Ali v Al-Basri & Anor

A fiduciary who receives money for another remains accountable for it unless a valid subsequent arrangement changes the legal relationship. A purported unsecured loan agreement must be proved, particularly where it places the beneficiary at a serious disadvantage and the fiduciary’s interests conflict with his duties. A person who knowingly receives trust property is liable where it would be unconscionable to retain the benefit. The court should not refuse equitable relief for suspected illegality without considering the risk of injustice caused by the claimant’s inability to address the alleged illegality.

The claimant alleged that the first defendant received substantial sums from her in a fiduciary capacity, used them to acquire properties, and failed to repay or account for them. The defendants contended that the money became an interest-free unsecured loan and that the properties were acquired for their own benefit.

The claimant also pursued the second defendant, who held legal title to some properties, alleging knowing receipt and constructive trusteeship. The court determined the parties’ relationship, the validity of the alleged loan agreement, the extent of repayment, the beneficial ownership of properties, the second defendant’s knowledge, and whether suspected avoidance of sanctions required the claim to be refused.

1. First defendant. The first defendant was a fiduciary who received the claimant’s money in trust or in a fiduciary capacity. The alleged agreement converting the money into an interest-free loan was not proved. The claimant’s account was accepted, and the first defendant’s evidence was inconsistent and implausible.
2. The claimant was entitled to declarations that her beneficial interest extended to Sullivan Court, Wendover Court, Waverley Gardens and Copley Close, subject to the taking of an account. The first defendant was also liable to account for profits derived from the properties. The account had to give credit for sums already repaid or applied for the claimant’s benefit.
3. The court found that £33,800 of the £95,000 received in May 1997 remained unaccounted for. After deducting the £5,735 deposit for Copley Close, the claimant was entitled to judgment for £28,065.
4. Second defendant. The second defendant knew that the money used to acquire the properties came from the claimant and was held on trust. Applying the test stated in Bank of Credit and Commerce International (Overseas) Limited v Akindele, [2001] Ch 437, it was unconscionable for her to retain the benefit. She held the legal titles to Sullivan Court and Copley Close on trust for the claimant. Further issues concerning other properties were left to the account.
5. The court declined to refuse relief of its own motion for suspected avoidance of sanctions. Following Pickering v McConville, [2003] EWCA Civ 554, refusal on grounds of illegality required consideration of the risk of palpable injustice, and the relevant sanctions legislation had not been sufficiently proved or argued.
6. The parties were invited to submit drafts of the order, including directions for the taking of accounts and any further determination required.

First-instance decision. No prior appellate decision is stated in the judgment.