship. Specifically in April 1999 I was intending to invest a large sum in a Swiss bank but, following recommendations and exhortations from my defendant husband, I changed my mind and invested the money in a big English bank with which he was intending to work. "
26 to 30 April 1999
"Today 26 April 1999 Mr Dimitrios Paparounis and Messrs Nikalaos Papaionnou and Gheorghios Yannikopoulos have agreed to enter into a joint contract with the Nat West Bank, London, for the purpose of trading in Currencies.
Mr Paparounis shall deposit with the Bank the corresponding sum of 2 billion drachmas in US dollars as a guarantee for the said dealings which will be transacted on his behalf, crediting and debiting his account, by Mr N. Papaioannou and Mr G. Yannikopoulos as his Financial Advisers."
|NP||… I am here with Mr Paparounis and I was saying "now I will call him on the telephone and I will be singing like a bird and he'll think he's done some magic on me".|
|SM||Ok. Just now I have in front of me the file with the name Paparounis…|
|NP||Good. Now, listen to what… We have a new development. It complicates things a little for us.|
|NP||The account… no, there's no oops. The account is a joint account with his wife.|
|NP||What happens in this case?|
|SM||Do you mean the account from which the money will come?|
|NP||The account from which the money will be withdrawn is a joint account with his wife.|
|SM||Fine, there's no problem|
|DP||… I hear about the National Bank (inaudible) simplify the procedure for us. If you wish, I will open an account at the National, a joint account with my wife. Would that be our own account? Or do you have an account as a bank at the National, and we'll deposit it in your own account?|
|SM||Exactly. We simply say this: That this account belongs to our bank, the National Westminster Bank, the NatWest…|
|SM||...which has all our GRD mandates, because from what I know, the money is in GRD…|
|(Mr Makris explained the correspondent function of the National Bank.)|
|DP||Fine, understood. So, let's say I deposit this 2 billion tomorrow in the account you indicate.|
|SM||As soon as you instruct the Bank of Cyprus by saying "could you please transfer this money for me to this account at the National Bank, where the NatWest account is…"|
|SM||…we would automatically open an account here in London in your name er… for the margin trading which… we are evidently about to commence, which account can be in USD or GRD or whatever. But…|
|DP||No, no. We are already talking about USD. From the moment… in other words, let's look into the procedure and agree about it now so as to avoid too many telephone calls. Okay then, let's say that tomorrow morning I …|
|SM||So, tomorrow… it leaves tomorrow then… you go and……|
|DP||Two billion in the account you will tell me.|
|SM||Precisely. And you deposit this money or give the order and this money leaves tomorrow in order to be deposited in the account at the National Bank.|
|SM||At the same time I would have this money converted into GRD and you would already have here…|
|DP||You mean you would convert it from GRD into USD.|
|SM||Yes, yes, it would be converted from GRD into USD.|
|DP||When will we know the exchange rate? The rate at which you will convert it? This is what you were talking about with Nikolas previously.|
|SM||The rate… What we have said is that the rate we will give you or rather that I will give you because I will be involved in this job, will be the best rate you can find anywhere in the world. …|
|(Mr Makris discussed the rate.)|
|DP||Ok, fine, that's understood. In any event, we will see this after the… Let's look into the procedural part now. Therefore, tomorrow we will deposit in your account at the National Bank, which you will specify to us… that's at the central branch isn't it?|
|DP||At the central branch. Regarding the account number, would you like to give it to me now or would… would Nikolas have it or would you like to send it by fax?|
|SM||Yes, yes, it's not a problem for me. I can give the instructions now.|
|DP||So, from the moment we deposit this money in your name, you know what to do with it, don't you? Or should we leave instructions to put something else… to include something else.|
|SM||Er… You shouldn't include anything else in the mandate. I have …|
|DP||I am simply depositing, Dimitrios Paparounis and Despina Papamichael, we are depositing this money in your account.|
|DP||It will be automatically deposited in our account in London, England, and you will give me the account number.|
|DP||Is that right?|
|DP||And it will go straight in as USD. In other words, I will know by noon how many USD I have in this account and at what rate you have converted them.|
|SM||Exactly, exactly, exactly.|
|SM||I should stipulate however that this account will be converted and will exist as a deposit account. In other words, in the days before we start our normal co-operation in respect of margin trading, you will earn some interest as a deposit. These USD which…|
|DP||Yes, exactly, the market interest rate shall we say.|
|SM||Exactly. Not the market interest rate. I am telling you that we will give you the interbank rate …..|
|DP||Presumably, you have evaluated us as customers and we have a standing.|
|SM||Exactly. So, we will visit you on Tuesday in order to meet you in person because, after all, this is required of us by the Bank of England here…|
|DP||I will be very pleased to meet you here at our office, to… so that you can form your own view, quite right.|
|SM||Er.. and basically when we meet you in person and both sides sign the contract or er… the contracts will be like those we have sent you… Simply when you are generally accepted by the bank more formally, one week after our appointment, rather within the week, at the end of the week of our appointment, we'll say to you "now we have given you 100 million USD" since, from what I gather, there will be about 5 million USD and we'll give you lines for twenty…|
|DP||Or, possibly, even more.|
|SM||Exactly. That's up to you. Anyway, we have said that for the equivalent of 5 million USD we can give 20 times the capital, which means 100 million USD. Once we have done this and have given you lines with us for 100 million USD and are able to engage in margin trading on a daily basis, this deposit account will be properly placed in the margin trading account.|
|DP||And the game will begin… yes. If we're not accepted, the worse that can happen is that we remain depositors, simple depositors, customers of the bank. Am I right?|
|SM||Precisely. You will have a deposit with us but if we didn't accept you, I would imagine that… (inaudible)|
|DP||No, no, I am simply putting it in different words. In view of the fact that these days are tricky, I am eager to see this money going abroad and being converted into USD. I don't want to have GRD here. Regardless of what happens later. I had a… you know something here…? Nikolas has changed my mind. I would not make a secret of the fact that a had a discussion with… Mr Dedes, you certainly know him. From Alpha Credit.|
|SM||Did you say Mr Dedes?|
|(short discussion of Mr Dedes)|
|DP||Well, therefore, when am I going to know this account because tomorrow morning I will go to the Bank of Cyprus, I will make sure… I will get the reference letter you require, I will send you by fax our passport details, mine and my wife's, in any event, and subsequently, I will deposit the money into the account number you will give me.|
|SM||Yes. Would the deposit be in GRD?|
|DP||In GRD as we have said. It will probably be two billion.|
|SM||Yes, yes, yes. The… what I would like to tell you is that as far as your account number here is concerned, it will be in your name. In other words, when we say account, don't… I believe that we are some years ahead of other banks or at least in the Greek market. You don't need to have, as required in Greece, a certain bank account which is zero, zero, dash, etc, etc…|
|SM||… the account will be in your name here. You will quote your name and that will be your account.|
|DP||I see. I understand.|
|SM||I believe it's better.|
|… … … …|
|DP||In this fax you should send me the number of your account at the National Bank so I can deposit the money.|
|SM||Would you just notify me when you go please?|
|DP||When I go.|
|DP||I won't go. The Bank of Cyprus will make the transfer.|
|SM||What I mean, which is what I have also said to Nikolas, is that before you make the deposit I would like you to… the bank should have here the photocopy of your passport and…|
|DP||Before… but of course, yes, definitely.|
|SM||… and that reference from the bank of course.|
|DP||Yes. You will get these two first, you will give me the go ahead over the telephone and then I will go and make the deposit to the account number you will send me now.|
|DP||Well, it has been a pleasure.|
|SM||Same here, take care.|
"TO WHOM IT MAY CONCERN
We hereby certify that Dimitrios Paparounis with passport No M 950778 is customer of our Bank for two years and holds a personal account with us.
We are also in a position to certify from the documentation we have the legal origin of the amount deposited in the above-mentioned account.
We finally certify that Mr D. Paparounis has been prompt in meeting its obligations.
This certificate is given without any responsibility on our part for your strict personal use."
|Mrs I||And as far as you are concerned, your account will be credited on behalf of Mr Paparounis. I think Mr Paparounis has an account with you?|
|SM||He has an account.|
|SM||… we say okay, the money is coming in today (29 April). In the meantime… we had already credited this money in a certain account…|
|Mrs I||I see… yes.|
|SM||… we are… we are overdrawn in fact…|
|Mrs I||Good Lord!!|
|SM||… that we were short. And because of that we were annoyed at some stage yesterday…|
|Mrs I||You were short by a large amount too…so large…|
|SM||Well, not large, I would say the amount is rather small, it doesn't bother us…|
|Mrs I||Well, okay, one would say okay, compared with your volumes…|
|SM||Yes, but we don't like to be short and to have to pay for the bloody overdraft charges we pay…|
|Mrs I||Of course, I understand.|
|Mrs I||I understand.|
|SM||That's all. Which means, now we are expecting…|
|Mrs I||Yes, now you are expecting the transfer.|
|SM||... Iossiphidou called me. These two were together, Kalamboki and Iossiphidou.|
|SM||… from the Bank of Cyprus. She was contrite when she called me today. "Mr Makris…" You know, she used a very affected voice. "I am sorry to inconvenience you", she said. Being as cool as you like, I said to her "no, it's a pleasure to listen to such beautiful voices first thing in the morning". "Oh, thank you, thank you. I have called you to apologise for what happened yesterday and for (inaudible) etc." (Inaudible) "… I simply called to ask why that happened", I said, "and essentially you have caused us to be to billion short yesterday and I had to pay overdraft charges". Well, that… wasn't true obviously…|
|SM||As far as I am concerned, for a start, the customer has to notify me and give me the instruction and…|
|SM||The formal procedure is that he should call the Bank of Cyprus and notify them that upon putting the money in the account they should call me and notify me.|
|NP||… to make a phone call, okay.|
|SM||Er, if he doesn't wish (to) be obliged again because he has already created a whole matter here with the Bank of Cyprus, it is not problem for me, although normally I shouldn't, but is not a problem for me to lift the telephone and call the Bank of Cyprus again in order to check if they have actually put it in.|
|SM||Okay, that's all. So, I will be expecting a phone call from you.|
|"Okay, I have just spoken to Mr Paparounis. He has just left the bank. You should receive a fax within fifteen minutes or perhaps you have received it already. I mean, the confirmation…"|
"CURRENCY GRD AMOUNT 2,000,000,000 VALUE 30/4/99
BY ORDER OF A/C No. 1153665-5
INTERMEDIARY BANK NATIONAL BANK OF GREECE
BENEFICIARY A/C No. 0409202455
NATWEST GLOBAL FINANCIAL MARKET
ATTN: MR MAKRIS
PAYMENT DETAILS TRANSFER OF INVESTMENT FUNDS"
"Q. You were just acting in accordance with what your
husband had asked you to do?
A. He did not ask me to do. I wanted to send the money and
he made the arrangements. He gave the information to
the bank so they can send my money to the bank, to the
… … …
MS GLOSTER: What you were doing, Mrs Papamichael, was
carrying out your husband's instructions.
A. What do you mean, "carrying out my husband's
instructions"? That is what I do not understand.
JUDGE CHAMBERS: Mr Interpreter --
A. My husband gave instructions to the bank. In one way it
was the instructions from my husband to the bank, but it
was not instructions to me because I wanted to send the
money. I did not follow instructions as for my money,
but we followed instructions as to how we send the
NATWEST GLOBAL FINANCIAL MARKET
FOR FURTHER CREDIT MRS DESPINA PAPAMICHAEL"
|DP||… Have you received the confirmation from the Bank of Cyprus?|
|SM||I have received the confirmation… They called me first thing in the morning and I called them back, after speaking to Nikolas who said to me that everything was okay, and I asked them. She said to me that they gave the instruction for the money to go into our account at the National Bank of Greece and, particularly, that they had instructed to have the money in by 12…|
|DP||Well, they have been done… All these things have been done because I was there too at midday.|
|SM||Yes. And I spoke to Mrs Iossiphidou who had also called me early in the morning.|
|DP||Yes, I know all that. They have sent you a confirmation of the transfer. From then on what do we do?|
|SM||Well, they have not sent us the confirmation of the transfer to be honest. In any case, our fax has not received such a thing.|
|DP||Well, I will take care of that. It is a fact though that… I am puzzled, I am puzzled by what you are saying. I will call them in any event. It's a fact. From then on…|
|"I have received the money, I have received… they have just sent me the confirmation, that the money is indeed in. We have the money. We do have it …"|
|NP||So, listen to this. I said to (Mr Paparounis) "you must put some pressure on them in respect of certain points". In other words, I know that we have the two pips.|
|NP||But I have told him five pips. Which means we start having a discussion there… That's why I would like us to talk in advance…|
|NP||… so that… he will think that it was his own success.|
|SM||My friend, would you like us to go… yes, okay, I will…|
|NP||Do you understand? These are sale tactics.|
|SM||Okay. And that's precisely why we change the conversation and conduct it in Greek in order to avoid being understood by the English but that's not the point. The point is that… are we meeting on Saturday? When would you like us to meet and go somewhere and eat something, just the two of us…?|
|NP||Of course, certainly, definitely. I will be waiting for you to call me.|
|NP||All right? Because we have to discuss all these things, which would leave him with the impression that it was his own success.|
|NP||In the negotiation.|
SM Also … because he had told me … just in case … (inaudible) his wife's name, what is it?
NP (You want to know) what is his wife's name?
SM Yes, because I see here that his money came to us from an account in the name of …
NP Nana Papamichael
SM Papamichael Despina
NP Papamichael Despina, that's it.
SM I found it, I found it …"
Events down to the opening of the margin trading account
Events concerning the margin account
Mrs Papamichael's investment
"At your request,
we certify that by your instructions, we transferred on 28/12/2000 the amount of GRD 650,000,000, from your account No 2390165 (in USD) to the account of Mr Anastasios Voulgarakis.
We also certify that the account No. 2390165 was opened by your application, solely and exclusively in your name and that there are no co-beneficiaries into the account."
Events before action
NATWEST – GLOBAL FINANCIAL MARKETS
Please arrange the remittance of the amount of usd 6.511.483.95 equivalent to drs. 2.000.000.000, which I deposited with you on 30.04.1999 to your account no. 0409202455 in National Bnak of Greece, Athens to my credit for investment producing interests, together with all the up to date interests to my account no. 2390165 in Bank of Cyprus, 171, Alexandras Ave., Athens.
The remittance must be effected on 02/01/2001 so that the interests till 31/12/2000 are calculated since they are the highest which are paid for blocked accounts for such a big period. The money must be definitely in Bank of Cyprus on 02/01/2001 since I have commitment with another Bank which offers me an interesting investment of my money.
Please send me your confirmation to the fax no 01/6229372 and let me know also the exact amount of interests produced from my capital investment from 30.04.1999 till 31.12.2000.
Thanking you in advance ,
* The address is not the Ekali address
Please let me know the exact amount of interests."
The bank experts
Mr Makris's state of mind
"15. I am also aware that Mr Paparounis has alleged that I was somehow aware that the moneys transferred on 30 April belonged to his wife and that Mr Paparounis had discussed with me that these moneys were to be invested with the Bank on his wife's behalf. As I previously told Alex Bouchier and Helen Cockroft of the Bank in July 2001, the allegation is simply untrue. At no time in my discussions with Mr Paparounis did he inform me of any interest of his wife in the moneys. Nor was there therefore any discussion of any investment opportunity for his wife. It was always the case in our discussions that the moneys which were transferred belonged to Mr Paparounis and were to be used as collateral for his trading activity, and not for any other purpose.
16. I have been shown a copy of the SWIFT advice dated 30 April 1999, which it has been alleged that I was referring to on the telephone at the time of the transfer on 30 April 1999. I do not recall having seen this document before although it is possible that I might have done. Doing the best I can now to recollect what happened, the reference to Mrs Papamichael would not have caused me any concern because I knew at the time that Mr Paparounis was using a joint account with his wife's name on it to transfer his moneys to the Bank."
The forensic framework
(a) On Friday 30 April 1999 Mrs Papamichael caused to be paid out of the joint account 2 billion drachmas ("the drachmas").
(b) It was the intention of Mrs Papamichael that the drachmas be paid to NatWest to be held by it for her benefit.
(c) It was the mistaken belief of Mrs Papamichael that the drachmas would be treated as set out above.
(d) Mrs Papamichael was under the mistaken belief that the drachmas would be converted into US dollars and held upon a fixed term deposit that expired on 31 December 2000.
(e) Mrs Papamichael thought that her husband had made the arrangements necessary to procure the situation set out in the previous sub-paragraphs and had entrusted him with the authority to do so.
(f) Mrs Papamichael no more clothed her husband in apparent ownership of the money in the joint account than was in fact the case under both Greek and English law.
(g) The chose in action that represented the drachmas as received by the National Bank stood as a credit on its books for the benefit of the GRD account held with it by NatWest.
(h) At no time did NatWest open an account in favour of Mrs Papamichael. It never accepted the drachmas upon such a basis nor (whether as a matter of Greek or English law) could it be deemed to have done so.
(i) Despite the statements of Mr Makris to the contrary, at no time did NatWest open an account in which it held the drachmas as the debtor of Mr Paparounis. It simply appropriated the drachmas against the dollars that it paid to Mr Paparounis on 6 May 1999 in consequence of the forex deal entered into on Friday 30 April 1999.
(j) Before the forex deal was made, NatWest by Mr Makris was on notice that the drachmas should either be posted upon its books for the benefit of Mrs Papamichael or that the MT 100 was mistakenly drawn insofar as it gave the impression that Mrs Papamichael was to be the beneficiary of the payment.
(k) After the forex deal had been made and before the drachmas were used by the bank to pay for the dollars, Mr Makris dishonestly formed the view that he would take no steps to investigate whether Mrs Papamichael had any interest in the drachmas although he knew that this could well be the case.
(l) The dishonest failure of Mr Makris to investigate the position in respect of the drachmas means that he is deemed to have known that Mrs Papamichael paid the drachmas to the National Bank under the mistaken belief that they would be paid into an account for her exclusive benefit and /or would be used to purchase dollars that would be held in an account for her exclusive benefit.
(m) Although I think it irrelevant as a matter of law, I do not think that any inquiry that NatWest might properly have made of the Bank of Cyprus could have improved the situation. That bank could only speak as the agent of its customer. It was Mrs Papamichael who had instructed it to make the transfer and it was only of her that inquiry could have been made. Any such inquiry would have received the response that she had instructed the transfer to be made for her exclusive benefit. I cannot see why the fact that such benefit involved the conversion of the drachmas into dollars could have helped the bank. The exchange was to be for her benefit and that is what she, and therefore the Bank of Cyprus, would have said.
(n) Given the knowledge of Mr Makris, he knew that the use by Mr Paparounis of the drachmas to buy US dollars for use as security for margin trading was a violation of any beneficial right that Mrs Papamichael had in the drachmas.
The law and its application
The drachmas and the dollar claims
The claim for the drachmas
"…In our view the case law is authority for the simple proposition that the plaintiff will succeed if he can show that he would not have made the payment if he had not been mistaken."
"… It is, of course, plain that the defence (of change of position) is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution … "
"122. Mr. Bloch submitted that the only ground on which a recipient of money paid under a mistake will be deprived of the defence of change of position is bad faith and that bad faith in this context means dishonesty. He therefore drew my attention to several recent authorities in which the courts have considered what constitutes dishonesty in the context of ancillary liability for breach of trust. He submitted that, whether or not CAI acted negligently, it did not act dishonestly and is therefore entitled to rely on its change of position.
123. It is necessary to begin by referring to the recent decision of the Privy Council in Dextra Bank & Trust Co Ltd v Bank of Jamaica  1 All E R (Comm) 193. In that case Dextra drew a US dollar cheque on its bankers in favour of the Bank of Jamaica which was delivered to that bank by an intermediary. The Bank of Jamaica negotiated the cheque to another bank which collected the sum in question from Dextra. Dextra and the Bank of Jamaica were deceived as to each other's intentions by persons involved in a fraud: Dextra drew the cheque intending to lend the sum in question to the Bank of Jamaica, whereas the Bank of Jamaica intended to buy the sum in question from Dextra with Jamaican dollars. The Bank of Jamaica delivered the Jamaican dollars to the fraudsters whom it believed to be authorised to receive them on behalf of Dextra.
124. Dextra sought to recover the value of the cheque from the Bank of Jamaica on a variety of grounds including mistake of fact giving rise to a right to restitution. The Bank of Jamaica relied on the defence of change of position. In response Dextra argued that in such cases it was necessary to balance the respective faults of the two parties in order to decide whether it would be inequitable to require the payee to make restitution and that in that case the Bank of Jamaica was the more blameworthy. In the event the claim in restitution failed because it was held that Dextra had not issued the cheque under any relevant mistake of fact. Nonetheless, the Privy Council went on to consider whether an assessment of the relative fault of the parties has a part to play in the defence of change of position. Having considered the position in other countries their Lordships declined to admit the concept of relative fault into this branch of the common law, considering that good faith on the part of the recipient was a sufficient criterion. They reached that decision partly on the grounds that since a claimant who makes a payment under a mistake of fact is not precluded by negligence from recovering in restitution, it would be anomalous if the defendant's conduct were to be examined for negligence and even more anomalous if it were then necessary to examine the payer's conduct to see which of them was more at fault.
125. The decision of the Privy Council in the Dextra Bank case is authority for the proposition that mere negligence on the part of the recipient is not sufficient to deprive him of the defence of change of position, but it leaves open the question of what exactly constitutes lack of good faith in this context. The Privy Council was not concerned with that question, any more than was the House of Lords in Lipkin Gorman v Karpnale.
(having considered the authorities on dishonest assistance in a breach of trust the judge continued)
131. Mr. Bloch submitted that lack of good faith is really the same as dishonesty and that the same test should apply in each case, whether one is dealing with an accessory to a breach of trust or with a recipient of a mistaken payment who seeks to rely on a change of position that he has himself brought about. In either case the defendant should not be liable unless he has acted in a way which he knows ordinary people would regard as dishonest.
132. Miss Andrews challenged the proposition that good faith in the context of the defence of change of position is to be equated with dishonesty. She did so by reference to the law relating to the position of an agent who receives payment on behalf of his principal. In such cases, she submitted, no question of dishonesty arises; the agent acts at his peril if he pays the money over to his principal after receiving notice of the claim for restitution.
133. Although it has similarities with the modern defence of change of position, the defence available to an agent who has paid money over to his principal before receiving notice of the claim has been recognised for a long time. Nowadays it is not normally regarded as an example of a change of position of the kind contemplated by Lord Goff in Lipkin Gorman v Karpnale, but as a rule by which the correct defendant may be identified when payment is made to one who is known to be acting as an agent. …
… … …
Nonetheless, it is perhaps instructive that notice of the claim is said to be sufficient to deprive the agent of the benefit of this defence.
134. To answer the question raised by Mr. Bloch I think it is necessary to return to the principles stated by Lord Templeman and Lord Goff in Lipkin Gorman v Karpnale Ltd, namely, that unjust enrichment gives rise to an entitlement to restitution unless it would be inequitable in all the circumstances to require the recipient of the benefit to make restitution in full or in part. These are broad principles the details of which have yet to be developed. It was not necessary in that case for their Lordships to consider the range of circumstances which would prevent a recipient from relying on the defence of change of position and insofar as they dealt with that subject I do not understand either Lord Templeman or Lord Goff to have provided more than a broad indication of what they might be. It is, however, interesting to note that they contemplated that a change of position after the payee "receives notice of the victim's claim for restitution" (per Lord Templeman at page 560) or "with knowledge of the facts entitling the claimant to restitution" (per Lord Goff in the passage at page 580 cited earlier) would not provide a defence.
135. In the light of these observations, and having regard to the nature of the principles underlying the right to restitution in the case of a mistaken payment and the defence of change of position, I do not think that dishonesty in the sense identified in Twinsectra Ltd v Yardley is the sole criterion of the right to invoke the defence of change of position. I do not think that it is desirable to attempt to define the limits of good faith; it is a broad concept, the definition of which, insofar as it is capable of definition at all, will have to be worked out through the cases. In my view it is capable of embracing a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty as well as dishonesty itself. The factors which will determine whether it is inequitable to allow the claimant to obtain restitution in a case of mistaken payment will vary from case to case, but where the payee has voluntarily parted with the money much is likely to depend on the circumstances in which he did so and the extent of his knowledge about how the payment came to be made. Where he knows that the payment he has received was made by mistake, the position is quite straightforward: he must return it. This applies as much to a banker who receives a payment for the account of his customer as to any other person: see, for example, the comment of Lord Mersey in Kerrison v Glyn, Mills, Currie & Co. (1912) 81 L.J.K.B. 465 (H.L.) at page 472. Greater difficulty may arise, however, in cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure. In such cases good faith may well dictate that an enquiry be made of the payer. The nature and extent of the enquiry called for will, of course, depend on the circumstances of the case, but I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake will often be found to have acted in good faith if he pays the money away without first making enquiries of the person from whom he received it.
138. ……The need to make enquiries of Bank Sepah is not a matter to be viewed in terms of a duty owed by one banker to another; it is a matter to be viewed in terms of a duty of good faith which a person who has received a payment that he has good reason to think was made under a mistake owes to the person who made it. If under those circumstances the payee fails to make enquiry of the payer before disposing of the money he can properly be described as failing to act in good faith because he acts in the knowledge that he may be infringing the rights of another despite having the means of avoiding that consequence. In fact I think that the present case is even stronger than that because on the information available to him Mr. Francis had no real basis for thinking that Milestone was entitled to receive or retain the funds that had been remitted by Bank Sepah or that there was any proper basis for complying with Mr. Mahdavi's instructions. Although Mr. Francis did not consciously act in disregard of the standards to be expected of an ordinary honest banker, he was willing in the circumstances to accept the risk that releasing the money might infringe Bank Sepah's rights."
The US dollars
"The cause of action
As I have already pointed out, the plaintiffs seek to vindicate their property rights, not to reverse unjust enrichment. The correct classification of the plaintiffs' cause of action may appear to be academic, but it has important consequences. The two causes of action have different requirements and may attract different defences.
A plaintiff who brings an action in unjust enrichment must show that the defendant has been enriched at the plaintiff's expense, for he cannot have been unjustly enriched if he has not been enriched at all. But the plaintiff is not concerned to show that the defendant is in receipt of property belonging beneficially to the plaintiff or its traceable proceeds. The fact that the beneficial ownership of the property has passed to the defendant provides no defence; indeed, it is usually the very fact which founds the claim. Conversely, a plaintiff who brings an action like the present must show that the defendant is in receipt of property which belongs beneficially to him or its traceable proceeds, but he need not show that the defendant has been enriched by its receipt. He may, for example, have paid full value for the property, but he is still required to disgorge it if he received it with notice of the plaintiff's interest.
Furthermore, a claim in unjust enrichment is subject to a change of position defence, which usually operates by reducing or extinguishing the element of enrichment. An action like the present is subject to the bona fide purchaser for value defence, which operates to clear the defendant's title. "
"(i) Equity operates upon the conscience of the owner of the legal interest. In the case of a trust, the conscience of the legal owner requires him to carry out the purpose for which the property was vested in him (express or implied trust) or which the law imposes on him by reason of his unconscionable conduct (constructive trust).
(ii) Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, i.e. until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect his conscience.
(iii) In order to establish a trust there must be identifiable trust property. The only apparent exception to this rule is a constructive trust imposed on a person who dishonestly assists in a breach of trust who may come under fiduciary duties even if he does not receive identifiable trust property.
(iv) Once a trust is established, as from the date of its establishment the beneficiary has, in equity, a proprietary interest in the trust property, which proprietary interest will be enforceable in equity against any subsequent holder of the property (whether the original property or substituted property into which it can be traced) other than a purchaser for value of the legal interest without notice. "
Breach of fiduciary duty by Mr Paparounis
"A fiduciary who uses his position of trust to acquire a benefit for himself holds that benefit on constructive trust for his beneficiary."
(Goff and Jones para 33-004)
"The view supported by most authority is … that profits made by the agent in breach of his fiduciary obligations are regarded as held for the principal on a full (i.e. non-remedial) constructive trust with proprietary implications."
(Bowstead & Reynolds on Agency 17th ed. Art 45 at para 6-041)
"[A] fiduciary is someone who has undertaken to act on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or for the benefit of a third person without the informed consent of his principal."
(Bristol and West Building Society v Mothew  Ch 1, Millett LJ at p18)
"(B) Chase Manhattan Bank N.A. v Israel-British Bank (London) Ltd.  Ch. 105
In that case Chase Manhattan, a New York bank, had by mistake paid the same sum twice to the credit of the defendant, a London bank. Shortly thereafter, the defendant bank went into insolvent liquidation. The question was whether Chase Manhattan had a claim in rem against the assets of the defendant bank to recover the second payment.
Goulding J. was asked to assume that the moneys paid under a mistake were capable of being traced in the assets of the recipient bank: he was only concerned with the question whether there was a proprietary base on which the tracing remedy could be founded: p. 116B. He held that where money was paid under a mistake, the receipt of such money without more constituted the recipient a trustee: he said that the payer "retains an equitable property in it and the conscience of [the recipient] is subjected to a fiduciary duty to respect his proprietary right: p. 119.
It will be apparent from what I have already said that I cannot agree with this reasoning. First, it is based on a concept of retaining an equitable property in money where, prior to the payment to the recipient bank there was no equitable interest. Further, I cannot understand how the recipient's "conscience" can be affected at a time when he is not aware of any mistake. Finally, the judge found that the law of England and that of New York were in substance the same. I find this a surprising conclusion since the New York law of constructive trusts has for a long time been influenced by the concept of a remedial constructive trust, whereas hitherto English law has for the most part only recognised an institutional constructive trust: see Metall und Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc.  1 QB 391, 478-480. In the present context, that distinction is of fundamental importance. Under the institutional constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past. The consequences that flow from such trust having arisen (including the possibly unfair consequences to third parties who in the interim have received the trust property) are also determined by rules of law, not under a discretion. A remedial constructive trust, as I understand it, is different. It is a judicial remedy giving rise to an enforceable equitable obligation: the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court. Thus for the law of New York to hold that there is a remedial constructive trust where a payment has been made under a void contract gives rise to different consequences from holding that an institutional constructive trust arises in English law.
However, although I do not accept the reasoning of Goulding J., Chase Manhattan may well have been rightly decided. The defendant bank knew of the mistake by the paying bank within two days of the receipt of the moneys: see p. 115A. the judge treated this fact as irrelevant (p. 114F) but in my judgment it may well provide a proper foundation for the decision. Although the mere receipt of the moneys, in ignorance of the mistake, gives rise to no trust, the retention of the moneys after the recipient bank learned of the mistake may well have given rise to a constructive trust: see Snell's Equity, p. 193; Pettit, Equity and the Law of Trusts, 7th ed. (1993) p. 168; Metall und Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc.  1 QB 391, 473-474. "
"Tracing is neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly regarding as representing his property."
"Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity. Thus, an infant who has obtained property by fraud is bound in equity to restore it: Stocks v. Wilson  2 KB 235, 244; R. Leslie Ltd. v. Sheill  3 KB 607. Moneys stolen from a bank account can be traced in equity: Bankers Trust Co. v. Shapira  1 W.L.R. 1274, 1282 C-E: see also McCormick v. Grogan 918690 L.R. 4 H.L. 82, 97."
(Westdeutsche Bank Lord Browne-Wilkinson at p716)
"To revert briefly to the authorities relied upon by the plaintiffs, the passages in Neste Oy and McCormick v Grogan are, in my judgment, unreliable for the reasons which I have endeavoured to state. The observation of Lord Browne-Wilkinson in the Westdeutsche case only assists the plaintiffs if it is to be treated as a general statement of the law applicable to all cases of fraud. In my view it would be wrong so to treat it. It was a general statement of certain underlying principles instanced by examples two of which concerned transactions which were void, not voidable, and the third of which comes from the field of secret trusts where "fraud" is referred to in no special sense. I do not think that Lord Browne-Wilkinson can be taken to have been laying down a principle applicable to all cases of fraud when he did not deal with the reasoning in the other cases which I have mentioned."
"… Mr Murad was the plaintiff's fiduciary, and he was bribed to purchase the shares. He committed a gross breach of his fiduciary obligations to the plaintiff, and that is sufficient to enable the plaintiff to invoke the assistance of equity. Other victims, however, were less fortunate. They employed no fiduciary. They were simply swindled. No breach of any fiduciary obligation was involved. It would, of course, be an intolerable reproach to our system of jurisprudence if the plaintiff were the only victim who could trace and recover his money. Neither party before me suggested that this is the case; and I agree with them. But if the other victims of the fraud can trace their money in equity it must be because, having been induced to purchase the shares by false and fraudulent misrepresentations, they are entitled to rescind the transaction and revest the equitable title to the purchase money in themselves, at least to the extent necessary to support an equitable tracing claim: Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 387-390 per Brennan J. There is thus no distinction between their case and the plaintiff's. They can rescind the purchase for fraud, and he for the bribery of his agent; and each can then invoke the assistance of equity to follow property of which he is the equitable owner. But, if this is correct, as I think it is, then the trust which is operating in these cases is not some new model remedial trust, but an old-fashioned institutional resulting trust. This may be of relevance to the degree of knowledge required on the part of a subsequent recipient to make him liable."
"For this purpose the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty."
126. Mr. Bloch drew my attention to a number of cases in which the courts have considered what constitutes dishonesty in the context of liability as an accessory to a breach of trust. It is necessary to refer to only two of them, Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378 (P.C.) and Twinsectra Ltd v Yardley  UKHL 12;  2 All E R 377.
127. In Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378 (P.C.) the court had to decide whether an accessory to a breach of trust could be liable even if the trustee himself had not acted dishonestly, and if so under what circumstances. The Privy Council held that he could, but only if he had acted dishonestly. Lord Nicholls said at page 389:
"Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context. Whatever may be the position in some criminal or other contexts (see, for instance, Reg. v. Ghosh  QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. 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. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour."
128. Again, at page 390 Lord Nicholls said:
"The analysis of the position of the accessory, such as the solicitor who carries through the transaction for [the trustee], does not lead to such a simple, clear-cut answer in every case. He is required to act honestly; but what is required of an honest person in these circumstances? An honest person knows there is doubt. What does honesty require him to do?
The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is impossible to be more specific. Knox J. captured the flavour of this, in a case with a commercial setting, when he referred to a person who is "guilty of commercially unacceptable conduct in the particular context involved:" see Cowan de Groot Properties Ltd. v. Eagle Trust Plc.  4 All E. R. 700, 761."
129. These passages might be taken to suggest that in this context dishonesty is to be judged in objective terms, but in Twinsectra Ltd v Yardley the House of Lords held that that is not what Lord Nicholls meant. Lord Hoffmann dealt with the matter in this way:
"19. My noble and learned friend Lord Millett considers that the Court of Appeal was justified in taking this view because liability as an accessory to a breach of trust does not depend upon dishonesty in the normal sense of that expression. It is sufficient that the defendant knew all the facts which made it wrongful for him to participate in the way in which he did. In this case, Mr Leach knew the terms of the undertaking. He therefore knew all the facts which made it wrongful for him to deal with the money to the order of Mr Yardley without satisfying himself that it was for the acquisition of property.
20. I do not think that it is fairly open to your Lordships to take this view of the law without departing from the principles laid down by the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378. For the reasons given by my noble and learned friend Lord Hutton, I consider that those principles require more than knowledge of the facts which make the conduct wrongful. They require a dishonest state of mind, that is to say, consciousness that one is transgressing ordinary standards of honest behaviour. I also agree with Lord Hutton that the judge correctly applied this test and that the Court of Appeal was not entitled, on the basis of the written transcript, to make a finding of dishonesty which the judge who saw and heard Mr Leach did not."
130. Lord Hutton, having analysed in some detail what Lord Nicholls said, concluded that Lord Nicholls had not intended to hold that in this context a person can be dishonest even if he does not know that his conduct would be regarded as dishonest by honest people. For his own part he considered that it would be wrong to allow a finding of dishonesty to be made against a person who did not know that what he was doing would ordinarily be regarded as dishonest. He said:
"35. There is, in my opinion, a further consideration which supports the view that for liability as an accessory to arise the defendant must himself appreciate that what he was doing was dishonest by the standards of honest and reasonable men. A finding by a judge that a defendant has been dishonest is a grave finding, and it is particularly grave against a professional man, such as a solicitor. Notwithstanding that the issue arises in equity law and not in a criminal context, I think 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."
"(The constructive trustee) is not liable for failing to make inquiry, but for the misapplication of the plaintiff's property. He is under no duty to make inquiry. His only duty is to act honestly. If he makes inquiry, he does so for his own protection. If he does not make inquiry, the loss is not caused by his failure to do so but by his participation in the misapplication of the plaintiff's funds. He is liable only if he acted with knowledge; and this must be judged in the light of all the circumstances known to him and any explanation actually given to him. But it is not, in my view, to be judged by considering the hypothetical explanations which might have been given to him if he had sought them. If it were otherwise his liability would depend upon whether the fraudster would have been sufficiently inventive to supply a plausible explanation if asked for one…
In my judgment, the fact that a false but credible explanation would or might have been given is no defence to a party put on inquiry who makes none. Mr. Jackson and Mr. Griffin are not to be held liable for the misapplication of the plaintiff's funds because they failed to make inquiries which would have discovered the fraud, but because they dishonestly assisted in the misapplication. Their failure to make the inquiries which honest men would have made to satisfy themselves that they were not engaged in furthering a fraud is merely the evidence from which that dishonesty is to be inferred. "
NatWest's general defences
Bona fide purchaser for value
Actual or apparent authority