Bank of Credit and Commerce International (Overseas) Ltd v Akindele
| Jurisdiction | England & Wales |
| Judge | Lord Justice Nourse,Lord Justice Ward,Lord Justice Sedley |
| Judgment Date | 14 June 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J0614-2 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | A3/1998/1617 |
| Date | 14 June 2000 |
[2000] EWCA Civ J0614-2
Lord Justice Nourse
Lord Justice Ward and
Lord Justice Sedley
A3/1998/1617
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr Justice Carnwath)
Royal Courts of Justice
Strand
London WC2
Mr R Sheldon QC and Mr F Oditah (instructed by Messrs Lovell white Durrant, London EC1) appeared on behalf of the appellant claimants.
Mr G Moss QC and Mr D Marks (instructed by Messrs Finers, London W1) appeared on behalf of the respondent defendant.
Introduction
This is a claim by liquidators under both the knowing assistance and knowing receipt heads of constructive trust. The argument in this court has been mainly directed to two questions arising in relation to liability under the latter head. What must be the recipient's state of knowledge? Must he be dishonest?
The first claimant in the action is Bank of Credit and Commerce International (Overseas) Ltd ("BCCI Overseas"), a company incorporated under the laws of the Cayman Islands and at all material times a wholly owned subsidiary of Bank of Credit and Commerce International Holdings (Luxembourg) SA ("BCCI Holdings"). The second claimant is International Credit and Investment Company (Overseas) Ltd ("ICIC Overseas"), also a company incorporated under the laws of the Cayman Islands, whose affairs were at all material times effectively controlled by the BCCI group. At all material times BCCI Overseas and ICIC Overseas held full licences under Cayman Islands law to carry on banking business, in categories A and B respectively. A third claimant, Credit and Finance Corporation Ltd, is no longer a party to the action.
The defendant, Chief Labode Onadimaki Akindele, is a Nigerian citizen and a highly prominent businessman of that country. At the trial of the action before Mr Justice Carnwath the claimants contended that he was liable to account to them for US$6,679,226.33 plus interest as a constructive trustee, alternatively by way of damages for conspiracy to defraud. Since it was not suggested that the latter head of claim added anything to the former, the claim in conspiracy was and can be disregarded. The judge dismissed the action and the claimants now appeal to this court.
The judge's reserved judgment delivered on 18th December 1998 is reported at [1999] BCC 669. All references to page numbers in the judgment are to the pages in that report. Between pp. 670 and 675 there is a full and careful statement of the material facts under the headings "introduction", "the BCCI group", "the liquidation of the BCCI and ICIC groups", "the defendant's business background", "the defendant's relationship with the BCCI group", "the defendant's BCCI accounts", "the 1985 agreement" and "the divestiture agreement". Since neither side has criticised the judge's statement of the material facts in any way, it is unnecessary for them to be repeated or elaborated at this stage except in relation, first, to the 1985 agreement and, secondly, to the underlying frauds.
The 1985 agreement
The agreement was dated 10th July 1985. It is clear that it was professionally drawn, we were told by a lawyer from within the BCCI group. It was made between the defendant ("the Investor") of the one part and ICIC Overseas ("the Company") of the other part. It recited, first, that the Company was operating as an investment company, market maker and financier, secondly, that the Investor was desirous of investing US$10m in the shares of a banking group with potential for growth and good return on his investments and, thirdly, that the Company had offered to arrange for investment of the Investor's funds to the extent of US$10m in the shares of BCCI Holdings on the terms and conditions as set out therein.
Clause 1 of the agreement provided:
"The Investor will invest US$10 million through the Company in the purchase of 250,000 shares of BCCI Holdings of the fully paid up value of US$10.00 each ("the Shares") at the purchase price of US$40.00 per shares and hold the Shares for a minimum period of two years."
Clause 2 provided that the Company would take delivery of the Shares "from the sellers thereof", with transfers in blank signed by the sellers, but that the Shares would continue in the names of the present holders thereof "till such time as the same are transferred in the name of the Investor or his nominee, as per provisions hereof". Clause 3 provided:
"It is agreed between the Investor and the Company that if, at any time after the expiry of two years and up to a period of five years from the date hereof, the Investor desires to sell the shares and the accretions thereto, if any, in the form of stock dividends (Bonus Shares), the Company shall arrange for the sale of the shares, together with accretions thereto at a price that would give the Investor a return of 15% per annum on his investment, compounded annually. It is hereby expressly agreed that the Company shall be entitled to effect such purchase for itself and/or its nominee or nominees."
Clause 4 gave the Investor the option of acquiring any shares issued pursuant to a rights issue by BCCI Holdings. Clause 5 provided:
"If the Investor holds the shares for a period of more than five years, or at any time during the period of five years from the date hereof, conveys to the Company, in writing, his firm intention to hold the shares for more than five years, these shares shall be transferred to his name or to the name of a nominee, subject to the clearance of the transferee's name by BCCI Holdings and by regulatory authorities if applicable to BCCI Holdings."
Clause 6 provided that on the happening of the event mentioned in clause 5 the terms and conditions of the agreement should cease to be applicable and the Investor and the Company should be free from all the obligations thereunder save and except those mentioned in clause 7 (the Company to have the first refusal on the sale of the Shares etc).
In their statement of claim the claimants alleged that both the defendant and ICIC Overseas intended and knew that the 1985 agreement was a sham, in that ICIC Overseas never intended to sell or procure the sale of any shares in BCCI Holdings to the defendant and that the defendant never intended to purchase any shares, the agreement being merely a device for ICIC Overseas to obtain the use of the US$10m for a minimum period of two years and for the defendant to obtain a 15 per cent guaranteed return on his investment. The judge thought that the agreement was not a sham within the classical definition propounded by Diplock LJ in Snook v. London & West Riding Investments Ltd [1967] 2 QB 786, 802, though he recognised that its artificial nature might be relevant as evidence of dishonesty; see pp. 677H-678B.
I agree that the 1985 agreement was not a sham. There was no evidence to suggest that the defendant at any rate intended that it should be incapable of taking effect according to its terms. Accordingly, the requisite common intention that the agreement was not to create the legal rights and obligations which it gave the appearance of creating was absent. A mutual expectation, however definite, that the defendant would sell the shares within three years after the end of the two year period pursuant to clause 3 could not have prevented him from holding them for the full five years and having them transferred into his name pursuant to clause 5. I should add that in December 1985, at a cost to himself of US$330,680, the defendant took up a rights issue of shares in BCCI Holdings pursuant to clause 4 of the 1985 agreement; see p. 674H.
The underlying frauds
The judge had no difficulty in finding that in procuring ICIC Overseas to enter into the 1985 agreement and in procuring BCCI Overseas to pay the defendant the US$16.679m pursuant to the divestiture agreement, Messrs Naqvi, Hafeez and Kazmi acted in fraudulent breach of their fiduciary duties to the claimants; see p. 678C-E. No attempt was made on behalf of the defendant to resist that finding. The claimants' evidence left us in some doubt as to exactly what went on within the BCCI group. However, on the second day of the hearing in this court and without objection from Mr Moss QC, for the defendant, Mr Sheldon QC, for the claimants, handed in a helpful written statement explaining the underlying frauds.
On the basis of that statement the general position can be summarised as follows. In order fraudulently to boost the amount of its capital in the eyes of the regulators, its depositors and the public at large, BCCI Holdings acquired parcels of its own shares through nominees who included ICIC Overseas and an individual called Wabel Pharaon. The acquisitions were funded by dummy loans made to the nominees by companies within the BCCI group, each of which was entered in the books of both lender and borrower but as between the two of them was not intended to be serviced or repaid. However, there remained the difficulty that if a loan was not serviced or repaid, the lenders's auditors would require it to be written off, such write offs precipitating losses within the BCCI group and decreasing its reported profits. It was therefore necessary to make it look as if the dummy loans were performing normally.
In early 1985 ICIC Overseas was suffering from acute liquidity problems and needed outside money in order to give the false impression that the dummy loans that had been made...
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