In Relfo v Vasani [2014] EWCA Civ 360 it was held that where monies are improperly paid out of a company, they may be traced through various accounts to the end recipient, even if each of the stages in the laundering of the money cannot be identified. It is also likely to become a major authority on unjust enrichment deciding that indirect recipient of funds would be liable to give restitution where there is a sufficient degree of connection between the payment away and the receipt.
The judgment in the Court of Appeal concerned a Liquidators' ability to trace through various accounts in circumstances where they lack the evidence to show each transaction. Tracing is the process the Court adopts to enable a party whose money has been misappropriated to claim back the money, or any asset for which it has been substituted, from a person who has knowingly received it. In the decision of the Judge at first instance, it was held that the Liquidator of Relfo Limited was entitled to recover funds totalling $878,479.35 transferred out of the company by its former director. 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 Limited. In short, the facts were that Mr G, who was a director of Relfo, had close links with the Vasani family. At a time when Relfo owed substantial monies to the HMRC, Mr G transferred £500,000 out of Relfo's bank account to a company called Mirren. On the same day a company called Intertrade transferred the dollar equivalent of £500,000 to Mr Vasani's account. The Liquidator accepted that it could not point to specific transactions passing between Mirren and Intertrade.
The principal issue in the case was, in circumstances where the Liquidator was unable to show evidence of each and every transaction transferring the monies through various bank accounts of Mirren and Intertrade and ultimately being received by the Defendant, can nonetheless a tracing claim be pursued. The Court of Appeal concluded that it was entitled to draw the inference that payments were causally and transactionally linked and that the source of the monies that were received by the third party were the monies that originated from Relfo and in such circumstances the Judge allowed the tracing claim to proceed. In this way, the Liquidator was to recover the misappropriated monies from Mr Vasani. The Court of Appeal were willing to make an order even when, from a timing perspective, the Intertrade payment had been made prior to the receipt of monies by Mirren. This was so long as the payment was made on the faith of an intended arrangement and was able to infer that the series of payments had been agreed.
In the alternative the Court of Appeal held that the Liquidator had an entitlement for a claim for unjust enrichment even though Mr Vasani had received no direct benefit. This was based on a finding that director had intended that the third party receive a gratuitous benefit and that in the circumstances the Liquidator met the 'but for test', i.e. that the third party would never have been enriched but for the payment having been made. Again this finding was made based on inference and without evidence to prove all the transfers made.
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