Bank of Credit and Commerce International (Overseas) Ltd v Akindele

Liability for knowing receipt requires a recipient's state of knowledge to make it unconscionable to retain the benefit received. Dishonesty is a separate requirement of dishonest assistance and is not a prerequisite of knowing receipt. The knowledge inquiry should be conducted through a single test of unconscionability, rather than allocation among categories of actual and constructive knowledge.

The assessment concerns knowledge relevant to the receipt and its connection with a breach of fiduciary duty. An unusually favourable return and an artificial transaction do not necessarily establish the requisite knowledge. Later information affecting a company's general reputation may also be insufficient to make retention unconscionable where it provides no sufficient reason to question the particular transaction.

BCCI Overseas and ICIC Overseas, banking companies whose affairs formed part of or were controlled by the BCCI group, brought proceedings through their liquidators against Chief Akindele, a Nigerian businessman. Under an agreement with ICIC Overseas, Akindele invested US$10 million in shares of BCCI Holdings. The agreement provided for a sale yielding a guaranteed annual compounded return of 15 per cent. He subsequently received approximately US$16.679 million under a divestiture agreement.

Senior managers had procured the agreements and payment in fraudulent breach of their fiduciary duties. The investment and repayment formed part of arrangements concealing the group's financial position. The claimants sought recovery of the approximately US$6.679 million exceeding Akindele's original investment, alleging knowing assistance and knowing receipt.

Carnwath J dismissed the action: [1999] BCC 669. He found that Akindele had acted honestly and treated dishonesty as essential under both heads of liability. The claimants appealed. The principal questions were whether knowing receipt required dishonesty and what state of knowledge was sufficient to impose liability.

1. The appeal was dismissed unanimously. Nourse LJ delivered the substantive judgment, with which Ward and Sedley LJJ agreed. The dismissal of the action was affirmed, although the court adopted a different approach to knowing receipt.

2. The finding that Akindele had acted honestly was supported by the evidence. The trial judge had assessed his credibility and considered the evidence conscientiously. The claim for dishonest assistance therefore failed. The court also agreed that the investment agreement was not a sham. The necessary common intention that it should fail to create its apparent legal rights and obligations had not been established.

3. Knowing receipt required a disposal of assets in breach of fiduciary duty, beneficial receipt of assets traceable to the claimant's assets, and the requisite knowledge. The first two requirements were satisfied. Dishonesty was not an additional prerequisite. Belmont Finance Corporation v Williams Furniture Ltd (No. 2) established that knowing receipt could succeed despite the absence of dishonesty.

4. The governing knowledge test was whether the recipient's state of knowledge made it unconscionable to retain the benefit of the receipt. The purpose of the inquiry was to determine whether the recipient's conscience was sufficiently affected to justify personal liability. Allocation among the Baden categories, or between actual and constructive knowledge, was unnecessary. The test accommodated commercial realities while recognising that commercial circumstances could not invariably shelter a recipient of misapplied funds.

5. The trial findings supported the conclusion that Akindele lacked the requisite knowledge. When he invested, the bank was regarded as reputable, and he had no knowledge of the underlying frauds. The exceptional return and artificial agreement did not sufficiently indicate a fraud or breach of trust. His later information concerned the group's general reputation. It supplied no sufficient reason to question the earlier transaction, and there was no evidence that he knew the internal arrangements used to make the payment. Enforcing the agreement and retaining the benefit were not unconscionable.

6. In observations unnecessary to the decision, Nourse LJ expressed reservations about replacing fault-based liability with strict restitutionary liability subject to change of position. The proposed reform had not been argued, and the court continued to apply the accepted framework of knowing receipt.

The appeal was dismissed with costs. Leave to appeal to the House of Lords was refused.

• Court of Appeal: Dismissed the claimants' appeal and affirmed the dismissal of the action, adopting a different knowledge test for knowing receipt. The decision was unanimous: [2001] Ch 437 ; [2000] EWCA Civ 502.
• High Court, Chancery Division: Carnwath J dismissed the action on 18 December 1998 after finding that dishonesty had not been established: [1999] BCC 669.