Relfo Ltd v Jadvavarsani

Tracing may be established by a strong inference that funds paid away in breach of fiduciary duty were transmitted through intermediate entities and accounts, even where the precise route cannot be reconstructed. The court must distinguish this situation from an unmixed-fund analysis involving a fiduciary responsible for the mixing. Knowing receipt requires knowledge which makes it unconscionable for the recipient to retain the benefit, and the relevant knowledge may arise either on receipt or later. Unjust enrichment is a strict personal liability and does not depend on the recipient’s knowledge of the impropriety. A settlement with the defaulting fiduciary does not, without more, discharge a separate claim against a recipient where the settlement was not appropriated to the relevant loss.

The liquidator of Relfo Ltd claimed that its former director diverted approximately £500,000 through Mirren Ltd and other entities, resulting in a payment of US$878,479.35 into the defendant’s Singapore bank account. The defendant denied any connection between the payments and relied on alternative explanations, the settlement reached with the former director and pleading objections.

The court considered proprietary tracing, knowing receipt and unjust enrichment. It also addressed whether the defendant retained the relevant funds, the effect of the settlement, and formal pleading requirements.

1. The proprietary claim failed because the liquidator did not establish that the defendant still retained the funds, and no case had been advanced to trace them into another asset.
2. The knowing receipt claim succeeded. The former director caused Relfo to make the payment without a legitimate corporate purpose, in breach of fiduciary duty and without authority. Although the precise intermediate transactions could not be mapped, the close timing and amount of the payments, the documentary evidence and the absence of any other explanation justified the inference that the later payment represented the proceeds of the first payment. This was consistent with El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717 and its appellate decision [1994] 2 All ER 685.
3. The court distinguished Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347, because that case concerned a fiduciary who had mixed trust money with its own funds and controlled the relevant arrangements. The present case instead involved successive recipients who had not been shown to owe equivalent fiduciary duties to Relfo.
4. For knowing receipt, the recipient’s conscience must be sufficiently affected to justify personal equitable liability. Knowledge acquired after receipt may suffice. The court applied that approach, discussed in In re Montagu’s Settlement Trusts [1987] Ch 264, BCCI (Overseas) Ltd v Akindele [2001] Ch 437, Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 and Agip (Africa) Ltd v Jackson [1990] 1 Ch 265. The defendant probably knew, when he received the money, that it had been diverted from Relfo. He was therefore liable to account for the full payment, including the US$100,000 later paid to the former director.
5. The unjust enrichment claim was independently established. The payment enriched the defendant at Relfo’s expense, even if tracing had failed, because the first payment was intended to trigger the equivalent payment to him. Liability was strict and did not depend on knowledge. The defendant had no defence of bona fide purchase or good-faith change of position.
6. The settlement with the former director did not bar recovery. It covered a range of potential claims and was not appropriated to the loss represented by the diverted payment. The pleading and currency objections were also rejected.

The defendant was ordered to account to the liquidator for the value of the Intertrade payment.

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