Agip (Africa) Ltd v Jackson

A customer may recover money paid under a mistake of fact where its bank executed an apparently regular instruction as the customer’s agent, debited the customer’s account and the debit remained effective.

Common law tracing requires the claimant’s property, or its product or substitute, to remain identifiable. It cannot ordinarily trace money through mixed funds or an unidentified clearing process. Equity may trace into a mixed fund if an initial fiduciary relationship invokes the equitable jurisdiction.

A person who assists a fiduciary’s fraudulent design is liable as a constructive trustee if the requisite knowledge is established. Knowledge includes wilfully or recklessly failing to make inquiries which an honest and reasonable person would make. The categories of knowledge are explanatory and not exhaustive.

An employee fraudulently altered a payment order drawn on Agip’s Tunisian bank account so that US$518,822.92 was transferred to Baker Oil Services Ltd, a company controlled by accountants acting on instructions from an intermediary. The money passed through bank accounts and was largely paid overseas.

Agip claimed restitution for money paid under a mistake of fact and, alternatively, an equitable account based on knowing receipt or knowing assistance. Millett J held the defendants liable through equitable tracing and knowing assistance, although common law tracing and knowing receipt were unavailable.

The defendants appealed. The issues were whether Agip had title to sue, whether the money could be traced at common law or in equity, and whether the defendants possessed sufficient knowledge to incur liability for assisting the fraud.

1. The appeal was dismissed unanimously. Fox LJ delivered the judgment, with which Butler-Sloss and Beldam LJJ agreed.

2. Agip had title to recover money paid under a mistake of fact. Although the altered order was forged, it emanated from Agip, was properly signed and appeared regular. The bank intended to execute it as Agip’s agent, debited Agip’s account and was not required by the Tunisian court to reverse the debit. The transaction therefore stood as a payment made with Agip’s money.

3. Common law tracing was unavailable. It required identification of the money received as the claimant’s property or as the product or substitute of that property. The funds could not be identified through the New York clearing system without tracing through mixed accounts. The approach suggested by Atkin LJ in Banque Belge v Hambrouck [1921] 1 KB 321, which would substantially assimilate common law and equitable tracing, went beyond the other judgments in that case and had not been applied during the following 70 years.

4. Equitable tracing was available. Equity could follow money through mixed funds and charge the fund. The required initial fiduciary relationship existed because Agip’s chief accountant was entrusted with the signed payment orders.

5. Liability for knowing receipt was no longer in issue. Liability for knowing assistance did not depend on the defendant’s receipt of trust property. It arose where a person knowingly assisted a fraudulent design by a trustee or constructive trustee. Fox LJ accepted the five categories of knowledge stated in Baden v Société Générale [1983] BCLC 325, while observing that they explained the general principle and were not necessarily comprehensive.

6. Mr Jackson and Mr Griffin assisted the fraud and had the necessary knowledge. They knew the scale, origin and destination of the payments, controlled companies serving as devices to conceal the destination, and had received advice addressing the possibility of fraud. Honest participants would have investigated. Their failure to make inquiries, coupled with their decision not to give evidence, supported the conclusion that they knew they were laundering money and concealing seriously improper dispositions.

7. Mr Bowers did not personally participate, but was liable for the acts of his partner, Mr Jackson, and the partnership’s employee, Mr Griffin. The appeal was dismissed with costs, and leave to appeal to the House of Lords was refused.

1. Court of Appeal: The defendants’ appeal was dismissed unanimously with costs. Leave to appeal to the House of Lords was refused.

2. High Court, Chancery Division: Millett J held that common law tracing and knowing receipt were unavailable, but imposed liability in equity for knowing assistance. No citation for that decision is stated in the judgment.