Bank of Credit & Commerce International & Anor v Akindele

Factual and Procedural Background

This case involves a claim by liquidators under the heads of knowing assistance and knowing receipt of constructive trust. The claimants are two companies incorporated in the Cayman Islands, wholly controlled by a banking group, which had full licenses to carry on banking business. The defendant is a prominent businessman and citizen of another country. The claimants sought to hold the defendant liable to account for approximately US$6.68 million plus interest as a constructive trustee, alternatively for damages for conspiracy to defraud. The trial judge dismissed the claim, and the claimants appealed.

The key factual background includes a 1985 agreement between the defendant and one claimant company, whereby the defendant was to invest US$10 million in shares of the banking group's holding company, with terms providing a 15% annual return and certain shareholding rights. The claimants alleged the agreement was a sham intended to disguise the use of the defendant's funds to bolster the banking group's financial appearance. The defendant was later paid approximately US$16.68 million pursuant to a divestiture agreement, which the claimants contend was linked to breaches of fiduciary duty and fraud within the banking group.

The trial judge found the agreement was not a sham in the classical sense, accepted that certain officers of the banking group acted fraudulently, but found no evidence that the defendant had knowledge of the frauds or acted dishonestly. The judge dismissed the claim, and the claimants appealed.

Legal Issues Presented

1. What is the required state of knowledge for liability under the knowing receipt head of constructive trust?
2. Is it necessary for the recipient to be dishonest to be liable under knowing receipt?

Arguments of the Parties

Appellants' Arguments

• The defendant's knowledge of the artificial nature of the 1985 agreement and the high rate of return should lead to an inference of dishonesty.
• The judge erred in not inferring dishonesty from the facts found, particularly regarding knowing assistance liability.
• The defendant should be held liable under knowing receipt because he received assets traceable to breaches of fiduciary duty.

Respondent's Arguments

• The defendant acted honestly and was not aware of the underlying frauds within the banking group.
• The judge's findings on credibility and evidence were entitled to deference and supported dismissal of the claim.
• Dishonesty is not a prerequisite for liability in knowing receipt, but the defendant's knowledge was insufficient to make it unconscionable to retain the receipt.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Snook v. London & West Riding Investments Ltd [1967] 2 QB 786	Definition of sham agreements	The judge found the 1985 agreement was not a sham as per the classical definition.
Royal Brunei Airlines Sdn Bhd v. Tan [1995] 2 AC 378	Objective test of dishonesty in knowing assistance	The judge applied the objective dishonesty test and found no dishonesty by the defendant.
El Ajou v. Dollar Land Holdings Plc [1994] 1 All ER 685	Requirements for knowing receipt liability	The court identified the three elements of knowing receipt and analyzed their presence in the case.
Belmont Finance Corporation v. Williams Furniture Ltd (No. 2) [1980] 1 All ER 393	Dishonesty not required for knowing receipt liability	The court held dishonesty is not a prerequisite for liability in knowing receipt, relevant to the defendant's case.
Polly Peck International Plc v. Nadir (No. 2) [1992] 4 All ER 769	Knowing receipt does not require fraudulent misapplication	Supported the proposition that dishonesty is not necessary for knowing receipt liability.
Agip (Africa) Ltd v. Jackson [1990] Ch. 265	Immaterial whether breach of trust is fraudulent for knowing receipt	Confirmed that knowing receipt liability applies regardless of fraudulence of breach.
Eagle Trust Plc v. SBC Securities Ltd [1993] 1 WLR 484	Knowledge required for knowing receipt	Held that knowledge of trust property and breach is necessary, but dishonesty is not.
Karak Rubber Co Ltd v. Burden [1972] 1 WLR 602	Constructive trusteeship with actual or constructive notice	Referenced the concept of constructive trusteeship with notice in breach of trust cases.
Re Lands Allotment Co [1894] 1 Ch. 616	Directors as actual trustees of company assets	Used to explain imputed knowledge to companies for knowing receipt liability.
Rolled Steel Products (Holdings) Ltd v. British Steel Corporation [1986] Ch. 246	Third party notice and accountability as constructive trustee	Affirmed that third parties with notice of breach cannot enforce transactions and are accountable.
Houghton v. Fayers [2000] 1 BCLC 511	Knowledge or constructive knowledge suffices for knowing receipt	Supported view that knowledge or what ought to be known suffices.
Re Montagu's Settlement Trusts [1987] Ch. 264	Distinction between notice and knowledge; actual knowledge required for constructive trust	Held that actual knowledge (or equivalent) is necessary for imposing constructive trust in knowing receipt.
Manchester Trust v. Furness [1895] 2 QB 539	Doctrine of constructive notice in commercial transactions	Warned against extending constructive notice in commercial transactions due to potential harm.
Cowan de Groot Properties Ltd v. Eagle Trust Plc [1992] 4 All ER 700	Commercial transactions and knowledge requirement	Followed the view that constructive knowledge is insufficient in commercial contexts.
Westpac Banking Corp. v Savin [1985] 2 NZLR 41	Constructive knowledge in commercial transactions	Preferred view that constructive knowledge suffices, with caution on duty to inquire.
Equiticorp Industries Group Ltd v. Hawkins [1991] 3 NZLR 700	Constructive knowledge suffices	Supported constructive knowledge as sufficient in commercial cases.
Lankshear v. ANZ Banking Group (New Zealand) Ltd [1993] 1 NZLR 481	Constructive knowledge accepted by concession	Accepted constructive knowledge suffices by concession in commercial context.
Citadel General Assurance Co v. Lloyds Bank Canada (1997) 152 DLR (4th) 411	Constructive knowledge suffices in commercial transactions	Supreme Court of Canada held constructive knowledge enough for liability.
Lipkin Gorman v. Karpnale Ltd [1991] 2 AC 548	Restitutionary liability and change of position defence	Referenced in academic discussion on reforming knowing receipt principles.
Royal British Bank v. Turquand (1856) 6 E&B 327	Rule on internal misapplication and burden of proof	Referenced regarding commercial practicability and burden shifting in misapplication cases.

Court's Reasoning and Analysis

The court began by distinguishing between the requirements of knowledge and dishonesty in knowing receipt claims. It clarified that, unlike knowing assistance, dishonesty is not a prerequisite for liability under knowing receipt. The court analysed the defendant's knowledge at the time of the 1985 agreement and the later divestiture agreement, finding that the defendant had no actual knowledge of the underlying frauds within the banking group and viewed the 1985 agreement as a straightforward commercial transaction.

The court examined the artificial nature of the agreement and the high return offered but concluded that these factors alone did not make it unconscionable for the defendant to retain the receipt. The defendant's later suspicions about the banking group's conduct did not extend to knowledge of breaches of fiduciary duty linked to the received funds.

In addressing the legal principles, the court reviewed relevant authorities, including the seminal Belmont case, confirming that liability in knowing receipt depends on whether the recipient's knowledge makes it unconscionable to retain the benefit. The court favored a unified test of knowledge based on unconscionability rather than rigid categorisations of knowledge levels. It also considered commercial realities, emphasizing the need for practical and common-sense application of the law in commercial transactions.

The court ultimately found that the judge's factual findings on the defendant's state of knowledge were consistent with the conclusion that it was not unconscionable for the defendant to retain the receipt. The defendant was not dishonest, nor did he have sufficient knowledge to impose liability for knowing receipt.

Holding and Implications

The court AFFIRMED the decision of the trial judge and DISMISSED the claimants' appeal.

The direct effect is that the defendant is not liable to account for the funds received under the constructive trust principles of knowing assistance or knowing receipt. The court did not establish any new legal precedent but clarified the principles relating to the recipient's knowledge in knowing receipt claims, emphasizing unconscionability as the key test and rejecting the necessity of dishonesty for liability under knowing receipt.