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

Liability in knowing receipt does not require dishonesty. The recipient’s state of knowledge must instead make it unconscionable for that person to retain the benefit received.

The former categories of knowledge should not be treated as a separate and controlling test in knowing-receipt claims. The inquiry is evaluative and applies equally in commercial cases. General suspicions about a company’s reputation, acquired after an earlier arm’s-length transaction, will not by themselves make retention of a payment made under that transaction unconscionable.

Knowing assistance remains dependent on dishonesty.

The liquidators of companies within the BCCI group alleged that the defendant was liable as a constructive trustee for payments made to him under agreements concerning an investment in BCCI Holdings shares. They relied on both knowing assistance and knowing receipt.

Carnwath J dismissed the action: [1999] BCC 669. He found that the defendant had acted honestly and had no knowledge of the internal frauds which caused the payments to be made.

The claimants appealed. The central issues were whether dishonesty was necessary for knowing receipt and what state of knowledge made a recipient liable for retaining property traceable to a breach of fiduciary duty.

1. Appeal dismissed. Nourse LJ, with whom Ward and Sedley LJJ agreed, held that the judge had correctly dismissed the action.

2. The claim for knowing assistance failed. The trial judge was entitled, on the evidence, to find that the defendant had acted honestly. Applying the objective standard explained in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, the Court of Appeal could not disturb that finding.

3. Dishonesty is not an ingredient of knowing receipt. Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 established that a recipient may be liable although the fiduciaries who misapplied the assets did not act dishonestly. The judge’s contrary assumption therefore involved an error of law.

4. For knowing receipt, the recipient’s knowledge must be such that it is unconscionable to retain the benefit of the receipt. The Court rejected a rigid inquiry framed by the Baden categories of actual and constructive knowledge. That formulation should not displace the single evaluative inquiry into whether the recipient’s conscience is sufficiently affected to justify personal liability as a constructive trustee.

5. The first two elements of knowing receipt identified in El Ajou v Dollar Land Holdings Plc [1994] 1 All ER 685 were satisfied: there had been breaches of fiduciary duty and the defendant beneficially received traceable assets. The decisive issue was his knowledge.

6. On the findings, the defendant’s knowledge did not make retention unconscionable. When he entered the earlier agreement, there was no reason for an outsider to doubt BCCI’s management. Later information concerned BCCI’s general reputation, not the propriety of that earlier transaction or the internal arrangements used to make the payment. He was entitled to enforce the agreement to protect his own interests.

7. The agreement was not a sham. There was no common intention that it should fail to create the legal rights and obligations which it appeared to create. 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 dismissal of the action.
• High Court, Chancery Division: Carnwath J dismissed the action: [1999] BCC 669.