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James Lee
Thu, 9 Nov 2006 19:07:32
Abou-Rahmah v Abacha


Dear All,

Members may be interested to note the Court of Appeal's decision yesterday in Abou-Rahmah & Others v Abacha & Others [2006] EWCA Civ 1492.

The case concerned fraud, and there were two claims before the Court of Appeal. Firstly, a claim in knowing or dishonest assistance, where the Court considers the Privy Council's decision in Barlow Clowes International Ltd (in Liquidation) v Eurotrust International Ltd [2005] UKPC 37.

Secondly, a claim for money had and received (or unjust enrichment, if we will), and the Court, following on from Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] 1 All ER (Comm) 193, explores the limits of the good faith element in the defence of change of position.

The Court of Appeal was hindered by the fact that the Bank was wound up earlier this year and the liquidator did not appoint representation for the Bank in the Appeal. Therefore, no submissions were made on behalf of the respondent Bank.

Nevertheless, the case makes interesting reading.

1) The appeal on the first issue was dismissed. The element of "knowledge" continues to cause difficulty after Barlow Clowes: it may be satisfied by suspicion and despite ignorance of the trust (see per Lord Hoffmann at para 28 in Barlow - "Someone can know, and can certainly suspect, that he is assisting in a misappropriation of money without knowing that the money is held on trust or what a trust means"). Rix LJ and Pill LJ doubt whether it is necessary for the appeal to determine the impact of Barlow Clowes on Twinsectra, but Arden LJ endorses the Barlow Clowes interpretation of Twinsectra (at para 68): "It would appear ... that the Privy Council was also intending to clarify English law since that is the only logical implication from the methodology of interpretation of an English authority. That interpretation could hardly have been an interpretation which only applied in the Isle of Man but not in England and Wales."

Rix LJ observes the judge's confusion over the separation of knowledge and dishonesty (at para 24). He accepts the force of counsel for the appellants' submissions regarding the bank's knowledge:

37 .... It is one thing to be negligent in failing to spot a possible money launderer, providing the negligence does not extend to shutting one's eyes to the truth. It is another thing, however, to have good grounds for suspecting money laundering and then to proceed as though one did not. Money laundering is a serious crime, for the very reason that ex hypothesi its subject matter is the proceeds of crime. It is true that such proceeds are not necessarily those of a breach of trust - they could be the proceeds of drug dealing. But I am doubtful that that possibility provides any protection where there is a breach of trust. It is also true that the growing concern now experienced about money laundering and the international precautions now taken against it must be viewed in the context of public policy rather than on the level of an equitable tort designed to provide remedies in the civil law against knowing assistance in breach of trust. Nevertheless, I do not see why a bank which has, through its managers, a clear suspicion that a prospective client indulges in money laundering, can be said to lack that knowledge which is the first element in the tort.

We may note the ready acceptance of the "equitable tort" language and the reference to public policy (this reappears in Rix LJ's opinion on the second issue). The general tenor of the approach follows that of Millett J in Agip v Jackson.

Arden LJ considered that "The question is whether a bank, with inter alia the general suspicions which the bank had on the judge's findings, would be treated as having acted honestly according to normally accepted standards. The judge reached the conclusion that these general suspicions did not make the bank dishonest. In my judgment, the judge was right on this issue of dishonesty, on the findings he made." (at 72)

2) The appeal was also dismissed on the second issue. Arden and Pill LJJ agreed with each other, though, if pressed, Rix LJ would have dissented and allowed the appeal. Arden LJ held that bank had established the defence of change of position in paying out in response to its clients' instructions:

82. To treat the defence of change position as unavailable in this situation is as I see it an insufficiently nuanced approach. Of course, once the bank had formed a suspicion about its customer, it had to be aware of that suspicion in all its dealings with the customer. But the bank had done all that it had to do to remove that suspicion by complying with the requirements of Nigerian law on money laundering and by being satisfied that it had no other residual doubts about the two payments. The imposition of liability in this case would serve to motivate banks not to act for customers in areas of business which gave rise to a general suspicion of money-laundering even where there was no information or suspicion that the customer was so involved. It seems to me that that is a road down which the court should not go, at any rate without fuller submissions than we have had. It would be different if as in the Niru Battery case there were further enquiries or steps which the bank should have made or taken, but that is not the appellants' case. In all the circumstances, I do not consider that the bank can be criticised for making the two payments, and accordingly in my judgment it is entitled to the defence of change of position.

Rix LJ translates his criticisms of the bank's behaviour when considering change of position, adopting the "commercially unacceptable conduct" approach (an approach endorsed by Pill LJ, although he reaches the opposite conclusion):

52. The bank's conduct here was not commercially acceptable conduct. It is not commercially acceptable for banks who suspect "in a general way" would-be customers of being involved in money laundering to open up accounts for them. There is no panacea in a standard, statutory, weekly report of all transactions of a stipulated size. The failure to make such a return would have been in itself unlawful and strong evidence of something very seriously amiss. The making of such a return does not make the opening of the account acceptable.

He goes on to observe, honestly if perhaps obviously:

57. Finally, looking at the matter in the round, I have asked myself whether the defence of change of position should succeed because, as it may well be said, there has been no unjust enrichment or no enrichment, unjust or otherwise, on the part of the bank. This is to stress unjust enrichment as the critical factor in making good the restitutionary claim. However, the argument at trial and the judge's judgment, reflecting the way English law has developed, have proceeded in a different way, namely on the basis that a payment made under a mistake of fact (or law) provides a cause of action in restitution subject to a defence of change of position. However, I recognise and am concerned by, the absence of any exploration of the fundamental underpinnings of the doctrine of restitution in such a case, especially as there is controversy about them, and it may be said that the law is in flux or at any rate subject to a process of analytical change.

To make some observations, this case shows that Prof Burrows' concerns following Niru ("Clouding the Issues on Change of Position" [2004] CLJ 276) have been borne out: the analogy drawn by the Court of Appeal in Niru between the unconscionability test for knowing receipt and the good faith requirement for change of position appears to be becoming orthodoxy. The judgments of both Pill and Arden LJJ are permeated with the idea of leaving change of position to be decided on each case's particular facts, perpetuating the Niru broad test which is tantamount to a general discretion. Further, the disagreement between Rix LJ and Arden LJ over the appropriateness of considering public policy and the need to encourage banks to take an active role in preventing money laundering illustrates the difficulty with the width of discretion allowed by the Niru test.

A second tentative suggestion is that if we view the defence of bona fide change of position as being available where the defendant disenriched himself on the basis of a mistake as to his entitlement to the enrichment, then the essence of the defence may become clearer. That is to say, change of position operates to set up the defendant's mistake as to his entitlement (upon which he has acted) against the claimant's own mistake about his liability to pay (or other unjust factor), and extinguishes the defendant's liability in unjust enrichment. Dextra Bank, for example, is certainly explicable on that approach. If the circumstances are not such as would evidence an entitlement mistake (that is, if the defendant knew or suspected that he was not entitled), then the defence is not made out, and indeed would not have been made out in Abou-Rahmah. Such an analysis might just lead to a more consistent approach than the broad unconscionability test currently favoured by the Court of Appeal.

Best wishes,

James Lee

James Lee
Teaching Fellow
School of Law
The University of Reading
Foxhill House, rm. 2.09
Whiteknights Road, Earley
Reading RG6 7BA
United Kingdom

Phone: +44 (0) 118 3785643
Fax: +44 (0) 118 3784543
Web: www.reading.ac.uk/law

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