COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE TREACY
 EWCH 2662 (QB)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIX
LADY JUSTICE ARDEN
| (1) Adnan Shaaban Abou-Rahmah
(2) Khalid Al-Fulaij & Sons General Trading & Contracting Co
|- and -
|(1) Al-Haji Abdul Kadir Abacha
(2) Qumar Bello
(3) Aboubakar Mohammed Maiga
(4) City Express Bank of Lagos
(5) Profile Chemical Limited
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
The respondent was not represented
Crown Copyright ©
Lord Justice Rix :
The parties, and the scam
The Bank in liquidation
"i) A dishonest state of mind on the part of the person assisting is required in the sense that that person's knowledge of the relevant transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct.
ii) Such a state of mind may involve knowledge that the transaction is one in which he cannot honestly participate (eg a misappropriation of other people's money), or it may involve suspicions combined with a conscious decision not to make enquiries which might result in knowledge.
iii) It is not necessary for the Claimants to show that the person assisting knew of the existence of a trust or fiduciary relationship between the Claimants and the First to Third Defendants and/or that the Claimants' monies to Trusty International via the [Bank] involved a breach of that trust or fiduciary relationship."
"The defendant must be proved to have been dishonest in giving his assistance to the trustee's breach. In applying this standard the defendant is not free to be judged according to his standards of dishonesty. Nor is he to be judged by a purely objective standard of whether an ordinary honest person in his position would regard his conduct as dishonest. Rather, it must be established that he knew that ordinary honest people would regard his assistance as dishonest in all the circumstances."
In commenting on the subject-matter after Barlow Clowes, however, Snell (current on-line search results, a reference for which I am grateful to Arden LJ) has replaced the above paragraph with the following:
"The defendant must be proved to have been dishonest in giving his assistance to the trustee's breach. In applying this standard, it is clear that the defendant is not free to be judged according to his own standards of honesty. He is judged according [to] the standard of ordinary honest people (Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378). The authorities have in the past been uncertain about whether the trustee also needs to be aware that his conduct would be regarded as dishonest by this standard. The better view is that it is unnecessary for the defendant to take a view on the propriety of his conduct. (Compare Twinsectra Ltd v. Yardley  2 AC 164;  UKHL 165 at - with Barlow Clowes v Eurotrust International Ltd  UKPC 37; 1 All ER 333; at -). A finding that the defendant was dishonest need only involve an assessment of his participation in the light of his knowledge of the facts of the transaction."
"…I consider that those principles [in Tan] 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."
"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" (at para 19).
"135. It is obviously not necessary that he should know the details of the trust or the identity of the beneficiary. It is sufficient that he knows that the money is not at the free disposal of the principal. In some circumstances it may not even be necessary that his knowledge should extend that far. It may be sufficient that he knows that he is assisting in a dishonest scheme…
137…The gravamen of the charge against the accessory is not that he is handling stolen property, but that he is assisting a person who has been entrusted with the control of a fund to dispose of the fund in an unauthorised manner. He should be liable if he knows of the arrangements by which that person obtained control of the money and that his authority to deal with the money was limited, and participates in a dealing with the money in a manner which he knows is unauthorised."
"16. Similarly in the speech of Lord Hoffmann, the statement (in para 20) that a dishonest state of mind meant "consciousness that one is transgressing ordinary standards of honest behaviour" was in their Lordships' view intended to require consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour. It did not also…require him to have thought about what those standards were."
"10. The judge stated the law in terms largely derived from…Tan…In summary, she said that liability for dishonest assistance requires a dishonest state of mind on the part of the person who assists in a breach of trust. Such a state of mind may consist in knowledge that the transaction is one in which he cannot honestly participate (for example a misappropriation of other people's money), or it may consist in suspicion combined with a conscious decision not to make enquiries which might result in knowledge: see Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd  1 AC 469…The Court of Appeal held this to be a correct statement of the law and their Lordships agree…
28. Their Lordships consider that this passage displays two errors of law. First, it was not necessary…that Mr Henwood should have concluded that the disposals were of money held in trust. It was sufficient that he should have held a clear suspicion that this was the case. Secondly, it is quite unreal to suppose that Mr Henwood needed to know all the details to which the court referred before he had grounds to suspect that Mr Clowes and Mr Cramer were misappropriating their investors' money. The money in Barlow Clowes was either held on trust for the investors or else belonged to the company and was subject to fiduciary duties on the part of the directors. In either case, Mr Clowes and Mr Cramer could not have been entitled to make free with it as they pleased. In Brinks Ltd v Abu-Saleh  CLC 133, 151 Rimer J expressed the opinion that a person cannot be liable for dishonest assistance in breach of trust unless he knows of the existence of the trust or at least the facts giving rise to the trust. But their Lordships do not agree. Someone can know, and can certainly suspect, that he is assisting in a misappropriation of money without knowing that the money is held on trust or what a trust means: see Twinsectra Ltd v Yardley  2 AC 164 at para 19 (Lord Hoffmann) and para 135 (Lord Millett)…"
"I do not find the allegations to have been made good. In particular, I found no evidence that the [Bank], through Mr Faronbi, was aware of the existence of a situation giving rise to a fiduciary duty owed to the 1st Claimant, or that such a duty had been breached, or that the funds passing through the [Bank's] HSBC account were the fruits of the breach of duty, or had been obtained by fraud. There was in this case no evidence of such matters or of any link between the 1st to 3rd Defendants and the monies paid into the HSBC account which was known to the [Bank] or its employees. There was no evidence of any link between the 1st to 3rd Defendants and the Claimants and/or Messrs Ibrahim and Saminu, which was known to the [Bank] or its employees."
"I have come to the conclusion that at that time…Mr Faronbi probably suspected, in a general way that Messrs Ibrahim and Saminu might be in the course of their business, from time to time assisting corrupt politicians to launder money."
"48…There is nothing to show that he had any particular suspicions about the two transactions the subject of this case. I do not consider that this was a situation where he entertained a suspicion and made a conscious or deliberate decision not to make enquiries in case they resulted in knowledge of an untoward nature about these transactions. I accept his evidence and that of Mrs Adeoti [managing director and CEO of the Bank], that to a large extent the economy of Nigeria legitimately operates on cash transactions. Moreover, all receipts and payments out were reported at the relevant time by Mr Faronbi to the Nigerian Drugs and Law Enforcement Agency as required by Regulation 10 of the Money Laundering Decree. He was aware that the agency could then investigate a transaction if it wished. I do not consider that Mr Faronbi acted dishonestly in relation to these transactions. He did not have any knowledge or suspicions concerning these transactions which was such as to render his or his employers' participation in them contrary to normally accepted standards of honest conduct.
49. Turning to the second point, although there was evidence demonstrating a laxity in following the [Bank's] procedures with regard to opening accounts, I do not regard any of the demonstrated failures as indicative of dishonest malpractice as opposed to administrative inefficiency or oversight caused by Mr Faronbi's informal approach to his customers…
50. As to the fourth point [point (3) in my summary above], I do not find anything sinister in the failure to report under Regulation 6. This only requires reporting in circumstances of a transaction which is suspicious or unduly complex. I accept Mr Faronbi's evidence that he did not consider that regulation 6 applied to the two transactions in this case as credible…
52. In my judgment, then, this head of claim fails as Mr Faronbi (and thus the [Bank]) did not in relation to these transactions fall within the ambit of liability as explained by Lord Millett in Twinsectra (see paragraph 44 above [where the judge had cited para 137 from Lord Millett's speech]), and did not have dishonest knowledge (in the sense discussed above) of misappropriation from anyone."
"Suspicious is a personal, subjective thing and thus fails far short of proof based on firm evidence. A person who considers a transaction to be suspicious would not be expected to know the exact nature of the criminal offence or that the particular funds were definitely those arising from a crime."
"It is no defence for a man charged with having knowingly assisted in a fraudulent and dishonest scheme to say that it was "only" a breach of exchange control or "only" a case of tax evasion. It is not necessary that he should have been aware of the precise nature of the fraud or even of the identity of its victim. A man who consciously assists others by making arrangements which he knows are calculated to conceal what is happening from a third party, takes the risk that they are part of a fraud practised on that party."
Money had and received
"91. Is the position affected by my earlier finding that Mr Faronbi had suspicions that some of the business activities of Trusty International involved assisting corrupt politicians to pay monies in and out of the country? In my judgment the answer to that question is in the negative. Such suspicions as Mr Faronbi had did not relate to these two transactions, and it is the fact that they had properly been reported to the anti-money laundering authorities…
2. In the circumstances, I hold that the [Bank] changed its position by releasing to Trusty International sums equivalent to the sums paid into the [Bank's] HSBC account by the 2nd Claimant. I do not find that the [Bank] acted otherwise than in good faith. I consider that, in these circumstances, it would be inequitable and unjust to subject the [Bank] to a restitutionary remedy when it in reality did no more than that which the Claimants in their deceived state of mind would have wished it to do."
"It is, of course, plain that the defence 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; and it is commonly accepted that the defence should not be open to a wrongdoer…At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively restitution in full. I wish to stress, however, that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions…"
"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, in so far 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 instance, the comment of Lord Mersey in Kerrison v Glyn, Mills, Currie & Co (1912) 81 LJKB 465 at 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" (at para 135).
"The need to make enquiries of Bank Sepah is not 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 a 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 right of another despite having the means of avoiding that consequence" (at para 138).
Lady Justice Arden:
a. The dishonest assistance issue
I agree with Rix LJ that the appeal on this issue fails. In Barlow Clowes International Ltd (in liquidation) v Eurotrust International Ltd  1 All ER 333, the Privy Council considered the case law of England and Wales on the issue of the element of dishonesty necessary for liability under this head. Its interpretation of that case law was that it is unnecessary to show subjective dishonesty in the sense of consciousness that the transaction is dishonest. It is sufficient if the defendant knows of the elements of the transaction which make it dishonest according to normally accepted standards of behaviour. This is the first opportunity, so far as I am aware, that this Court has had an opportunity of considering the decision of the Privy Council, and in my judgment this court should follow the decision of the Privy Council. On the findings of the judge, the appellants' appeal on this dishonest assistance point must fail.
b. The change of position issue
In my judgment, the bank must show that, by making payments out of its HSBC account in response to the appellants' instructions, its position was so changed that it would be inequitable to require it to make restitution. The judge held that the bank was not conscious that these particular payments in issue in this case constituted a money laundering scheme. In those circumstances, in my judgment, the bank has established the requirements for change of position. I do not, with respect, agree with Rix LJ that this court should have regard to the fact that, when establishing the account, the bank suspected (in a general way) that Trusty International ("TI") might from time to time be involved in money laundering.
"did not know, but probably suspected , in a general way that Messrs Ibrahim and Saminu [the controllers of TI] might be in the course of their business, from time to time, assisting corrupt politicians to launder money. There is nothing to show that he had any particular suspicions about the two transactions the subject of this case. " (judgment, para. 48)
i. The decision in Twinsectra is of course binding on this court and the judge. But the Barlow Clowes decision does not involve a departure from, or refusal to follow, the Twinsectra case. Rather, the Barlow Clowes case gives guidance as to the proper interpretation to be placed on it as a matter of English law. It shows how the Royal Brunei case and the the Twinsectra case can be read together to form a consistent corpus of law.
ii. The meaning of dishonesty in the Twinsectra case appeared to involve an additional subjective element, namely an awareness on the part of the accessory that his conduct was dishonest. The decision under appeal in the Barlow Clowes case was an appeal from the Isle of Man but no distinction was drawn between the law of Isle of Man and the law of England and Wales. It would appear therefore that the Privy Council was also intending to clarify English law since that is the only logical implication from the methodology of interpretation of an English authority. That interpretation could hardly have been an interpretation which only applied in the Isle of Man but not in England and Wales. The approach of the Privy Council was both striking and bold: one writer has referred to it as taking judicial re-interpretation "to new heights" (Virgo, Mapping the Law, Essays in memory of Peter Birks, ed Burrows and Rodger (2006)(Oxford) ch 5 page 86). The decision in the Barlow Clowes case could probably have been reached without consideration of the Twinsectra decision for the purpose of English law, and it is significant that the Privy Council took another course.
iii. Furthermore, the members of the Privy Council in the Barlow Clowes case are (or were at the date of the hearing of the appeal) all members of the Appellate Committee of the House of Lords. Their number was five, and that does not represent a majority of the Appellate Committee as in Holley. But the approach in Barlow Clowes was to clarify the meaning of the speeches of Lord Hutton and Lord Hoffmann in the Twinsectra case. The view expressed by Lord Hutton represented the view of the majority. Two members of the constitution of the Appellate Committee which sat in Twinsectra (Lord Steyn and Lord Hoffmann) were parties to the decision in Barlow Clowes. It is difficult to see that another constitution of the Appellate Committee would itself come to a different view as to what the majority in Twinsectra had meant. Put another way, I do not see how in these particular circumstances this court could be criticised for adopting the interpretation of the Twinsectra decision unanimously adopted by the Privy Council, consisting of members of the Appellate Committee at least two of whom were parties to the Twinsectra decision, in preference to its own.
iv. There is no overriding reason why in respect of dishonesty in the context of civil liability (as opposed to criminal responsibility) the law should take account of the defendant's views as to the morality of his actions.
The change of position issue
"At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively, to make restitution in full."
"Unless the subject is to disintegrate into a case by case discretionary analysis of the justice of individual facts, far removed from principle, it is imperative that, even on the wide formulation, there is a sufficient causal link between the defendant's unjust enrichment and his pecuniary loss."
Lord Justice Pill:
"15. Their Lordships accept that there is an element of ambiguity in these remarks which may have encouraged a belief, expressed in some academic writing, that Twinsectra had departed from the law as previously understood and invited inquiry not merely into the defendant's mental state about the nature of the transaction in which he was participating but also into his views about generally acceptable standards of honesty. But they do not consider that this is what Lord Hutton meant. The reference to "what he knows would offend normally accepted standards of honest conduct" meant only that his knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were.
16. Similarly in the speech of Lord Hoffmann, the statement (in para 20) that a dishonest state of mind meant "consciousness that one is transgressing ordinary standards of honest behaviour" was in their Lordships' view intended to require consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour. It did not also to require him to have thought about what those standards were.
17. On the facts of Twinsectra, neither the judge who acquitted Mr Leach of dishonesty nor the House undertook any inquiry into the views of the defendant solicitor Mr Leach about ordinary standards of honest behaviour. He had received on behalf of his client a payment from another solicitor whom he knew had given an undertaking to pay it to Mr Leach's client only for a particular use. But the other solicitor had paid the money to Mr Leach without requiring any undertaking. The judge found that he was not dishonest because he honestly believed that the undertaking did not, so to speak, run with the money and that, as between him and his client, he held it for his client unconditionally. He was therefore bound to pay it upon his client's instructions without restriction on its use. The majority in the House of Lords considered that a solicitor who held this view of the law, even though he knew all the facts, was not by normal standards dishonest."
"Mr Faronbi probably suspected, in a general way that Messrs Ibrahim and Saminu might be in the course of their business, from time to time assisting corrupt politicians to launder money."
"He [Mr Faronbi] did not have any knowledge or suspicion concerning these transactions which was such as to render his or his employers participation in them contrary to normally acceptable standards of honest conduct."
The transactions were those identified by Rix LJ in paragraph 4 of his judgment.
"Q. I am talking about your understanding of the business that Trusty International was involved in when you opened an account for them.
A. Yes yes.
Q. So this is in 2001, the end of 2001, and I am saying you realised then, before you opened the account and as a result of your meeting with Mr Saminu and Mr Ibrahim that their business involved helping politicians make payments in and out of the country which were corrupt.
A. I did not think so.
Q. You didn't think so.
A. At that time I didn't think so. That's not correct.
Q. Well when they told you that many of their clients were politicians and when they told you that the politicians, many of them, sent money out of the country and brought it back, would you have said to yourself in 2001 "That's the typical sort of thing that corrupt politicians do"? Would you have mentally said that to yourself?
A. I did not. I did not.
Q. … you simply turned a blind eye to it. You ignored it.
A. At the point the business, the account was being opened, I did not see it as aiding monies, corrupt monies, to come in. Do you understand what I am saying sir? I did not see it so at that time. That's it. If I could see it so at that time I wouldn't do the business. I wouldn't want to come into problems.
Q. Do you see it any differently now?
A. Yes, the fact of the case is (inaudible), I also now would not say it is coming from politicians. Do you see what I'm saying? It's just the only part of the business, a little percentage of the business. I said majority of that weren't our politicians. Do you understand what I'm saying?"