Agip (Africa) Ltd v Jackson

JurisdictionEngland & Wales
Date1990
CourtChancery Division
[CHANCERY DIVISION] AGIP (AFRICA) LTD. v. JACKSON AND OTHERS [1987 A. No. 7785] 1989 April 4, 5, 6, 7, 10, 11, 12, 13, 14, 17, 18, 19, 21; May 19 Millett J.

Trusts - Constructive trust - Fraud - Plaintiffs' employee forging payment order in favour of company incorporated by defendant accountants - Accountants having no knowledge of fraud on plaintiffs - Accountants transferring money to other accounts on behalf of clients - Whether money recoverable from accountants as money had and received - Whether money traceable as trust funds - Whether accountants knowingly assisted in furtherance of fraudulent design

The plaintiffs, a company concerned with drilling for oil in Tunisia, maintained a U.S. dollar account at a bank in Tunis. On 18 December 1984, a senior officer of the plaintiffs signed a payment order for $518,822.92 in favour of a shipping company which their chief accountant, Z., fraudulently altered by substituting for the shipping company the name of B. Ltd., giving their address and account number with a branch of Lloyds Bank Plc. in London. B. Ltd. had recently been incorporated and its two directors and shareholders were the first defendant (a chartered accountant in partnership with the second defendant), and the third defendant, one of their employees. On Friday 4 January 1985, Z. took the altered payment order to the Tunisian bank, which executed it by debiting the plaintiffs' account and, by telex, instructed Lloyds Bank in London to credit B. Ltd.'s account with $518,822.92 with a value date of Monday 7 January, and also by telex gave instructions to its correspondent bank in New York to reimburse Lloyds Bank with a similar amount. Lloyds Bank acted on those instructions and on 7 January credited B. Ltd.'s account with the sum and, in doing so, took a delivery risk since it made the payment five hours before the opening of business in New York and before confirmation of the receipt of cover. Meanwhile the plaintiffs had discovered the fraud and by 7 January had discovered that it was the latest in a series of frauds by Z. Shortly after Lloyds Bank had credited B. Ltd.'s account, they received a telex from the Tunisian bank which attempted to stop the payment or get B. Ltd. to reverse it on the ground that the payment had been made in error. B. Ltd. refused to make a refund and, on the third defendant's instruction, Lloyds Bank transferred the whole sum to the dollar account of the defendants' firm with the bank. B. Ltd.'s account was immediately closed after the transfer and the company was subsequently put into liquidation. Thereafter moneys were transferred from the account of the defendants' firm with Lloyds Bank to its client account with a bank in the Isle of Man. From that account sums were transferred overseas to various recipients with whom the plaintiffs had never had any dealings. At all times the defendants had acted in accordance with instructions from their clients.

The plaintiffs brought an action against the defendants to recover the money as money had and received or on the ground that the defendants as constructive trustees of the money had acted in breach of trust. It was not alleged that the defendants were parties to the fraud or that they had actual knowledge of it. By their defence, the defendants pleaded that they had at all times acted on the instructions of their clients and that at the time of making the payments on those instructions they had had no notice of the plaintiffs' claim to the money. They paid the remainder of the money still under their control into court.

On the hearing of the action in which the defendants claimed that it was the Tunisian bank and not the plaintiffs who had title to bring the action:—

Held, giving judgment for the plaintiffs, (1) that, although the Tunisian bank had no lawful authority to debit the plaintiffs' account on the forged instrument, the bank had in fact done so and in doing so had used the plaintiffs' money; that the bank itself had title to bring proceedings against the defendants to recover sums equivalent to the money which it had a potential liability to repay to the plaintiffs but the defendants' claim that the bank was the only proper plaintiff failed, for the plaintiffs were entitled to bring an action either against the defendants or the bank to recover moneys paid by the bank as their agents but without their authority (post, pp. 283A–E, F–284C).

Dicta in In re Diplock [1948] Ch. 465, 519, C.A. and of Robert Goff J. in Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. [1980] Q.B. 677, 699 considered.

(2) That since the money had not been mixed with any other moneys in the account of B. Ltd. and had then been transferred to the account of the defendants' firm, the plaintiffs would have had a good cause of action at common law if they had been tracing a physical asset; but that the receipt of the money by Lloyds Bank in accordance with the false instrument had been by telegraphic communication between bankers and, therefore, the plaintiffs' common law claim for money had and received against the defendants failed because no physical asset of the plaintiffs could be traced at common law to the defendants' firm; that even if the money could be traced at common law from the immediate recipient and then to the firm's account, the plaintiffs had no cause of action at common law because the defendants had accounted for the money to their principals before they had notice of the plaintiffs' claim (post, pp. 286C–F, 287G–288G, 289D).

Banque Belge pour l'Etranger v. Hambrouck [1921] 1 K.B. 321, C.A. applied.

But (3) that, since the plaintiffs' chief accountant had acted in breach of the fiduciary duty he owed to them, the plaintiffs' money could be traced in equity as trust property and the property was to be returned to them by anyone having possession of it other than a bona fide purchaser without notice of the trust; that the defendants were liable to account for any property still in their possession and, accordingly, the plaintiffs were entitled to the money the defendants had paid into court (post, pp. 290G–291A).

Chase Manhattan Bank N.A. v. Israel-British Bank (London) Ltd. [1981] Ch. 105 considered.

(4) That the defendants had no personal liability for the remainder of the plaintiffs' money unless they had the requisite degree of knowledge to establish liability to account for it as constructive trustees; that none of the defendants could be held liable on the basis of knowingly receiving the trust funds because the second defendant had never received the trust funds and the other two defendants had not received the trust funds for their own benefit, but they would be liable if they had knowingly assisted in the furtherance of a fraudulent and dishonest breach of trust; that they must have known that they were assisting in concealing the destination of the money from, inter alios, the plaintiffs and they must have at least realised that their clients might be involved in a fraud on the plaintiffs; that they were at best indifferent to the possibility of fraud and that was not honest behaviour; that, although they could have made inquiries for their own protection, it was not failure to do so that caused them to be liable to the plaintiffs but it was because they had failed in their duty to act honestly and had participated in the misapplication of the plaintiffs' property and, therefore, the first and third defendants had knowingly assisted in the fraud and were liable to refund the plaintiffs for their loss and the second defendant was vicariously liable for his partner and his employee (post, pp. 292D–F, 294A–G, 295B–D, F–296F).

Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. [1979] Ch. 250, C.A.; Baden, Delvaux and Lecuit v. Société General pour Favoriser le Développement du Commerce et de l'Industrie en France S.A. [1983] B.C.L.C. 325 and In re Montagu's Settlement Trusts [1987] Ch. 264 considered.

The following cases are referred to in the judgment:

Alms Corn Charity, In re [1901] 2 Ch. 750

Baden, Delvaux and Lecuit v. Société General pour Favoriser le Développement du Commerce et de l'Industrie en France S.A. [1983] B.C.L.C. 325

Banque Belge pour l'Etranger v. Hambrouck [1921] 1 K.B. 321, C.A.

Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. [1980] Q.B. 677; [1980] 2 W.L.R. 218; [1979] 3 All E.R. 522

Barnes v. Addy (1874) 9 Ch. App. 244

Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. [1979] Ch. 250; [1978] 3 W.L.R. 712; [1979] 1 All E.R. 118, C.A.

Chase Manhattan Bank N.A. v. Israel-British Bank (London) Ltd. [1981] Ch. 105; [1980] 2 W.L.R. 202; [1979] 3 All E.R. 1025

Colonial Bank v. Exchange Bank of Yarmouth, Nova Scotia (1885) 11 App.Cas. 84

D.P.C. Estates Pty. Ltd. v. Grey [1974] 1 N.S.W.L.R. 443

Diplock, In re [1948] Ch. 465; [1948] 2 All E.R. 318, C.A.

Jones v. Williams (1857) 24 Beav. 47

Montagu's Settlement Trusts, In re [1987] Ch. 264; [1987] 2 W.L.R. 1192

Taylor v. Plumer (1815) 3 M. & S. 562

Underwood (A.L.) Ltd. v. Bank of Liverpool [1924] 1 K.B. 775

United Australia Ltd. v. Barclays Bank Ltd. [1941] A.C. 1; [1940] 4 All E.R. 20, H.L.(E.)

The following additional cases were cited in argument:

Avon County Council v. Howlett [1983] 1 W.L.R. 605; [1983] 1 All E.R. 1073, C.A.

Bankers Trust Co. v. Shapira [1980] 1 W.L.R. 1274; [1980] 3 All E.R. 353, C.A.

Bell's Indenture, In re [1980] 1 W.L.R. 1217; [1980] 3 All E.R. 425

Brook v. Hook (1871) L.R. 6 Exch. 89

Foley v. Hill (1848) 2 H.L. Cas. 28, H.L.(E.)

Joachimson (N.) v. Swiss Bank Corporation [1921] 3 K.B. 110, C.A.

King v. Stewart (1892) 66 L.T. 339

London Joint Stock Bank Ltd. v. Macmillan [1918] A.C. 777, H.L.(E.)

Ministry of Health v. Simpson [1951] A.C. 251; [1950] 2 All E.R. 1137 H.L.(E.)

ACTION

On 1 March 1985, the plaintiffs, Agip (Africa) Ltd., issued a writ against the first and second defendants, Barry Kingsley Jackson and Edward Norman Bowers, who practised as...

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