Relfo Ltd v Varsani

This appeal concerns a tracing claim and an unjust enrichment claim. Tracing is the process used to determine what has happened to a person’s property (see Worthington, Fiduciary Duties and Proprietary Remedies [2013] CLJ 720, 741). If a fiduciary steals trust money, the beneficiary can claim back the money, or any money or asset for which it has been substituted, from the person who has knowingly received it. A similar claim may be made in unjust enrichment.

In these proceedings, Sales J by his order dated 27 July 2012 held that the liquidator of Relfo Ltd (“Relfo”) was entitled to repayment of the principal sum of $878,479.35 from Mr Bhimji Varsani on the basis of both knowing receipt and unjust enrichment. Mr Bhimji Varsani now appeals that order. On the judge’s findings, that sum was substitute property for monies belonging to Relfo which were misappropriated and paid to a company called Mirren Ltd (“Mirren”). Alternatively, Mr Bhimji Varsani acquired that sum at Relfo’s expense and so the claim succeeded also in unjust enrichment.

The issues for this court are:

There is no challenge to the judge’s findings of primary fact.

Mr Devji Gorecia (“Mr Gorecia”) and his wife were at the material time the shareholders and directors of Relfo.

Mr Gorecia has close links with the Varsani family, that is, Mr Bhimji Varsani and his brother and his father, Mr Varsani Senior. Mr Gorecia advises Mr Varsani Senior about business opportunities and to a considerable extent Mr Varsani Senior authorises Mr Gorecia to make and manage investments on the family’s behalf. For his part Mr Gorecia looks to the Varsani family, and Mr Varsani senior in particular, as a source of funding for business projects in which he also invests and also for loans when Mr Gorecia gets into business difficulties.

Mr Varsani Senior retains the predominant role within the family of managing the bank accounts and investments where the family’s accumulated wealth is located. He has joint signing rights over many of the bank accounts held in his sons’ names and the bank statements for those accounts are sent to Mr Varsani Senior at his home address so that he can retain oversight of transactions passing through those accounts.

On 5 May 2004, when Relfo owed some £1.4m to Her Majesty’s Revenue and Customs (“HMRC”), Mr Gorecia wrongfully caused the sum of £500,000 (“the Relfo/Mirren payment”) to be paid out of its bank account in London into the bank account of Mirren at Rietumu Banka (“Rietumu”) in Latvia (“the Mirren account”). This left Relfo insolvent and on 23 July 2004 it went into creditors’ voluntary liquidation.

On the same day, Intertrade Group LLC (“Intertrade”) made a transfer (“the Intertrade payment”) of $878,479.35, being the dollar equivalent of £500,000 less an amount representing 1.3%, from its account (“the Intertrade account”) with Ukio Bankas in Lithuania to the account of Mr Bhimji Varsani at Citibank Singapore. Citibank bank deducted $10, apparently in respect of bank charges. As a result, $878,469.35 was credited to Mr Bhimji Varsani’s account on 10 May 2004.

The bank statements for Intertrade’s account showed that the Intertrade payment was funded by two payments of $780,000 and $150,000 made to Intertrade’s account on 5 May 2004. The second of those payments was timed at 11.15 am on 5 May 2004.

On 13 May 2004, the sum of $100,000 was paid out of Mr Bhimji Varsani’s Citibank account to Mr and Mrs Gorecia. This was said to be for the purposes of a business venture which ultimately did not go ahead. Mr and Mrs Gorecia claimed that they had returned this sum, but the judge made no finding to this effect.

The judge rejected the argument that the Intertrade payment was in consideration of a transaction with a Ukrainian entity.

At trial Relfo accepted that it could not point to specific transactions passing between the Mirren and Intertrade accounts to show how the Relfo/Mirren payment was translated into the Intertrade payment which went to Mr Bhimji Varsani’s account with Citibank Singapore. Mirren and Intertrade could have had other accounts.

The judge held that in the period from September 2004 to May 2005 there were ten transfers between Mirren’s account and Intertrade’s account but there was no transfer out of Mirren’s account in advance of the Intertrade payment which could have funded it. After the Relfo/Mirren payment, Mirren’s account was dissipated but none of the withdrawals was made to Intertrade.

A source in Ukraine, known as Mr Kudaev, produced documents showing that the Relfo/Mirren payment was originally intended to be a loan from Relfo to Mirren but that this arrangement was replaced by one which provided for the payment to go to Mr Bhimji Varsani in settlement of some obligation from “Corn Ltd”.

The judge found that Mr Gorecia caused the Relfo/Mirren payment to be paid intending to produce the result that the funds so paid should, by means to be devised by his Ukrainian contacts, be paid on to Mr Bhimji Varsani and it is likely that they acted so as to bring about the result which Mr Gorecia asked them to produce.

Relfo tried to sue Mr Bhimji Varsani in the Supreme Court of Singapore but its claim was dismissed by Prakash J on the ground that it was seeking to enforce the claim of HMRC ([2008] SGHC 105). Prakash J was, however, satisfied that there was sufficient evidence to show that the Intertrade payment represented the traceable proceeds of the Relfo/Mirren payment. Those proceedings having failed, Relfo brought the present proceedings in England and Wales.

The judge found that Mr Gorecia had not given a coherent account of the reasons for the Relfo/Mirren payment (judgment, [55]). The judge further found that Mr Gorecia was dishonest and that he was concerned to make good trading losses that he had caused the Varsani family:

“it is probable that something along the following lines occurred. Mr Gorecia felt under considerable pressure in his relationship with the Varsani family because the Corn and Odessa investments were doing badly by early 2004, at great potential cost to the Varsanis. He therefore decided to divert funds under his control (in the form of the money still held by Relfo, which otherwise would only be lost to the taxman) to the Varsanis in an effort to make some amends. He was aware that the Ukrainian businessmen with whom he dealt had access to networks of entities which could be used as different vehicles to effect payments in ways which obscured the true source of monies and were used to preparing corrupt and fraudulent accounting books and records. He used one or other of his contacts in the Ukraine to arrange to transfer the money from Relfo to the Varsanis in a way that disguised its source and the purpose of the payment. The Intertrade payment represented the onward transmission of the Relfo/Mirren payment, effected and disguised using the complex networks which his contacts had at their disposal.” (judgment, paragraph [59])

The judge did not accept the explanations given by Mr Varsani Senior:

“… [Mr Gorecia] would have had every incentive to explain to Mr Varsani senior that, in order to make amends to the family and at some risk to himself if he were found out, he was making arrangements to transfer about £500,000 from Relfo to the Varsanis. I did not believe Mr Varsani senior's protestations that he knew nothing about such an arrangement and his attempts to explain the Intertrade payment and the payment of US$100,000 to Mr and Mrs Gorecia from Bhimji Varsani's account with Citibank Singapore. It is likely that the payment to Mr and Mrs Gorecia, coming so soon after receipt of the Intertrade payment, was sent as a reward for Mr Gorecia for arranging the Relfo/Mirren payment and the Intertrade payment.” (judgment, [60])

As regards Mr Bhimji Varsani’s knowledge of the source of the payment, the judge held:

“In my view, it is highly probable that either Mr Gorecia or Mr Varsani senior informed Bhimji Varsani at about the time of the Intertrade payment into his account that it represented funds which Mr Gorecia had extracted from Relfo to make good some of the losses that the Varsani family had suffered in relation to the investments in the Ukraine, for which Mr Gorecia had had responsibility.” (judgment, [63])

The judge rejected Relfo’s claim that the balance standing to the credit of Mr Bhimji Varsani’s account with Citibank was its property. The Supreme Court of Singapore had made a “freezing order” so that for a substantial period no activity had taken place on that account, but that order had been discharged in January 2009. Mr Bhimji Varsani had used the account after that date and there was no evidence about how the monies in the account had been used.

The judge accepted Relfo’s argument, based on El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717 (Millett J) and [1994] 2 All ER 685 (Court of Appeal), that he could draw an inference that the Intertrade payment was Relfo’s money:

“[77]…I accept Mr Shaw's submission based on El Ajou. In that case the question arose whether the victims of a fraudulent share-selling scheme could follow money they had paid as a result of the fraud through bank accounts where it was or may have been mixed with other money. At first instance Millett J held that they could: equity treated the accounts as charged with the repayment of their money and if the money in an account subject to such a charge was then transferred into different accounts the victims could claim a charge over each of the recipient accounts ([1993] 3 All ER 717, at 735h-736a). The Defendant, which was not itself involved in the fraud, submitted that the Plaintiff had not established that the money received into a particular account (the Keristal No 2 account) had been money derived from the fraud, because the money only came into that account in May 1986 whereas the relevant payments by the Plaintiff pursuant to the fraud had been made on 30 March and 1 April 1986 ([1993] 3 All ER 717, 734f). However, Millett J found that, by a slim margin, the Plaintiff had shown that the inference should be drawn on the facts of the case that the receipts were to be identified with the earlier payments so as to support a tracing claim: [1993] 3 All ER 717, 734h-736d. Millett J's finding on this was upheld in the Court of Appeal: [1994] 2 All ER at 692f-693f. Mr Shaw submitted that in similar fashion, in the circumstances of the present case, the inference should be drawn that the Intertrade payment is to be identified with the Relfo/Mirren payment so as to enable the court to conclude on the balance of probabilities that the Intertrade payment into Bhimji Varsani's account represented the traceable proceeds of the Relfo/Mirren payment….I agree with this.” (judgment, [76], [77])

The judge continued:

“On the facts as I find them, Mr Gorecia caused the Relfo/Mirren payment to be made intending to produce the result that the funds so paid should, by means to be devised by his Ukrainian contacts, be paid on to Bhimji Varsani, and it is likely that they acted so as to bring about the result which Mr Gorecia asked them to produce. The Relfo/Mirren payment and the Intertrade payment were closely related in time and amount (and the documents sent to the Liquidator by Mr Kudaev, deriving from someone who obviously had good knowledge of the transactions, provide a plausible explanation for the precise 1.3% difference between the two payments). There was no other reason for Intertrade to make the Intertrade payment to Bhimji Varsani. Although the court has insufficient information available to be able to map each step in the process by which that result was achieved, it is a fair inference that the Intertrade payment was the product of a series of transactions between a number of entities and across a number of bank accounts designed to produce the result that funds paid in the Relfo/Mirren payment were (subject to the 1.3% deduction) paid on to Bhimji Varsani. Each bank account in the journey of the funds, or each chose in action or obligation assumed by one entity to another to pay on the funds or to account for them and/or reimburse the other for paying them on, was charged in equity with the obligation to repay the funds to Relfo, and the funds received by Bhimji Varsani pursuant to the Intertrade payment were similarly so charged.” (judgment, [77]) (emphasis added)

The judge then considered whether Mr Bhimji Varsani had the requisite knowledge and found that he had. There is no appeal from that part of the judge’s judgment.

Accordingly the judge held that Relfo was entitled to trace the Relfo/Mirren payment into the Intertrade payment in Mr Bhimji Varsani’s hands.

The judge held that, if he was wrong in drawing the inferences that he had drawn so that the tracing claim failed, Mr Bhimji Varsani had been unjustly enriched at the expense of Relfo and that accordingly Relfo’s alternative claim in unjust enrichment succeeded. As to the connection between the Relfo/Mirren payment, the enrichment satisfied the “but for” test i.e. Mr Bhimji Varsani would not have been enriched if the Relfo/Mirren payment had not been made. The judge held that he did not need to consider whether there had to be a closer connection than this since the counsel then appearing for Mr Bhimji Varsani (not counsel on this appeal) conceded that if Relfo showed that Mr Gorecia’s object in arranging for the Relfo/Mirren payment to be made was to cause a transfer of value to Mr Bhimji Varsani, the enrichment of the latter was direct and that the nature of this connection did not require further consideration (judgment, [87]). Mr Salter seeks to withdraw that concession on this appeal.

In the judge’s judgment, liability was strict and Mr Bhimji Varsani could not establish any of the defences to unjust enrichment. Again there is no appeal on this point.

There is little dispute over the basic principles of tracing. Mr Richard Salter QC, for Mr Bhimji Varsani, submits that tracing is a process whereby a claimant traces what has happened to his property (see per Lord Millett in Foskett v McKeown [2001] 1 AC 102, and per Lewison J (as he then was) in Ultraframe(UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1472]). Tracing is not a matter of discretion but of property rights: Re Montagu’s Settlement Trust [1987] Ch 264 at 285B-C, per Megarry J. There must something in the nature of a series of direct substitutions.

The issues on which the submissions have divided are (1) the link, or “nexus”, required to trace the claimant’s property into what is said to be its substituted product; (2) the role of the original payer’s intention; (3) whether the court could fill the evidential gaps in this case and (4) whether substitutions must occur in order (the “timing” issue).

(1) Link: Both Mr Salter and Mr Peter Shaw, for Relfo, submit that there must be sufficient nexus between the acquired assets and the misapplied funds. It is common ground that this requirement was in general not satisfied where some of the assets were already owned by the defendant or were paid into an overdrawn account so that no property could be identified as representing the substituted product of the claimant's property. Thus tracing could not lead to a charge over the general assets of the recipient in these circumstances: Director of the Serious Fraud Office v Lexi Holdings plc [2009] QB 376, [49] to [50].

Mr Salter submits that it follows that mere transactional links are not sufficient in themselves. He submits that there must be a direct substitution, and the substituted property must result from an exchange with the misappropriated property. On his submission, a “nexus” is a shorthand way of describing a direct substitution. The property must be identified as the claimant’s property at each stage of the chain: see Bishopsgate Investments Ltd v Homan [1995] Ch. 211, 221F per Leggatt LJ.

Mr Salter goes on to submit that there was no direct transactional link between the money paid out of Relfo’s account and the money paid in to Mr Bhimji Varsani’s account. The bank statements for Mirren’s account do not show that Relfo’s money left that account for onward transmission to Mr Bhimji Varsani. So Relfo could not show either an unbroken chain of direct substitutions to enable it to trace the money taken from Relfo’s account into Mr Bhimji Varsani’s account. That meant that Mr Bhimji Varsani could not in equity be regarded as having received Relfo’s property for the purposes of the tracing claim. It also meant that there was no sufficiently direct connection between Relfo’s loss and the enrichment of Mr Bhimji Varsani to found a claim in unjust enrichment.

Mr Shaw submits that, in terms of causation, what was required was a transactional link: see per Lord Millett in Foskett v McKeown [2001] 1 AC 102 at 128:

“We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked. We also speak of tracing one asset into another, but this too is inaccurate. The original asset still exists in the hands of the new owner, or it may have become untraceable. The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it….Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. ”

On Mr Shaw’s submission, there was a deliberate scheme to remove Relfo’s assets and to vest them in Mr Bhimji Varsani. The purpose of the intermediaries was to hide Relfo’s money en route. This was not a case of seeking to trace into pre-existing assets. This leads to the next point.

(2) The role of intention: Mr Salter submits that the judge was wrong to find that the payment to Mr Varsani was a substitute mainly because the payment was “designed to produce the result that funds paid in the Relfo/Mirren payment were (subject to the 1.3% deduction) paid on to Bhimji Varsani” (judgment, [77]). On his submission, it is not enough that a payment was made with the intention of replacing the proceeds with other proceeds. Intention cannot make an exchange of property a case for tracing. It must still be shown by evidence or inference that there is a direct chain of substitutions whereby the claimant’s property was exchanged for another asset. That submission leads to the next point.

(3) Whether the evidential gaps could be filled: Mr Salter emphasises that Relfo cannot identify a direct payment out of Mirren’s account. Relfo has not shown that the same asset came out through the chain of substitution. The claim form simply states that the same full amount turned up in the end. The judge was not entitled to draw the inference that the Intertrade payment was the substituted product of the Relfo/Mirren payment because no transactional link was identified. It was unjustified to conclude that any inference was more probable than any other. Relfo simply made out cause and effect. The court should not reverse the burden of proof. There was no authority for the proposition that the court could infer a whole series of transactions of alleged substitution of which there was no evidence.

Mr Shaw submits that even gaps in the evidence about tracing of this kind may be filled by inference.

Mr Shaw submits that the bank statements of Mirren's account clearly show Relfo’s money eventually leaving that account as part of the process of dissipation to which I have already referred.

Mr Shaw submits that the further steps in the chain from the recipients of monies paid out of Mirren's account can be inferred. He relies on El Ajou, to which the judge referred (see the passage from the judge’s judgment quoted in paragraph 22 of this judgment).

In El Ajou, three Canadians persuaded the plaintiff’s agent to invest the plaintiff’s monies in illegal share selling schemes. The plaintiff sought to recover its monies from an entity known as DLH, which had meanwhile acquired the Canadians’ business. The action failed as DLH did not have the knowledge necessary to make them constructive trustees. Some of the proceeds of the scheme had been invested in a property project, and the issue arose whether the plaintiff could trace into bank accounts from which the investment had been made. (It is worth noting that, in El Ajou, foreign law was not pleaded. Millett J held that it was therefore irrelevant that the plaintiff’s money went through civil law jurisdictions that did not recognise the fiduciary relationship between the plaintiff and its agent. Likewise in this case Relfo’s property may have gone through civil law jurisdictions but Mr Bhimji Varsani has not pleaded any foreign law).

In El Ajou, the three Canadians, for whom a Mr D’Albis acted, had used an account, known as the Keristal no 2 account, for receiving monies to be invested in the property project. The question was whether two credits totalling $2,684,432 to that account represented the plaintiff’s money.

Mr Shaw relies on the fact that, in El Ajou, Millett J would if necessary have been prepared to draw inferences of the kind drawn by the judge in this case. Millett J held that, if the question had arisen as between the three Canadians and the plaintiff, he would have drawn the appropriate inference as to the source of the credits to the Keristal no 2 account as the Canadians would have been in a position to explain it (and had not done so). DLH was not, however, in a position to explain the source of these credits. Nonetheless Millett J would have drawn the inference that the credits represented monies belonging to the victims of the fraud even as against it because there was no evidence that the Canadians had any other substantial assets.

This is apparent from the following passage in which Millett J held:

“It is, of course, beyond dispute that the money which was received in the Keristal No 2 account was the Canadians' money. It is, however, true that the plaintiff is unable by direct evidence to identify that money with the money which Mr D'Albis had sent to Panama only a few weeks before. If the question arose in proceedings between the plaintiff and the Canadians, then, in the absence of evidence to the contrary, the court would draw the necessary inference against the latter, for they would be in a position to dispel it. But DLH is not; it is as much in the dark as the plaintiff.

Nevertheless, in my judgment there is sufficient, though only just, to enable the inference to be drawn. One of the two sums received in the Keristal No 2 account was $1,541,432 received on 12 May 1986 from Bank of America. That corresponds closely with the sum of $1,600,000 transferred to Bank of America, Panama on 1 April 1986. In relation to the later transaction, Bank of America may, of course, merely have been acting as a correspondent bank in New York and not as the paying bank; and the closeness of the figures could be a coincidence. It is not much, but it is something; and there is nothing in the opposite scale. The source of the other money received in the Keristal No 2 account is not known, but from the way in which the Canadians appear to have dealt with their affairs, if one sum came from Panama, then the other probably did so, too….

… the fact remains that there is no evidence that the Canadians had any substantial funds available to them which did not represent proceeds of the fraud. This is acknowledged by counsel for DLH. For the source of the money he points to the $1·4345m received by Zawi and the payments totalling $4,927,000 made by Herron and Wilmington which cannot be accounted for. …The money in the accounts of Herron and Wilmington represented proceeds of the fraud. It can be traced in equity from those accounts to the Keristal No 2 account as well as through Zawi or any other intermediate recipient as through the first and second tier Panamanian companies. The victims of a fraud can follow their money in equity through bank accounts where it has been mixed with other moneys because equity treats the money in such accounts as charged with the repayment of their money. If the money in an account subject to such a charge is afterwards paid out of the account and into a number of different accounts, the victims can claim a similar charge over each of the recipient accounts. They are not bound to choose between them. Whatever may be the position as between the victims inter se, as against the wrongdoer his victims are not required to appropriate debits to credits in order to identify the particular account into which their money has been paid. Equity's power to charge a mixed fund with the repayment of trust moneys (a power not shared by the common law) enables the claimants to follow the money, not because it is theirs, but because it is derived from a fund which is treated as if it were subject to a charge in their favour…. In my judgment, there is some evidence to support an inference that the money which reached the Keristal No 2 account represented part of the moneys which had been transmitted to Panama by the second tier Panamanian companies some six weeks previously, and the suggestion that it was derived from any other source is pure speculation.”

Mr Shaw submits that in the present case the traceable property (Relfo’s money) was represented by choses in action after payment into its bank account (judgment, [77]). Consistently with authority, property can be replaced by different choses in action owed by other entities. The judge inferred that there was a series of transactions between a number of entities and across a number of different accounts. He referred to a “journey” of the funds, and to a succession of choses in action, or obligations, assumed by one entity to another to pay on the funds (judgment, [77]). That is at the heart of the process. There was an obligation on Mirren to reimburse those responsible for arranging the Intertrade payment.

Mr Shaw places particular emphasis on the fact that there was an exchange of value. He submits that in tracing it is sufficient if the value of the claimant’s property that is substituted for another asset can be identified and that there is a transfer or exchange of the value of the claimant’s money. In Foskett at page 128 (see paragraph 33 of this judgment), Lord Millett held that in a tracing claim, the claimant traces not the physical asset but the value inherent in it.

(4) Timing issue: Mr Shaw submits that the better view of tracing is that payments do not need to be in strict chronological sequence as long as it remains possible to trace substitutions of value: see Agip (Africa) Ltd v Jackson [1990] 1 Ch 265, and Foskett v McKeown.

Mr Shaw submits that a bank can make a transfer of money before it receives the money that will reimburse it. Thus the chronological sequence of payments is not decisive. As Sir Peter Millett (as he then was) explained in Tracing the proceeds of fraud [1991] LQR 71:

“Equity acts on the conscience of the recipient; and the existence of a direct causal connection between it and the credit should sufficiently identify the one as the source of the other to enable the money credited to [the defendant’s] account to be taken to represent the money debited to [the claimant’s] account. ”

In this case, submits Mr Shaw, obligations were exchanged on the basis that the money-launderer paid out first to the third party (Intertrade), before he was reimbursed. However, on his submission, the order in which the transactions occur is not relevant. In Agip, the claimant was the victim of a fraud. Its employee had forged instructions to its bank, Banque du Sud (“BS”), directing the bank to pay money to a third party, Baker Oil, on Agip's behalf. BS accepted these instructions and instructed Lloyds Bank, Baker Oil’s bank, to credit Baker Oil’s account in accordance with the payment order instruction. BS then instructed its correspondent New York bank to reimburse Lloyds Bank’s correspondent New York bank. Lloyds Bank paid out to Baker Oil before BS had put it in funds. This was the critical fact. Millett J at first instance ([1990] Ch. 265, 286) held:

“Nothing passed between Tunisia and London but a stream of electrons. It is not possible to treat the money received by Lloyds Bank in London or its correspondent bank in New York as representing the proceeds of the payment order or of any other physical asset previously in its hands and delivered by it in exchange for the money. The Banque du Sud merely telexed a request to Lloyds Bank to make a payment to Baker Oil against its own undertaking to reimburse Lloyds Bank in New York. Lloyds Bank complied with the request by paying Baker Oil with its own money. It thereby took a delivery risk. In due course it was no doubt reimbursed…” (emphasis added)

Millett J held that this did not prevent tracing in equity:

“There is no difficulty in tracing the plaintiffs' property in equity, which can follow the money as it passed through the accounts of the correspondent banks in New York or, more realistically, follow the chose in action through its transmutation as a direct result of forged instructions from a debt owed by the Banque du Sud to the plaintiffs in Tunis into a debt owed by Lloyds Bank to Baker Oil in London.” (pages 289-290)

On appeal, this court accepted that there was no difficulty about the mechanics of tracing in equity on those facts.

As Professor Lionel Smith explains in The Law of Tracing (Oxford) (1997) at page 251:

“Banque du Sud ‘bought’ on credit, from Lloyds Bank, a payment to Baker Oil; or it borrowed money from Lloyds Bank and directed that the lent money should be paid to Baker Oil. It later paid the loan with a certain value; hence that value could be traced into the payment to Baker Oil and onwards.”

Mr Shaw referred to this as the "delivery risk" approach to tracing, i.e. that a party in the tracing chain makes a payment in reliance on a promise by an earlier intermediary to reimburse him.

Mr Shaw submits that intermediaries in the chain in the present case, including Mirren, must have taken the "delivery risk". On that basis, the absence of evidence of a payment from Mirren to Intertrade does not defeat tracing. There is a string of choses in action through which Relfo can trace.

Mr Salter accepts that timing is not necessarily fatal to the right to trace. Precise timings may not matter but they can, as in this case, show that asset B is not a direct substitution for asset A. In this case, the Intertrade payment could not be a substitute for Relfo’s money because the timing of the payments was such that the Relfo/Mirren payment on 5 May 2004 could not have funded that payment. The judge should therefore have dismissed the tracing claim against Mr Bhimji Varsani.

Mr Salter further accepts that there may be an exception in the context of international banking, as where the correspondent bank pays out before receiving funding: see Agip. That is because the court can “lift the latch of the bank’s door” because the bank will be an agent for the receiving party. What is procured is payment through agents. That means there is a direct payment through the bank system. In this case there is no evidence that there were agents here.

I accept Mr Shaw’s submission that the judge was entitled to draw the inference not merely that Relfo’s monies had passed into Intertrade’s account but that those monies were actually the source of the monies paid to Mr Bhimji Varsani. The payments that the judge inferred were greater in number and scale than those that Millett J inferred in El Ajou, but the principle is the same. The judge had plenty of material from which to draw the inference. In [77] of his judgment, he refers to the similarity in amount and timing of the Mirren payment and the Intertrade payment, the fact that the amount paid to Mr Bhimji Varsani was the same as the amount of the Relfo/Mirren payment less 1.3%, which might well have been a commission, the fact that Mr Bhimji Varsani gave no consideration for this payment and the fact that on his findings Mr Gorecia authorised the payment from Relfo’s account intending that it should lead to a payment to Mr Bhimji Varsani.

I accept Mr Salter’s submission that the intention of Mr Gorecia would not be enough in itself to make the Intertrade payment substituted property for the purposes of the tracing rules. However intention can be relevant as a factor in the basket of factors from which the judge may draw an inference that it is in fact a substitution.

I do not, however, accept Mr Salter’s submission that that intention was a major part of the evidence on which the judge based his inference. I have referred to other matters to which the judge referred in [77] of his judgment. In addition, there was further material in the factual background found by the judge, such as the extensive evidence supporting the inference, namely the prior dealings between Mr Gorecia and the Varsani family, the prior dealings between Mr Gorecia and Ukrainian businessmen and between Mirren and Intertrade and the transactions between their accounts. The judge found that the Ukrainian businessmen in question had access to vehicles through which monies could be laundered, and were used to preparing false records (see paragraph 18 of this judgment). The judge also found that both Mr Gorecia and Mr Varsani Senior were unsatisfactory witnesses. Moreover, he found that Mr Gorecia was motivated by a wish to make amends for the losses that Mr Varsani Senior had incurred through following his advice.

Once the judge made the inference that Relfo’s money was substituted by payments used ultimately to make the Intertrade payment, it is in my judgment an inevitable conclusion that the Mirren payment and the Intertrade payments were causally and transactionally linked.

I also accept Mr Shaw’s submission that, when funds are transmitted through the banking system, what matters is that there has been an exchange of the value of the claimant’s property into the next product for which it is substituted and so on down the chain of substitutions. This seems to me to follow from the speech of Lord Millett in Foskett v McKeown cited above, and particularly the following passage:

“There is simply a series of debits and credits which are causally and transactionally linked. We also speak of tracing one asset into another, but this too is inaccurate. The original asset still exists in the hands of the new owner, or it may have become untraceable. The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it….”

The inference that the judge made means that he found that what had happened was on the following lines. At the start of the chain of transactions, Relfo had money on deposit with its bank, i.e. it had the benefit of a debt owed to it by its bank. It exchanged this right for a debt owed to it by Mirren. The value of this debt lay in the credit balance on this account. Mirren agrees to transfer this balance to another person or person at some future date in exchange for Intertrade making the Intertrade payment.

I therefore accept Mr Shaw’s submission that the fact that Mirren did not reimburse anyone for the Intertrade payment until after the Intertrade payment had been made does not matter. On the judge’s findings, the Intertrade payment and the other payments made throughout the chain of substitutions was made on the faith of the arrangement that Mirren would provide reimbursement. By making that arrangement, Mirren exploited and used the value inherent in Relfo’s money that had been paid into Mirren’s account.

In my judgment, Mr Shaw is correct in his submission that Agip is authority for the proposition that monies held on trust can be traced into other assets even if those other assets are passed on before the trust monies are paid to the person transferring them, provided that that person acted on the basis that he would receive reimbursement for the monies he transferred out of the trust funds. The decision in Agip demonstrates that in order to trace money into substitutes it is not necessary that the payments should occur in any particular order, let alone chronological order. As Mr Shaw submits, a person may agree to provide a substitute for a sum of money even before he receives that sum of money. In those circumstances the receipt would postdate the provision of the substitute. What the court has to do is establish whether the likelihood is that monies could have been paid at any relevant point in the chain in exchange for such a promise. I see no reason in logic or principle why this particular way of proving a substitution should be limited to payments to or by correspondent banks.

I further agree with Mr Shaw that there is no logical reason why the substituted product of a claimant’s money cannot be traced through any number of accounts. There is no limit on the number of substitutions that can in theory take place. However, the number of substitutions and the fact that they do not occur in chronological sequence may make it harder to substitute one asset for another.

Tracing enables a beneficiary to recover trust property that has been misappropriated. As Lord Millett held in Foskett v McKeown at page 127:

“A beneficiary of a trust is entitled to a continuing beneficial interest not merely in the trust property but in its traceable proceeds also, and his interest binds every one who takes the property or its traceable proceeds except a bona fide purchaser without notice.”

Thus the innocence of the recipient will go to the question of whether he was a bona fide purchaser for value and without notice. In this case, Mr Bhimji Varsani could not establish that he gave value for the Intertrade payment.

There was a suggestion that Relfo should have sued those responsible for the fraud, not Mr Bhimji Varsani who is an innocent recipient of funds of which it has been defrauded. Mr Bhimji Varsani knew that the money came from Relfo and was told that it was compensation for the Varsani family. The position, as is well known, is that a claimant may choose which cause of action to pursue in respect of any wrong to it.

For these reasons, I would uphold the decision of the judge on this point.

The background to the argument here is that, in general, for a claim for unjust enrichment to succeed, the defendant must be enriched directly by the claimant. Mr Bhimji Varsani only raises the second issue if he wins on the first issue. If my Lady and my Lord agree with my conclusion on the first issue, Mr Bhimji Varsani has not succeeded on the first issue. Nonetheless, as we have heard full argument, I propose to decide this appeal also on this alternative ground. The point of law is whether, on the facts as found by the judge, Relfo would succeed on a claim for unjust enrichment against Mr Bhimji Varsani even though he did not receive the benefit of the Intertrade payment directly from Relfo and on the hypothesis that Relfo cannot establish any tracing claim to that payment.

As explained in paragraph 26 above, the judge held that Mr Bhimji Varsani would not have obtained the Intertrade payment but for the Relfo/Mirren payment (judgment, paragraph [87]). “But for” is a filter, or preliminary filter, which the law uses to filter out loss for which a claim for compensation will not succeed. Thus, if loss would have occurred in any event, a court will conclude that the defendant’s wrong did not cause the claimant’s loss.

As also explained in paragraph 26 above, the judge’s conclusion was based on a concession by counsel then appearing for Mr Bhimji Varsani. The concession was one of law. Mr Shaw does not seriously object to its being withdrawn. I would accordingly permit it to be withdrawn.

It is effectively common ground that liability in unjust enrichment requires more than a “but for” test to be satisfied where the claimant, as in this case, contends that the defendant was enriched at the claimant’s expense through the intervention of third parties.

The argument on this issue proceeds on the basis that, contrary to my conclusion on the first issue, Relfo’s tracing claim fails.

On this appeal, Mr Salter submits that, if Relfo has no tracing claim, it likewise has no claim in unjust enrichment. Mr Salter submits that the cases show that normally the defendant has to be a person to whom the claimant directly transferred the benefit. Mr Salter accepts that there are a number of exceptions, for example, where a tracing claim is available. The present position, submits Mr Salter, is that there is no general principle. He relies on section 8 of A Restatement of the English Law of Unjust Enrichment by Professor Andrew Burrows, (Oxford, 2012) (“the Restatement”). This valuable work presents the position in the following way:

“8 At the claimant’s expense: general

(1)

The defendant’s enrichment is at the claimant’s expense if the benefit obtained by the defendant is-

(a)

from the claimant and

(b)

directly from the claimant rather than by way of another person.

(2)

In any of the following cases, it does not matter that the benefit obtained by the defendant (D) is from the claimant (C) by way of another person (X) –

(a)

where X transfers as an asset to D but C has a better right to that asset than X;

(b)

where X transfers an asset to D but X was holding the asset on trust for C;

(c)

where X is acting as C’s agent in respect of the benefit;

(d)

where X charges and receives from C an amount representing tax on X’s supply of goods and services to C and pays or accounts for that amount to D (Her Majesty’s Revenue and Customs) as tax due;

(e)

where C is subrogated to X’s (or another’s) present or former rights against D in a situation where the benefit was supplied to D by X;

(f)

where X was under a legal obligation to supply the benefit to C but instead supplied the benefit to D and –

(i)

the supply to D discharged X’s obligation to C, or

(ii)

the supply to D was in breach of X’s fiduciary duty to C but C’s claim against X has been exhausted.

(3)

In a contract for the benefit of a third party, the third party’s benefit is to be treated as obtained directly from the contracting party who required the benefit to be supplied rather than from the contracting party who supplied it.

(4)

Even if the benefit obtained by the defendant is directly from the claimant, the enrichment is generally not at the claimant’s expense if the benefit is merely incidental to the furtherance by the claimant of an objective unconnected with the defendant’s enrichment.”

Professor Burrows calls the principle now set out in section 8 “the direct providers only” rule, though he accepts there are exceptions to it. I will therefore refer to it as “the DPR”. Section 8 is a very useful point of reference but I must not be taken as accepting that, if there is a DPR, section 8 contains an exhaustive list of the exceptions.

Mr Salter also accepts that some writers have favoured a wider principle than the DPR, such as the editors of Goff & Jones on The Law of Unjust Enrichment (8^th ed, 2011) at paras 6-18 and 6-25, Stephen Watterson, Direct Transfers in the Law of Unjust Enrichment, Current Legal Problems 64 (2011), pp 435-470, Charles Mitchell, “Liability Chains” in Unjust Enrichment in Commercial Law, ed. Degeling and Edelman (2008) and Professor Peter Birks, Unjust Enrichment (2^nd ed) pp 94-5.

Mr Salter accepts that Mr Bhimji Varsani cannot rely on any defence: in particular he does not now claim that he was a bona fide purchaser of the Intertrade payment.

The DPR raises some immediate questions. Why should the law impose a rule that there can be no claim in unjust enrichment unless the defendant happens to receive the benefit directly from the claimant rather than from the claimant via a third party, and then allow a long list of what might be called ad hoc exceptions? The answer to this question is that DPR is a rule about limiting the substitution of new property or rights for the property which leaves the claimant’s hands. It may be very unjust to allow the claimant to recover the new property or rights if he has no tracing claim, for example, where the immediate recipient made a gift to the defendant of an amount equal to what he had received from the claim and this transaction of gift was independent of his transaction with the claimant. The claimant may, moreover, end up being able to recover his property from a number of defendants at different stages in the chain.

On this basis, the “exceptions” represent the boundaries (thus far ascertained) of recoverability for indirect unjust enrichment. It is not enough for the claimant to show the defendant is better off by the amount by which the claimant is worse off. That does not even satisfy a “but for” test of causation. Some greater link is required to be shown.

Likewise the list of exceptions raises questions. The exceptions are a motley collection. Some of them are principles from other areas of law, such as trust law, and some of them are remedies, such as subrogation, which do not constitute a basis of liability. They are not, therefore, principles for imposing liability for unjust enrichment carved out of the DPR.

Mr Salter’s submissions involve the analysis of a large number of authorities, including Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759, Banque Financière de la Cité v Parc Battersea Ltd [1991] 1 AC 221 and Kleinwort Benson Ltd v Birmingham City Council [1997] QB 380. We were also taken for completeness to Gibbs v Maidstone and Tunbridge Wells NHS Trust [2010] EWCA Civ 678, and Uren v First National Home Finance Ltd [2005] EWHC 2529 (Ch) but they do not significantly assist on the question of whether a principle exists which defines when a claimant can succeed on his claim in unjust enrichment against an indirect recipient.

Mr Salter accepts that the decision of Henderson J in Investment Trust Companies v HMRC [2012] EWHC 458 (Ch); [2012] STC 1150 (“ITC”) is the first case in which the question of the nature of the connection has been squarely addressed. In that case, clients of Investment Management Companies sought to recover overpaid VAT from the HMRC, to whom it was paid by their investment managers, on the basis that the HMRC had been unjustly enriched, indirectly at their expense. The managers had not reclaimed this VAT. Henderson J held:

“[68] The real question, therefore, is whether claims of the present type should be treated as exceptions to the general rule. So far as I am aware, no exhaustive list of criteria for the recognition of exceptions has yet been put forward by proponents of the general rule, and I think it is safe to assume that the usual preference of English law for development in a pragmatic and step-by-step fashion will prevail. Nevertheless, in the search for principle a number of relevant considerations have been identified, including (in no particular order):

(a)

the need for a close causal connection between the payment by the claimant and the enrichment of the indirect recipient;

(b)

the need to avoid any risk of double recovery, often coupled with a suggested requirement that the claimant should first be required to exhaust his remedies against the direct recipient;

(c)

the need to avoid any conflict with contracts between the parties, and in particular to prevent 'leapfrogging' over an immediate contractual counterparty in a way which would undermine the contract; and

(d)

the need to confine the remedy to disgorgement of undue enrichment, and not to allow it to encroach into the territory of compensation or damages.”

Henderson J came to his conclusion that the weight of authority was in favour of the DPR with a limited number of exceptions after very careful consideration of all but two of the authorities cited by Mr Salter. Little purpose would be served by my performing the same exercise as I agree with his analysis of those cases.

Faced with that authority, Henderson J concluded that there was no authority which required him to hold that there was any general principle which allowed unjust enrichment claims against indirect recipients. He held that such guidance as was available to him suggested that there was no general principle, so far as claims against indirect recipients were concerned. There was only a list of exceptions. He did not regard that as a closed list but went on to identify the criteria in paragraph 68, which I have set out above. He effectively created the exception now found in section 8(2)(d) of the Restatement.

Mr Shaw submits that there is no universal requirement for direct enrichment. Enrichment at the claimant’s expense may be indirect if it falls within a number of recognized exceptions. He relies on the decision of this court in Menelaou v Bank of Cyprus UK Ltd [2013] EWCA Civ 1960, which was delivered after ITC was decided. I shall analyse the decision in Menelaou in more detail when I come to my conclusions.

Mr Shaw submits that in Menelaou there was a sufficiently close link to the gain if there was a transfer of value between the parties. The intermediate transfers can be disregarded if the reality is that there is a transfer between the claimant and the defendant. In his leading judgment, and by reference in particular to Banque Financière, Floyd LJ concluded that the appropriate test was one of economic reality.

Mr Shaw further submits that the criteria laid down by Henderson J in paragraph 68 of his judgment in ITC are satisfied in this case. He further accepts that, if Relfo made a recovery from any other party it would have to give credit but in fact he submits there has never been any suggestion that Mr Bhimji Varsani might be sued by anyone else, and that, contrary to what Mr Salter informed us, that Relfo would obtain a recovery from any other person. The reality was that Mr Bhimji Varsani was enriched at Relfo’s expense and that was sufficient justification for the judge’s conclusion.

For reasons which I develop below, I consider that the judge’s ultimate conclusion was correct notwithstanding the withdrawal of the concession in this court. Furthermore, in my judgment, Menelaou supports the argument that, where the defendant is not the direct recipient of the benefit provided by the claimant, and the claimant has no proprietary right to any asset in the defendant’s hands, unjust enrichment may be available on the basis of a general principle rather than on the basis of bringing the case within (say) one of the specific situations in section 8 of the Restatement.

The decision in Menelaou is instructive. The claim in Menelaou was by a bank which withdrew its charge over its customers’ property to enable them to sell that property and use the proceeds to help their adult daughter purchase another property. The issue was whether the bank could be subrogated to a charge on the daughter’s property. The bank did not have any proprietary interest in the proceeds of sale. They belonged to the parents and in error the parents’ solicitors had made them available to the daughter free of any charge on her property, so there was an issue as to the connection between the actions of the bank and the acquisition of the property by the daughter. At trial, the judge held that the daughter’s enrichment was not at the bank’s expense. This court disagreed. It held that, in determining whether there was a sufficient connection to enable the court to say that the daughter had been unjustly enriched, the court was entitled to have regard to the economic reality of the situation, which was the bank would never have released its charge unless it had been promised a further charge over the property of the daughter which was not forthcoming.

This court found particular support for this approach in two of the cases cited to us. The first was Banque Financière. In that case, as Floyd LJ explains, in order to circumvent disclosure obligations a bank lent money first to the general manager (Mr Herzig) of the bank who in turn lent the money to another company who used it to discharge a loan from RTB, another bank. The Appellate Committee of the House of Lords was unimpressed by the fact that Mr Herzig was interposed as borrower and lender. Lord Hoffmann, with whom a majority of the House agreed, held that to allow the interposition of Mr Herzig to alter the substance of the transaction would be pure formalism. He further held:

“I think it should be recognised that one is here concerned with a restitutionary remedy and that the appropriate questions are therefore, first, whether the defendant would be enriched at the plaintiff's expense; secondly, whether such enrichment would be unjust and thirdly, whether there are nevertheless reasons of policy for denying a remedy. An example of a case which failed on the third ground is Orakpo v Manson Investments Ltd. [1975] AC 95, in which it was considered that restitution would be contrary to the terms and policy of the Moneylenders Acts.”

The second case was Filby v Mortgage Express. In that case, again as Floyd LJ explains, Mr and Mrs Filby’s matrimonial home was subject to a mortgage in favour of the Halifax. They also had an unsecured development loan account with the Midland Bank. Mr Filby sought to remortgage the matrimonial home with Mortgage Express. The mortgage advance was paid to solicitors who used part of it to redeem the Halifax mortgage and another part in the reduction of the debit balance on the development loan account with the Midland. However, Mrs Filby had not signed the mortgage, and so, as against her, it was void. Mortgage Express claimed to be subrogated, amongst other things, to the rights of the Midland Bank against Mrs Filby to the extent that the joint debt to them had been discharged with their money. This court considered the unjust enrichment claim obiter. At [62] May LJ stated:

“Accordingly so far as is relevant to this appeal, the remedy of equitable subrogation is a restitutionary remedy available to reverse what would otherwise be unjust enrichment of a defendant at the expense of the claimant. The defendant is enriched if his financial position is materially improved, usually as here where the defendant is relieved of a financial burden – see Peter Birks, An Introduction to The Law of Restitution page 93. The enrichment will be at the expense of the claimant if in reality it was the claimant’s money which effected the improvement. Subject to special defences, questions of policy or exceptional circumstances affecting the balance of justice, the enrichment will be unjust if the claimant did not get the security he bargained for when he advanced the money which in reality effected the improvement, and if the defendant’s financial improvement is properly seen as a windfall. The remedy does not extend to giving the claimant more than he bargained for. The remedy is not limited to cases where either or both the claimant and defendant intended that the money advanced should be used to effect the improvement. It is sufficient that it was in fact in reality so used. The remedy is flexible and adaptable to produce a just result. Within this framework, the remedy is discretionary in the sense that at each stage it is a matter of judgment whether on the facts the necessary elements are fulfilled.”

I agree with Henderson J that the “reality” which May LJ was invoking was not confined to strictly legal reality, but could in appropriate circumstances include a broader underlying commercial or economic reality (judgment, [65]).

This court accepted in Menelaou that the bank had released the charge over the parents’ house with a view to its obtaining security over the daughter’s house. The majority relied on economic reality. Moses LJ, however, did not think it was necessary to rely on economic reality as such on the grounds that this test was uncertain and that a decision-maker might use this concept because he was unable to articulate his real reasoning.

This court also relied on the fact that there had been a transfer of value, but given that there had been no transfer of value in law, this does not detract from the reasoning based on economic reality. In all the circumstances, Floyd LJ concluded at [42] of his judgment:

“Whilst the precise range of relevant factors which are relevant may require consideration in other cases, for my part I would hold that there was a sufficiently close causal connection in the present case between the Bank's agreement to part with its estate in Rush Green Hall and the enrichment of Melissa to hold that Melissa was enriched at the Bank's expense.”

Menelaou is, of course, a case about subrogation and thus one only of the exceptions listed in section 8(2) of the Restatement. Nonetheless, particularly read with the passage from the speech of Lord Hoffmann in Banque Financière and the dictum of May LJ set out above, the decision strongly supports the view that the law is moving towards identification of a general principle. Overall the court must find that there is a sufficient link between the formation of the transaction whereby the claimant conferred a benefit on the direct recipient (or was entitled to receive a benefit) and the transaction under which the defendant obtained a benefit to make the enrichment unjust. I do not read the judgments of Gloster and Floyd LJJ as taking any different view on that point. Moreover, in deciding whether there is a sufficient link, the court will look at the substance and not the form.

Any principle for unjust enrichment against indirect recipients will have to be refined in later cases. For now, the criteria identified by Henderson J will no doubt be of assistance. They identify important policy considerations for the application of the law in this area. As I see it, they are consistent with there being some ultimate general principle.

In this case, on the basis of the judge’s unappealed findings, the Intertrade payment was a gratuitous benefit to Mr Bhimji Varsani. The judge found that Mr Gorecia’s objective was to confer a benefit on Mr Bhimji Varsani by a circuitous route. Those factors are in my judgment the principal factors that make his enrichment unjust. In my judgment, they are sufficient for this purpose. As a matter of substance, or economic reality, Mr Bhimji Varsani was a direct recipient. It follows that the concession made at trial was correctly made.

There is no requirement for Relfo to pursue other possible defendants: it has always been a principle of English law that the claimant can (subject to well-established doctrines, such as election) choose which defendant to sue. It is likewise a well-established rule that in general a claimant may not recover more than his loss, so Relfo must obviously give credit for anything it might recover from some other party.

I would therefore dismiss the appeal on the second issue as well as the first issue.

I would dismiss this appeal. In the circumstances it is not necessary to deal with a cross-appeal raised by Relfo, on which I would make no order.

I agree that this appeal should be dismissed for the reasons set out in paragraphs 56 to 68 of the judgment of Arden LJ. Like her, I agree that, on the basis of the judge’s findings of fact, and the inferences which he drew to the effect that the Mirren payment and the Intertrade payments were causally and transactionally linked, Relfo was entitled to maintain a tracing claim notwithstanding that Mirren did not reimburse anyone for the Intertrade payment until after that payment had been made.

However, although we heard argument on the second issue, I was initially reluctant to express any conclusion as to whether, in the alternative, Relfo was entitled to maintain a separate claim in unjust enrichment on the assumed hypothesis that it had failed in its tracing claim. My reasons for my reluctance were as follows:

However, for the reasons given by Floyd LJ in paragraphs 115 to 122 of his judgment, and despite my initial reluctance, I am nonetheless satisfied that we are able to conclude that the arrangement by which Mr Gorecia benefited and enriched Bhimji Varsani using Relfo’s money was in the circumstances in reality equivalent to a direct payment and demonstrated a sufficient causal connection to support a remedy in unjust enrichment.

Like Floyd LJ I do not consider that this is a suitable case for the court to attempt to articulate general principles as to the circumstances in which a claim for unjust enrichment might lie, notwithstanding that that the defendant has not received his benefit directly from the claimant. It is clear from the cases to which Arden LJ has referred that the court has not limited the remedy to cases falling within what Professor Burrows in The Restatement refers to as “the direct providers only” rule and that there are exceptions to the rule. Again this is not a suitable case in which to explore the extent of those exceptions. What one can say is that on the basis of the evidence as found by the judge this was clearly a case which demonstrated the necessary causal link between the payment and the gain to justify an unjust enrichment claim.

For the above reasons I would also dismiss the appeal on the alternative ground that the Liquidator had a good claim in unjust enrichment.

I also agree that this appeal should be dismissed for the reasons set out in paragraphs 56 to 68 of the judgment of Arden LJ, in other words that the liquidator of Relfo (“the Liquidator”) was entitled to recover the proceeds of its property by the process of tracing.

The Liquidator relied, as an alternative ground, on a claim in unjust enrichment. He contended that, in the event that its tracing claim failed, for example because of the need to show a series of substitutions of its property and its proceeds, and in any event, he could still maintain a claim in unjust enrichment. The Judge did not have to decide that issue, but because he had heard full argument, he did decide it. We have heard extended argument on it as well.

The Judge dealt with the second issue in the following way. He recorded and accepted the submissions of Mr Shaw for the Liquidator that the undoubted enrichment of Mr Bhimji Varsani was unjust, arising at it did from the diversion of Relfo’s funds by Mr Gorecia in breach of the fiduciary duty he owed to Relfo and without Relfo’s authority. That left the question of whether the enrichment of Mr Bhimji Varsani was, in law, at the expense of Relfo. Mr Shaw submitted before the judge that the test of whether enrichment of one person was at the expense of another was, in law, that propounded by the learned editors of Goff & Jones The Law of Unjust Enrichment (8^th Edition ed. Mitchell, Mitchell and Watterson), namely that the claimant has suffered a loss which is sufficiently closely connected with the defendant’s gain for the court to hold that there is a transfer of value between them: see Goff & Jones, paragraph 1-15. That of course raised the question of what was sufficiently close for this purpose.

Before the judge there was a debate which was ultimately rendered academic as to whether a simple “but for” test of causation was all that was required for a sufficiently close connection. This is the test for which the editors of Goff & Jones contend, whilst recognising that it does not presently represent an established view. Their view is that other elements of unjust enrichment, coupled with the available defences, make it unnecessary to insist on a strict test of causation. Be that as it may, given that the question of whether there is a sufficiently close connection between the claimant’s loss and the defendant’s gain is one of degree, the “but for” test must represent the lowest and most generous (from the claimant’s viewpoint) end of the spectrum.

That particular debate was rendered academic because counsel for Mr Bhimji Varsani, although contending for a more demanding test of causation, accepted that, if the Liquidator made out his case on the facts in relation to the objective Mr Gorecia had in arranging for the Relfo/Mirren payment to be made (i.e. to achieve a transfer of value to Bhimji Varsani by triggering an equivalent payment to him), the necessary element of directness or proximity for which he argued would be present. As the Judge had made those factual findings, the concession operated so as to allow the judge to reach the conclusion that the enrichment of Mr Varsani was at Relfo’s expense.

The judge did however hold that counsel’s concession was rightly made. As Arden LJ has recorded, Mr Salter who appeared on the appeal (but not below) sought permission to withdraw the concession and to challenge its correctness, and, as Mr Shaw did not resist permission being granted, we gave it.

Mr Salter’s challenge to the conclusion reached by the judge was that a remedy in unjust enrichment is only available (absent a proprietary claim) where there is a direct transfer from claimant as payor to defendant as payee. The judge, submits Mr Salter, should have asked not only whether there was a sufficiently close causal connection, but also whether the transfer from claimant to defendant was direct.

The “direct transfers only” rule, for which there is also eminent academic support, represents the other extreme of the spectrum of possible tests to which I referred in paragraph 107 above. In fact, adherence to the direct transfers only rule makes it unnecessary to ask whether there is a sufficiently close causal connection, or, alternatively, if one does ask the question it will answer itself. A direct transfer from A to B must be sufficiently close - it could not be closer. However, as Arden LJ has amply demonstrated, the courts have not rigidly observed a direct transfers only rule, and exceptions have been recognised: see per Henderson J in Investment Trust Companies (In liquidation) v Revenue & Customs Commissioners [2012] EWHC 458 (Ch); [2012] STC 1150. This suggests, at the very least, that something less than the direct transfers only rule, by way of a general test of the necessary connection, may suffice.

To illustrate the type of case where the causal link may be inadequate, Professor Burrows in The Law of Restitution (3^rd Edn.) page 70 cites the example of a payment made by mistake by C to X. X then, no doubt feeling generous as a result of the mistaken payment to him, makes a gift of the money to D. The enrichment of D satisfies a “but for” causation test, but the enrichment of D is not strongly causally related to C’s mistaken payment. The payment might be said to provide an occasion or opportunity for X to pay C. X’s decision to pay D is an independent act by X, not controlled or arranged by C. In those circumstances the law regards the enrichment of D as being at the expense of X, not of C, or at least refuses to recognise a sufficiently close causal connection between C’s loss and D’s gain.

The present case is not one in which I would wish to attempt to lay down any general rule applicable to determine causation in unjust enrichment cases. In particular I would not wish to attempt, because it is not necessary, an analysis of precisely how much liberalisation of a direct transfers only rule, or how much tightening of a “but for” test, will ultimately prove to be appropriate. However, in my judgment, the factual findings made by the judge in the present case made his conclusion that there was a sufficiently close causal connection an inevitable one. Indeed, provided one focuses on substance and not on form, or as it is put in some of the cases, on economic reality, the facts in the present case showed that the arrangement by which Mr Gorecia benefited and enriched Bhimji Varsani using Relfo’s money were equivalent to a direct payment. I would draw attention to some of those findings.

Mr Gorecia had close links with the Varsani family. The Varsani family treated Mr Gorecia as a business partner. The Varsani family were advised by Mr Gorecia on business matters and the family provided him with funding and loans. The family had various bank accounts: the account in question in the present case being in the name of Bhimji Varsani. At the material time, Mr Gorecia felt a debt or obligation towards the Varsani family arising out of some unsuccessful investments (“the Corn and Odessa investments”) into which he had guided them.

The Relfo/Mirren payment and the Intertrade payment were on successive days, May 4 and 5 2004. The Relfo/Mirren payment and the Intertrade payment were linked in that the Intertrade payment represented the dollar equivalent of the Relfo/Mirren payment less a 1.3% money laundering charge and a $10 bank charge.

Mr Gorecia made an elaborate attempt to “demonstrate that there was no linkage between the Relfo/Mirren payment and the Intertrade payment”, by suggesting that the payments were related to complex commercial dealings in the Ukraine, Russia and elsewhere. The judge rejected Mr Gorecia’s account as untruthful. He found Mr Gorecia to be “a thoroughly dishonest witness prepared to lie whenever necessary to protect himself or bolster the position of the Varsani family in the legal proceedings in which they became involved as a result of his actions”.

Despite adopting “the usual cautious approach to assessment of a case based on fraud” the judge concluded that the true position was as follows:

“Mr Gorecia felt under considerable pressure in his relationship with the Varsani family because the Corn and Odessa investments were doing badly by early 2004, at great potential cost to the Varsanis. He therefore decided to divert funds under his control (in the form of the money still held by Relfo, which otherwise would only be lost to the taxman) to the Varsanis in an effort to make some amends. He was aware that the Ukrainian businessmen with whom he dealt had access to networks of entities which could be used as different vehicles to effect payments in ways which obscured the true source of monies and were used to preparing corrupt and fraudulent accounting books and records. He used one or other of his contacts in the Ukraine to arrange to transfer the money from Relfo to the Varsanis in a way that disguised its source and the purpose of the payment. The Intertrade payment represented the onward transmission of the Relfo/Mirren payment, effected and disguised using the complex networks which his contacts had at their disposal.”

Mr Gorecia explained to the Varsanis that he was arranging for the transfer from Relfo to the Varsanis. In due course Mr Gorecia was rewarded for making the arrangements for Relfo/Mirren payment and the Intertrade payment by a reverse payment to him of $100,000. The judge concluded:

“However, it was clear from Mr Gorecia's own evidence and the schedules of payments and receipts in respect of the Corn and Odessa investments that the shadowy Ukrainian business associates of Mr Gorecia were used to channel payments through business entities which did not on the face of it have anything to do with the transactions to which the payments related and were involved in falsifying books and records in relation to those investments. In my view, therefore, Mr Gorecia had access to Ukrainian business-people who had the capacity and willingness, depending on the circumstances, to use networks of companies to effect payments in ways which could not readily be traced or followed.

I find, on the evidence taken overall, that Mr Gorecia made use of his access to these contacts and networks to arrange for transfer of the Relfo/Mirren payment to Bhimji Varsani's account with Citibank Singapore.”

The intermediate arrangements were therefore an elaborate façade to conceal what was in truth intended and arranged to be a payment for the benefit of Bhimji Varsani. There was however more than mere intention involved. The structure put in place by Mr Gorecia made it inevitable that the payment would be effected to Bhimji Varsani. There was no other purpose in the interim arrangements other than to conceal the true nature of the transaction. Mr Gorecia and the Varsanis were closely connected. There was no question of any intervening act of free will. There was no question of any of the intervening entities doing anything other than the bidding of Mr Gorecia.

It was these findings of fact which the judge had in mind when accepting the concession of counsel for Bhimji Varsani that the necessary causative connection was present in this case. Short of applying the rigid exclusionary rule based on direct transfers only, the judge was bound to conclude on these particular facts that there was a sufficient causal connection between Relfo’s loss and Bhimji Varsani’s gain to provide for a remedy in unjust enrichment. I cannot accept the suggestion that the intervening and meaningless arrangements orchestrated by Mr Gorecia, which had no other purpose than to disguise the source of the funds diverted from Relfo, changed what would otherwise have been a direct payment into one which the law will not recognise as sufficiently proximate.

For these reasons I would also dismiss the appeal on the alternative ground that the Liquidator had a good claim in unjust enrichment.