#6816 - Bcci V. Akindele - Restitution of Unjust Enrichment BCL

BCCI v. Akindele

Facts

The first claimant in the action is Bank of Credit and Commerce International (Overseas) Ltd ("BCCI Overseas"), a company incorporated under the laws of the Cayman Islands and at all material times a wholly-owned subsidiary of Bank of Credit and Commerce International Holdings (Luxembourg) SA ("BCCI Holdings"). The second claimant is International Credit and Investment Co (Overseas) Ltd ("ICIC Overseas"), also a company incorporated under the laws of the Cayman Islands, whose affairs were at all material times effectively controlled by the BCCI group… The defendant, Chief Labode Onadimaki Akindele, is a Nigerian citizen and a highly prominent businessman of that country.

It was made between the defendant ("the investor") of the one part and ICIC Overseas ("the company") of the other part. It recited, first, that the company was operating as an investment company, market maker and financier, secondly, that the investor was desirous of investing US$10m in the shares of a banking group with potential for growth and good return on his investments and, thirdly, that the company had offered to arrange for investment of the investor's funds to the extent of US$10m in the shares of BCCI Holdings on the terms and conditions as set out therein.

In their statement of claim the claimants alleged that both the defendant and ICIC Overseas intended and knew that the 1985 agreement was a sham, in that ICIC Overseas never intended to sell or procure the sale of any shares in BCCI Holdings to the defendant and that the defendant never intended to purchase any shares, the agreement being merely a device for ICIC Overseas to obtain the use of the US$10m for a minimum period of two years and for the defendant to obtain a 15% guaranteed return on his investment.

Employees of the claimants acted fraudulently: The judge had no difficulty in finding that in procuring ICIC Overseas to enter into the 1985 agreement and in procuring BCCI Overseas to pay the defendant the US$16.679m pursuant to the divestiture agreement, Mr Naqvi, Mr Hafeez and Mr Kazmi acted in fraudulent breach of their fiduciary duties to the claimants.

Fraud by employees of the claimants:

The judge had no difficulty in finding that in procuring ICIC Overseas to enter into the 1985 agreement and in procuring BCCI Overseas to pay the defendant the US$16.679m pursuant to the divestiture agreement, Mr Naqvi, Mr Hafeez and Mr Kazmi acted in fraudulent breach of their fiduciary duties to the claimants.

In order fraudulently to boost the amount of its capital in the eyes of the regulators, its depositors and the public at large, BCCI Holdings acquired parcels of its own shares through nominees who included ICIC Overseas and an individual called Wabel Pharaon. The acquisitions were funded by dummy loans made to the nominees by companies within the BCCI group, each of which was entered in the books of both lender and borrower but as between the two of them was not intended to be serviced or repaid. However, there remained the difficulty that, if a loan was not serviced or repaid, the lenders's auditors would require it to be written off, such write-offs precipitating losses within the BCCI group and decreasing its reported profits. It was therefore necessary to make it look as if the dummy loans were performing normally.

In early 1985 ICIC Overseas was suffering from acute liquidity problems and needed outside money in order to give the false impression that the dummy loans that had been made by it were performing normally…. It was for this reason that the defendant's US$10m were obtained pursuant to the 1985 agreement, which was in a form, so we were told, that was used on other occasions and did not lead to the creation of balance sheet liabilities.

Holding

On Facts - Defendant had no knowledge of the fraud

It is clear both from that passage and from the tenor of his judgment as a whole, in particular from the three concluding paragraphs quoted below, that the judge was of the view that the defendant had no knowledge of the underlying frauds within the BCCI group either in general or in relation to the 1985 and divestiture agreements in particular.

Should the breach of fiduciary duty have been fraudulent?

Belmont Finance Corpn Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 is clear authority for the proposition that dishonesty is not a necessary ingredient of liability in knowing receipt. There have been other, more recent, judicial pronouncements to the same effect. Thus in Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769, 777D Scott LJ said that liability in a knowing receipt case did not require that the misapplication of the trust funds should be fraudulent. While in theory it is possible for a misapplication not to be fraudulent and the recipient to be dishonest, in practice such a combination must be rare. Similarly, in Agip (Africa) Ltd v Jackson [1990] Ch 265, 292A Millett J said that in knowing receipt it was immaterial whether the breach of trust was fraudulent or not.

What level of knowledge is required to establish knowing receipt?

Baden classification is irrelevant for knowing receipt: InRoyal Brunei Airlines Sdn Bhd v Tan[1995] 2 AC 378, which is now the leading authority on knowing assistance, Lord Nicholls of Birkenhead, in delivering the judgment of the Privy Council, said, at p 392G, that "knowingly" was better avoided as a defining ingredient of the liability, and that in that context theBadencategorisation was best forgotten. Although my own view is that the categorisation is often helpful in identifying different states of knowledge which may or may not result in a finding of dishonesty for the purposes of knowing assistance, I have grave doubts about its utility in cases of knowing receipt.

What then, in the context of knowing receipt, is the purpose to be served by a categorisation of knowledge? It can only be to enable the court to determine whether, in the words of Buckley LJ inBelmont Finance Corpn Ltd v Williams Furniture Ltd (No 2)[1980] 1 All ER 393, 405, the recipient can "conscientiously retain [the] funds against the company" or, in the words of Sir Robert Megarry V-C inIn re Montagu's Settlement Trusts[1987] Ch 264, 273, "[the recipient's] conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee". But, if that is the purpose, there is no need for categorisation. All that is necessary is that the recipient's state of...