The decision demonstrates how a good faith change of position defence can shield recipients of mistaken payments from liability in unjust enrichment claims
The High Court has rejected a restitution claim by a trade finance fund, which sought to recover approximately US$21 million paid to a commodities trader on the mistaken belief that the payments were financing genuine contracts: Rasmala Trade Finance Fund v Trafigura PTE Limited [2025] EWHC 1569 (Ch).
The court found that the payments were made by the trade finance fund under a mistaken belief due to fraudulent contracts presented by a third party, and that the commodities trader was accordingly unjustly enriched. However, the trader successfully established a change of position defence through its continued trading with the third party (which would not have continued but for the payments received), making restitution inequitable.
The decision demonstrates how a good faith change of position defence can shield recipients of mistaken payments from liability in unjust enrichments claims. It underscores the importance of verifying the legitimacy of contracts and payments in trade finance transactions, potentially leading to more stringent due diligence processes in the industry.
We consider the decision in further detail below.
Background
Rasmala Trade Finance Fund (Rasmala), a Cayman Islands fund, entered into a facility agreement with Farlin Energy & Commodities FZE (Farlin), a coal trader, to provide finance for Farlin to purchase coal. Pursuant to this agreement, Rasmala made five payments totalling over US$21 million between 2017 and 2018 (the Payments). The Payments were made to Trafigura PTE Ltd (Trafigura), an international commodities trader incorporated in Singapore.
However, Rasmala was the victim of a fraud perpetrated by Farlin. Farlin forged or doctored contracts to make it look like it was purchasing coal from Trafigura, and Rasmala made the Payments believing it was financing legitimate contracts. In fact, Farlin was an existing customer of Trafigura and used the Payments to settle its historic debts, remaining within its credit limit with Trafigura and continuing to trade.
For all except for one payment, Farlin provided Trafigura with tri-partite agreements (TPAs) purportedly signed by Rasmala, which authorised Trafigura to apply the Payments to Farlin's existing debts, rather than for the five coal purchases funded by Rasmala. These signatures were later revealed to have been forged by Farlin and Rasmala had no knowledge of the TPAs.
Rasmala brought proceedings against Trafigura on the basis that the Payments were made by mistake. The key issues in the case were whether Trafigura was unjustly enriched by the Payments and whether it had a bona fide change of position that would make it inequitable to require repayment.
Initially, Rasmala alleged that Trafigura was complicit in Farlin's fraud but later withdrew most of these allegations. The court was very critical of Rasmala's conduct of the litigation in this respect, cautioning that it is not acceptable that an allegation of fraud is made for tactical reasons just because the plea can be justified. It very much doubted, and there was no evidence to suggest, that anyone on the Rasmala side genuinely believed that Trafigura was dishonestly turning a blind eye to the fraud perpetrated against Rasmala. The allegations of fraud and dishonesty are fact-specific and are not considered further in this blog post.
Decision
The court found that Trafigura acted in good faith and was not unjustly enriched by the Payments. Rasmala's alternative proprietary claim, on the basis that Trafigura held the Payments on constructive trust, also failed. The key aspects of the decision likely to be of broader interest to financial institutions are considered further below.
Unjust Enrichment
The court summarised that, to establish a claim of unjust enrichment, a claimant must show that: (1) the defendant has been enriched; (2) the enrichment is at the claimant's expense; and (3) the enrichment at the claimant's expense is unjust. The court found that:
- Enrichment: It was undisputed that Rasmala made the Payments to Trafigura, and that Trafigura was enriched as a result.
- Claimant's expense: Trafigura submitted that the Payments were not made at Rasmala's expense, but were instead made by Rasmala as Farlin's agent and discharged Farlin's debts to Trafigura. This argument was rejected. The court concluded that the Payments were not made by Farlin, but by Rasmala. Rasmala was not acting as Farlin's agent, but rather the situation was the other way around, with Rasmala acting as the intended principal. Farlin's authority to act as Rasmala's agent was limited to the relevant contracts, which were forged and so did not exist. Accordingly, Farlin did not have actual authority to act on behalf of Rasmala, and had no authority to determine how those Payments should be used. While the TPAs provided for Rasmala to act as Farlin's payment agent, Rasmala did not know of or sign the TPAs, and so they did not bind Rasmala. In consequence, the enrichment from the Payments was at the expense of Rasmala and not Farlin.
- Unjust: A payment made because of a mistaken belief as to the true facts is an established "unjust" factor. The court held that Rasmala made the Payments on the mistaken belief that it was making payments under genuine contracts to purchase coal, when in reality the contracts were fraudulent and there was no payment obligation. It was, therefore, unjust for Trafigura to retain the enrichment.
On the basis of the above analysis, the test to establish a claim in unjust enrichment was satisfied. However, the court went on to consider whether Trafigura could escape liability under one of the defences outlined below.
Good Consideration
It is a defence to a claim for unjust enrichment that the payment was made for good consideration, in particular to discharge a debt. Trafigura alleged that the Payments discharged Farlin's debts.
The court rejected this argument because (as above) Farlin had no authority to bind Rasmala regarding application of the Payments, and Rasmala did not know of or authorise the TPAs which purported to make it Farlin's paying agent. Accordingly, the Payments did not discharge Farlin's debts.
Change of Position
A defendant can also escape liability in unjust enrichment where its position has changed. Trafigura contended it had in good faith changed its position in reliance on the Payments, which made it inequitable for it to be required to repay what it received from Rasmala.
The court applied the principles inLipkin Gorman v Karpnale [1988] UKHL 12 that a defendant must prove: (a) a causal connection between the enrichment and the change of position; (b) it has suffered detriment; and (c) that the change of position was in good faith.
- Causal Connection: Rasmala contended that Trafigura relied upon the TPAs to discharge Farlin's historic debts and so its change of position was caused by the TPAs and not the receipt of the Payments. The court disagreed, explaining that each TPA was simply a step Trafigura required to process the Payments. By mid-2017, Farlin was "struggling" to remain within its credit limit and was late in making payments. But for the Payments, Trafigura would have ceased trading with Farlin as it would have exceeded its credit limit. This was a sufficient causal connection.
- Detriment: The court found that Trafigura had suffered material detriment, because it would be financially worse off if it was required to repay the Payments in full or even in part. In addition, the court acknowledged that detriment does not necessarily mean financial detriment. Where the detriment is not quantifiable, but is "substantial and irreversible", it may be inequitable to require any repayment. Immediately before the first payment, Farlin had already reached its credit limit with Trafigura. The Payments caused it to continue trading with Farlin. Had Trafigura stopped trading and sought to recover at that point in time, it might have been able to mitigate losses. The court held that this lost opportunity to cease trading and seek to recover its then debts constituted a substantial and irreversible detriment.
- Good Faith: Rasmala asserted that Trafigura did not act in good faith in applying the Payments to discharge Farlin's historic debt. However, as far as Trafigura was aware, Rasmala was simply providing finance to Farlin and the TPAs appeared on their fact to resolve any doubt as to how the Payments could be used. Rasmala said that Trafigura was on inquiry as to whether it had consented to the TPAs. It relied on an email initially sent by Farlin when presented with the first TPA, that Rasmala would "never" sign such a TPA, and Trafigura's Treasury team having difficulty marrying up the Payments with existing invoices. The court rejected Rasmala's submission that Trafigura failed to take reasonable steps by not making enquiries directly with Rasmala, finding that there were no "red flags". The good faith requirement for the change of position defence was satisfied.
Accordingly, the change of position defence was made out and Rasmala's personal claim for restitution in unjust enrichment failed. Trafigura was entitled to retain the Payments.
Constructive Trust
Rasmala claimed in the alternative to its unjust enrichment claim that Trafigura held the Payments on constructive trust from when it had actual or constructive notice that the Payments were repayable. This argument was dismissed on the basis that Rasmala had not established that there was in fact an obligation to return the Payments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
