Relfo Ltd (in Liquidation) v Varsani

JurisdictionEngland & Wales
JudgeLady Justice Arden,Lady Justice Gloster,Lord Justice Floyd
Judgment Date28 March 2014
Neutral Citation[2014] EWCA Civ 360
Docket NumberCase No: A3/2012/2155
CourtCourt of Appeal (Civil Division)
Date28 March 2014
Between:
Relfo Limited (In Liquidation)
Respondent
and
Varsani
Appellant

[2014] EWCA Civ 360

Before:

Lady Justice Arden

Lady Justice Gloster

and

Lord Justice Floyd

Case No: A3/2012/2155

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM

High Court of Justice

Chancery Division

Mr Justice Sales

[2012] EWHC 2168 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Richard Salter QC and Mr Christopher Bond (instructed by Ross & Craig Solicitors) for the Appellant

Mr Peter Shaw and Mr Joseph Curl (instructed by CJ Jones Solicitors LLP) for the Respondent

Hearing dates: 13–14 November 2013

Lady Justice Arden

Issue for this court

1

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.

2

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.

3

The issues for this court are:

First issue: Could the court on the facts as found by it conclude that the credit to Mr Bhimji Varsani's account was in law substitute property for Relfo's money?

Second issue: Was the credit to Mr Bhimji Varsani's account received by him at the expense of Relfo for the purposes of unjust enrichment?

4

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

The principal findings about the misappropriation of Relfo's money and payment to Mr Bhimji Varsani

5

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

6

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.

7

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.

8

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.

9

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.

10

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.

11

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.

12

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

13

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.

14

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.

15

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".

16

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.

17

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.

18

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])

19

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])

20

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])

21

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...

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    • Singapore Academy of Law Journal No. 2016, December 2016
    • 1 December 2016
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    • Singapore Academy of Law Annual Review No. 2020, December 2020
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