[1993] 3 All ER 717

The plaintiff owned substantial funds and securities which were under the control of an investment manager in Geneva who was bribed to invest the plaintiff's money, without the plaintiff's authority, in fraudulent share selling schemes operated by three Canadians through the medium of two Dutch companies. The proceeds of the fraudulent share selling schemes were channelled through Geneva, Gibraltar, Panama and back through Geneva from where some of it was invested in a London property development project in conjunction with the first defendant (DLH), a property company which required financial backers for a speculative building project which it proposed to enter into. DLH was controlled by persons unconnected with the Canadians' fraud and had been acquired by those persons on the advice of S, who had been introduced to them by F, a Swiss fiduciary agent who also acted for the Canadians. DLH's affairs were conducted by its controlling shareholders and S, who was managing director of a subsidiary. F was the chairman of DLH but played no active part in its management. S had approached F for assistance in obtaining finance for DLH's property development project and F had introduced S to the Canadians, who provided £270,000 as a deposit for the purchase of a site by a DLH subsidiary, DLH London. The Canadians through various companies controlled by them provided further funding of £1,030,000 to DLH to develop the project. The Canadians had also deposited money with a company controlled by F which F had misappropriated and was unable to return. To resolve matters a meeting took place at DLH's headquarters in London at which DLH agreed to guarantee F's indebtedness to the Canadians subject to a specified limit. F resigned as a director of DLH in June for health reasons. In December the Canadians indicated that they wished to withdraw from the property development project and S was able to negotiate very favourable terms for the purchase by DLH of the Canadians' interest. The plaintiff when he discovered the fraud perpetrated by the Canadians and his agent brought proceedings against DLH to recover the money received by it from the Canadians, on the grounds that DLH had received the money with knowledge that it represented the proceeds of fraud, or alternatively, to recover the value of the Canadians' investment, on the grounds that DLH had knowledge of the fraud before it bought the Canadians out.

Held - The action would be dismissed for the following reasons-
   (1) It was not possible for the plaintiff to trace the money at common law because his money had become inextricably mixed with the money of the fraudsters, other victims and innocent third parties in the course of international clearances. However, the plaintiff could trace in equity since the fiduciary relationship necessary for such a tracing claim was clearly established by the breach of fiduciary duty on the part of the plaintiff's agent who had been bribed to invest in the Canadians' fraudulent schemes. As regards other victims who had717 simply been swindled and had no such fiduciary relationship on which to base their claim, the fraud nevertheless entitled them to rescind the contract and thus revest equitable title in themselves at least to the extent necessary to support an equitable tracing claim to follow property of which they were the equitable owners. The basis of the trust enabling the tracing claim to be made was not a remedial constructive trust but an institutional resulting trust (see p 733 j to p 734 f, post).
   (2) The victims of fraud could follow their money through bank accounts where it was mixed with other money since equity treated the accounts as charged with the repayment of their money. If the money in an account subject to such a charge was then transferred into different accounts the victims could claim a charge over each of the recipient accounts and they were not bound to choose between them. Since there was evidence to suggest that the money used by the Canadians in the DLH venture had been derived from the victims of their fraud the plaintiff could trace the money to the DLH venture even though DLH was not aware of the source of the funds it had received from the Canadians (see p 734 j to p 735 c h to p 736 a d, post).
   (3) Furthermore, it was not open to DLH to argue that the plaintiff could not trace because his money had passed through civil law jurisdictions which did not recognise the concept of equitable ownership, because foreign law had not been pleaded and proved but in any event the plaintiff's action was for 'knowing receipt' of his money and being a receipt-based restitutionary claim the proper law was the law of country where the defendant had received the property, which in the case of DLH was England. Furthermore, since the plaintiff's ability to trace his money in equity was dependent on the power of equity to charge a mixed fund with the repayment of trust money and not on any actual exercise of that power it was not necessary that each recipient of the property should have been within the jurisdiction but merely that the defendant was within the jurisdiction. Accordingly, since the property was received in England by DLH the proper law for determining DLH's obligation to restore assets to their rightful owners under equitable tracing rules was English law (see p 736 e j, p 737 d f h j, post).
   (4) In order to succeed in his claim for knowing receipt the plaintiff had to show that DLH had the requisite degree of knowledge that the funds invested by the Canadians were the proceeds of fraud. On the assumption that dishonesty or want of probity was not a precondition of liability for knowing receipt but a recipient was not expected to be unduly suspicious and was not to be held liable unless he went ahead without further inquiry in circumstances in which an honest and reasonable man would have realised that the money was probably trust money and was being misapplied, the plaintiff had failed to establish that DLH possessed through F and S the necessary degree of knowledge that the funds received by it from the Canadians represented the proceeds of fraud. In the case of F he played only a minor role in the management of DLH and his knowledge could not be attributed to the company since he could in no way be considered the directing mind and will of the company. Moreover, the information he had acquired as to the Canadians' fraud had been acquired by him in his capacity as an officer of another company and such knowledge could not be attributed to DLH unless he owed a duty to that company to communicate the information to DLH, which he did not. Accordingly, there was no basis for attributing to DLH his information about the Canadians' fraudulent activities. In the case of S, it was necessary for the plaintiff to show that S knew that the money invested in the project was trust money and that its payment constituted a breach of trust if any knowledge that S had about the fraud of the Canadians was to be attributed to DLH. However, there was no evidence that S knew that the Canadians were718 using money which they had obtained improperly and accordingly DLH could not be taken to have such knowledge (see p 739 h, 740 g h, p 741 d j to p 742 c h j, p 743 e f h and p 747 e, post).
NotesFor following trust property, see 16 Halsbury's Laws (4th edn) paras 1460-1464 and 48 Halsbury's Laws (4th edn) para 941, and for cases on the subject, see 20 Digest (1982 reissue) 900, 6706 and 48 Digest (1986 reissue) 728-738, 6687-6751.
   For knowing assistance in breach of trust, see 48 Halsbury's Laws (4th edn) para 596, and for cases on the subject, see 48 Digest (1982 reissue) 688-690, 6353-6354.

Action By a writ of summons issued on 13 June 1988 the plaintiff, Abdul Ghani El Ajou, commenced proceedings against the defendants, (1) Dollar Land Holdings plc (DLH), and (2) Factotum NV (Factotum). By his re-reamended statement of claim served in March 1992 the plaintiff claimed, inter alia, (i) damages from DLH, seeking to recover the sum of £1,300,000 being the property of the plaintiff or otherwise money traceable as money of the plaintiff in a development at 22-50 Nine Elms Lane, London SW8 on the ground that DLH received it with knowledge that it represented the proceeds of fraud, or, alternatively, the value of the investment of three Canadians, whose interest in the joint venture at Nine Elms was bought out by DLH, the plaintiff alleging that DLH acquired such knowledge before it bought the Canadians out, (ii) a declaration that the said advance was at all times the property of the plaintiff, and/or was at all times and was held by DLH and Factotum upon trust for the plaintiff absolutely, (iii) a declaration that DLH received the amount of the said advance as constructive trustee for the plaintiff absolutely and was liable to account to the plaintiff as such trustee, (iv) an719 order that there be taken an account of all money paid or payable to or received or receivable by DLH (including any profits) in respect of the aforesaid development of the site, (v) an order for the payment of the amount of the said advance and all profits earned by DLH by the utilisation thereof, and (vi) a declaration that the plaintiff was entitled to payment of all money found due on the takings of the accounts. DLH was a public limited company incorporated in England but resident for tax purposes in Switzerland. It was a holding company and its principal activities, carried on through its subsidiaries, were property dealing and investment. It denied any knowledge that the money the Canadians invested in the project represented the proceeds of fraud, and, in buying out their interest, claimed to have been a bona fide purchaser for value without notice. Factotum was a company incorporated in the Netherlands Antilles. It had no assets and had not been served with the proceedings. It was the penultimate recipient of the money, the plaintiff alleging that it was a subsidiary of DLH, but this was disputed. The facts are set out in the judgment.

12 June 1992. The following judgment was delivered.

MILLETT J. The plaintiff in this action, Mr El Ajou, is a wealthy Arab businessman resident in Riyadh. He was the largest single victim, though only one of many victims, of a massive share fraud carried out in Amsterdam by three Canadians between 1984 and 1985. He claims to be able to trace some of the proceeds of the fraud from Amsterdam through intermediate resting places in Geneva, Gibraltar, Panama and Geneva (again) to London, where they were invested in a joint venture to carry out a property development project in Battersea in conjunction with the first defendant, Dollar Land Holdings plc (DLH). The interest of the Canadians in the joint venture has since been bought out by DLH. The plaintiff seeks to recover from DLH the money which it originally received, alleging that DLH received it with knowledge that it represented the proceeds of fraud, or alternatively the value of the Canadians' investment, alleging that DLH acquired such knowledge before it bought them out. There is an alternative claim to damages for conspiracy, but that claim has not been pursued.
   DLH is a public limited company incorporated in England and resident for tax purposes in Switzerland. It is a holding company. Its principal activities, carried on through its subsidiaries, are property dealing and investment. At the material time it was in a substantial way of business. It denies that it had any knowledge that the money which the Canadians invested in the project represented the proceeds of fraud, and in buying out their interest it claims to have been a bona fide purchaser for value without notice.
   The second defendant, Factotum NV (Factotum), is a company incorporated in the Netherlands Antilles. It has no assets, and has not been served with these proceedings. It was the penultimate recipient of the money. The plaintiff alleges that it was a subsidiary of DLH, but that is disputed.

720

The frauds
   The frauds were committed through the medium of two Dutch companies, Tower Securities BV (Tower) and BV Incassobureau B & K Zuidlaren, trading under the name UC United Consultants (United). The persons who directed the operations of Tower and United were three Canadian fraudsters, Allan Lindzon (or Levinson), Lloyd Caplan, and Harry Roth (the Canadians). Tower and United carried on business as stockbrokers in Amsterdam. They operated what is known in the trade as 'boiler rooms'; that is to say they specialised in selling worthless or virtually worthless shares at high prices to gullible investors who were subjected to high-pressure salesmanship, usually over the telephone, by aggressive salesmen who would 'hype' the shares, falsely telling investors that the shares were about to be offered to the public at a higher price and that a 'quick killing' could be made if they acted without delay. In fact none of the shares was ever quoted or capable of being quoted on a recognised stock exchange, or was worth more than a tiny fraction of the price at which it was offered. The businesses of Tower and United were closed down on 1 May 1986 when their premises and those of other similar enterprises were raided by the Amsterdam police. Tower and United were declared bankrupt by the local district courts on 7 October and 4 November 1986 respectively on the application of the public prosecutor on public interest grounds. He characterised their dealings as involving fraud, deceit, embezzlement and forgery. Mr Van Apeldoorn, a member of the Bar of Amsterdam, was appointed trustee in bankruptcy of both companies. He applied to be joined in the present action as a co-plaintiff, but his application was refused by the master. He told me that, under Dutch law, he has locus standi to recover the proceeds of the fraud for the benefit of the creditors of Tower and United, including the victims of the fraud. The plaintiff has concluded a formal agreement with him to share all moneys recovered in the present action.
   Tower was incorporated in the Netherlands on 7 February 1984. It appears to have passed through three sets of beneficial owners. Initially it was owned by two Canadians, Herbert West and Stephen Polon, through a Panamanian holding company, Catalytic Ventures SA. On 22 October 1984 the shares in Tower were sold by Catalytic to another Panamanian company, La Belle Capital SA (La Belle Capital). This marked the acquisition of Tower by the Canadians. Arrangements for the incorporation of La Belle Capital were made by Mr David D'Albis, an American citizen resident in Geneva. He had recently been introduced to the two Canadians by two associates of theirs, a Mr Singer and a Mr Goldhar, and had agreed to act as their fiduciary agent. This involved making arrangements to incorporate companies, attend to all necessary formalities, open and operate bank accounts, and transfer funds on the instructions of his principals. Mr D'Albis did not find it necessary or expedient to inquire into the background of his clients or the nature of their business activities. He took his instructions over the telephone. On 19 November 1984 La Belle Capital gave Mr D'Albis a general power of attorney and authorised him to open a bank account for the company at Cie de Banque et d'Investissements in Geneva (CBI Geneva) and to be sole signatory on the account. In order to avoid disclosing the names of his principals, Mr D'Albis had to arrange for the account to be opened by a Swiss lawyer, who technically became a co-signatory; but she was not intended to operate the account and in practice Mr D'Albis was at all times sole signatory on the account.
   The documentation available in relation to United is more limited. It, too, was owned by a Panamanian holding company, Tulane Holding Corp (Tulane). Tulane was registered on 25 October 1984. On 25 May 1985 Mr D'Albis was appointed by Tulane as one of the signatories on the account of United at Amro721 Bank NV in Amsterdam. A document found on Mr D'Albis's files when the contents of his office were later seized on the orders of the examining judge in Geneva records Tulane as belonging to the Canadians and one Waldi Steemers. Mr D'Albis told me that Mr Steemers dropped out at an early stage.
   The Canadians took over an existing force of salesmen who operated from the companies' offices in Amsterdam. They were either self-employed or, more usually, employed by their own nominee companies incorporated in the Isle of Man with bank accounts in Geneva, and were paid commission at the excessively high rate of 8%. The Canadians did not, however, take over their predecessors' stock of worthless shares, but acquired their own. Nor did they make use of their predecessors' 'vendor-clients'. For this purpose Mr D'Albis arranged for the incorporation of two further Panamanian companies, Herron Holdings SA (Herron) for Tower and Wilmington Commercial SA (Wilmington) for United. In the case of each company Mr D'Albis held a general power of attorney, signed a fiduciary agreement with the Canadians, and opened a bank account in the company's name at CBI Geneva on which he was the sole signatory. The fiduciary agreement in respect of Herron is dated 20 November 1984, and that in respect of Wilmington 23 November 1984. It was submitted on behalf of DLH that the Canadians must have acquired the stream of income due to Tower and resulting from sales made by their predecessors, but there is no evidence of this and it is unlikely. Tower acted as a broker only and accounted to its 'vendor-clients' for the proceeds of the sales of shares (less only a commission at normal rates). Since West and Polon had used their own 'vendor-clients', Tower ought to have accounted, and almost certainly did account, to them for the proceeds of sales made before, but which were received after, the take-over. The bank accounts of Herron and Wilmington show no moneys being received from Amsterdam until 11 February 1985, which is consistent with the proceeds of pre-acquisition sales continuing to be paid to West and Polon.
   Mr D'Albis has confirmed the conclusion formed by Mr Van Apeldoorn from his examination of the companies' records that the Canadians' involvement with Tower and United lasted for 12 months, from about 19 November 1984 until about 19 November 1985. On the latter date La Belle Capital appointed a new attorney in place of Mr D'Albis. The accounts of Herron and Wilmington at CBI Geneva had by that date been run down to nominal sums, and were made available to the Canadians' successors by the simple expedient of altering the bank mandates. New powers of attorney and fiduciary agreements were, no doubt, entered into for the new owners, but they are not available. Mr D'Albis confirmed that he no longer had anything to do with Herron or Wilmington after November 1985.
   Mr Van Apeldoorn has estimated that, during the whole period of the fraud, some 4,000 victims were defrauded of a total of more than $US43m, of which the Canadians were responsible for approximately $20m during their year's tenure. (In this judgment all dollars are US dollars).
   The only shares traded by Tower between November 1984 and November 1985 were bearer securities in three companies, Goldseekers International Inc (Goldseekers), Sprint Resources Ltd (Sprint), and European Computer Group (ECG); and the only shares traded by United during the same period were bearer securities in Colt Computer Holdings Ltd (Colt). None of the companies had any substance. Goldseekers, for example, was a new company which Mr D'Albis caused to be incorporated in Djibouti in February 1985 on the instructions of Mr Singer. Its share capital consisted of 1�9m bearer shares of 10 cents each. Herron subscribed $100,000 for shares, but within four days virtually all the money was722 paid away, mostly back to Herron, leaving the company with a balance of £3,550 as its only asset. Its shares were traded by Tower at over $6 each.
   Shares in the other three companies were obtained with the assistance of another Swiss fiduciary agent, Mr Sylvain Ferdman, the chairman of DLH and one of the principal characters in the story, who now makes his appearance. Mr Ferdman had worked for many years for the Bank of International Credit in Geneva. In 1972 he left the bank and set up his own company, Soci�t� d'Administration et de Financement SA (SAFI). SAFI was owned jointly by Mr Ferdman and an old-established Swiss cantonal bank of good reputation. In 1982 the bank relinquished its shareholding in SAFI and Mr Ferdman became sole proprietor. Unfortunately, SAFI suffered a significant loss from this transaction from which it never recovered. It ceased to trade in May 1988 and subsequently went into liquidation.
   SAFI acted as a fiduciary agent for clients who did not wish their identities to be disclosed. On this occasion its principals were Singer and Goldhar. In November 1984 Mr Ferdman arranged for the incorporation of a Panamanian company, Dunberry Holdings SA (Dunberry), on their behalf and SAFI entered into a fiduciary agreement with them. Mr Ferdman understood that his clients wished to buy and sell shares and to subscribe for new issues both quoted and unquoted. He made no further inquiries. He was accustomed to accept funds from clients without questioning their origin, and to act for clients who were anxious to conceal their identity. He regarded the need to preserve his clients' anonymity as paramount-without it he would have no business-and to this end he was willing on occasion to present himself or SAFI as a beneficial owner and to make false statements to this effect.
   Sprint was a small and unsuccessful company of which Singer was president. It was insolvent and loss-making. It had over $3m common shares in issue. SAFI subscribed for 300,000 shares on behalf of Dunberry at a few cents each. They were traded by Tower at over $4 each. The proceeds were paid to Herron.
   ECG was a Liechtenstein company. Its only asset was a 100% shareholding in an English company called PCML Ltd (PCML). PCML had previously been owned by a Mr Fuller, who was seeking a capital investment in his company. Early in 1985 Singer and Goldhar introduced him to SAFI. They required PCML to become a subsidiary of a Liechtenstein company to be formed for the purpose. Accordingly, ECG was formed and Mr Fuller injected PCML into ECG in exchange for 6,500,000 shares in ECG. The value of PCML was in the region of £150,000. SAFI, posing as a long-term investor and pretending to be acting on its own account, subscribed $250,000 for 1m shares in ECG at 25 cents each, and had the right (which it exercised in October 1985) to subscribe for a further 1m shares at the same price; and another company run by Singer and Goldhar subscribed for 250,000 shares at one cent each.
   Unknown to Mr Fuller SAFI in fact subscribed for the shares as nominee for Dunberry and on the instructions of Singer and Goldhar. The certificates were delivered to Tower and the shares were traded between $8 and $12 each. The proceeds were paid, not to SAFI or Dunberry, but to Herron. On occasion, the shares were sold by Tower before SAFI had subscribed for them.
   Colt was acquired in similar fashion. An English company whose value cannot have been more than £100,000 was reversed into a new company formed in Liechtenstein in exchange for shares. SAFI subscribed for 500,000 shares at 25 cents each and had the right to subscribe for an additional 1�5m shares at the same price. The share certificates were delivered to United and the shares were traded at between $4 and $9 each. The proceeds were paid to Wilmington.

723

The plaintiff
   In 1985 the plaintiff owned substantial funds and securities which were deposited with the First National Bank of Chicago in Geneva (First National) and which were under the control of his investment manager, a Mr Murad. Mr Murad's authority was strictly limited. Between December 1983 and May 1985, unknown to the plaintiff and without his authority, Mr Murad used his funds to invest on his behalf in shares traded by Tower and United. The limits of Mr Murad's authority were not known to Tower or United, and nothing turns upon the fact that he acted without authority. Nor is it clear whether Mr Murad was deceived as to the value of the shares which he bought on the plaintiff's behalf. What is beyond dispute is that he was bribed. He was involved before the Canadians came on the scene. Altogether, the plaintiff's account was debited with a total of $13,051,221�59. For the purposes of the present action, however, five separate transactions between February and May 1985 have been identified in respect of which Mr Murad paid to Tower and United a total of $10,653,100 of the plaintiff's money and received commissions totalling $1,217,500 paid by Herron or Wilmington.
   The transactions and money movements are well documented. Mr Murad bought 500,000 shares in Colt at $5�15 per share, 350,000 shares in Goldseekers at $6�15 per share, and 1�5m shares in ECG at $8�15 per share; and sold the shares in Colt at $5�75 per share and the shares in Goldseekers at $6�30 per share, as well as 200,000 shares in Sprint and 200,000 shares in a company called Clarendon at $4�50 and $4�75 per share respectively. (The circumstances in which the last two shareholdings were acquired are not known.) Each transaction resulted in a net payment to Tower or United. On each occasion Mr Murad gave the sale and purchase orders by telex to Tower or United, and gave instructions to First National to pay the net amount due to Tower or United against delivery of the shares. That sum was duly debited to the plaintiff's account at First National and credited to the account of Tower or United at its bank in Amsterdam. Within a day or two of its receipt, a corresponding sum less a small brokerage commission was debited to that account and credited to the account of Herron or Wilmington at CBI Geneva. Immediately on its receipt, Mr D'Albis gave written instructions to CBI Geneva for its disbursement. Within a few days, and in accordance with those instructions, a substantial sum was transferred out of the account in which it had been received and was credited to the account of Mr and Mrs Murad at Credit Suisse Geneva.
   Of the $10,653,100 of the plaintiff's money paid to Tower and United, $10,591,312�75 was paid out to Herron and Wilmington. In addition to the commissions totalling $1,217,500 paid to Mr Murad out of moneys received by Herron and Wilmington $112,000 was paid to him direct by Tower. This probably represented commission earned by Mr Murad before the Canadians were involved.
   The plaintiff was only one of many victims of the fraud, and his money was mixed with that of many others. The total amount received by Herron and Wilmington from Tower and United during 1985 was $18,595,492, of which $12,704,329 was received by Herron and $5,891,253 was received by Wilmington. According to schedules submitted on behalf of DLH the total amount credited to the accounts of Herron and Wilmington during the relevant period was $19,374,000. The discrepancy, which is not material, is largely accounted for by the fact that the schedules include moneys which came from other sources, as well as circular payments and receipts (such as Herron's subscription for shares in Goldseekers).

724

The money goes to Panama
   The Canadians caused three Panamanian companies (the first tier Panamanian companies) to be formed in order to receive their individual shares in the profits derived from their fraudulent activities, and a large part of the money received by Herron and Wilmington was disbursed to these companies immediately after its receipt. The first tier Panamanian companies were Bangor Corp (Caplan), Egyptian Seaway Inc (Roth) and Medallion Investments Inc (Lindzon). A fourth company, Gemstone Capital Corp (Gemstone), was also formed, probably for Mr Steemers. Mr D'Albis held a general power of attorney for each company, opened a bank account in its name at CBI Geneva on which he was sole signatory, and signed a fiduciary agreement which identified his principal. In the case of Gemstone the fiduciary agreement named all three Canadians as principals.
   Of the $19,374,000 which was paid into the accounts of Herron and Wilmington, $9,547,000 was paid out to the first tier Panamanian companies, $1,217,500 to Mr Murad and $241,000 to Gemstone. Mr D'Albis identified a further $114,000 as representing his own fees, and $1,878,000 as representing payments of commission to one of the salesmen. A further $1,450,000 was paid to Zawi Resources SA (Zawi). This was another Panamanian company which Mr D'Albis had formed for the Canadians and was jointly owned by them. Mr D'Albis was unable to say for what purpose the money was applied. The balance of $4,927,000 cannot be accounted for.
   The correspondence of the dates and amounts involved means that the debits and credits can easily be matched. On this basis (which is not necessarily correct as between the plaintiff and other victims of the fraud) $6,673,440 of the money which was received by the first tier Panamanian companies represented the plaintiff's moneys.
   While the money was at the disposal of the first tier Panamanian companies, Mr D'Albis arranged for it to be invested in short-dated American and Canadian treasury bills. Towards the end of 1985 and on the instructions of the Canadians Mr D'Albis arranged for the formation of three new Panamanian companies (the second tier Panamanian companies) to hold their funds. The second tier Panamanian companies were Panarea Investments Inc (Roth), Tirena Investments Inc (Lindzon) and Lipari Investments Inc (Caplan). From November 1985, as the treasury bills were redeemed, the funds of the first tier Panamanian companies were transferred to the second tier Panamanian companies. These companies maintained accounts in the books of Valmet Investment Management Ltd of Gibraltar (Valmet Gibraltar), which banked with Lloyds Bank, Gibraltar. Valmet Gibraltar was a subsidiary of Valmet SA (Valmet Geneva), a financial institution in Geneva in which Mr D'Albis had become a partner. Valmet Gibraltar maintained an account in the books of Valmet Geneva, which banked with CBI Geneva. Appropriate money transfers were made so that, while the accounts were held in Gibraltar, the money remained in Geneva and under the control of Mr D'Albis in the accounts of Valmet Geneva at its own bank. The amounts actually transferred were in US dollars, Canadian dollars and Swiss francs reflecting the diversification of currencies in which investments were held. The total value of the moneys transferred at the rates then prevailing was $9,158,317. Thereafter the money was actively managed by Valmet Geneva on a discretionary basis and switched between various currencies.
   According to Mr D'Albis, the transfer from the first to the second tier Panamanian companies coincided with the return of the Canadians to Canada and the disposal of their interests in Tower, United, Herron and Wilmington.
   The money did not stay for long in the second tier Panamanian companies. On 25 March 1986 a sum of £90,000 was transferred from each of the companies to725 the account of Grangewoods at the Royal Bank of Scotland, London. Grangewoods were the solicitors acting for DLH and the total of £270,000 represented the deposit payable in respect of the purchase of the site in Battersea.
   A few days later, on 30 March and 1 April 1986, the accounts of the second tier Panamanian companies were closed and their funds were transferred to Panama. The arrangements were made by Mr D'Albis on Roth's instructions. The money was transferred in two stages. First, a total of $9,267,786 was transferred from Valmet Geneva to Valmet Gibraltar via Lloyds Bank, Gibraltar and (because the money was transferred in dollars) Lloyds Bank, New York. Next, a total of $9,267,500 was transferred in three tranches, two (of $5,000,000 and $2,667,500) to Banco Continental, Panama and one (of $1,600,000) to Bank of America, Panama. The difference of $286 probably represents bank charges.
   And there the trail is lost.

The fraud is discovered
   Mr Murad's purchases were brought to the plaintiff's attention in May 1985. He caused immediate inquiries to be made. By the time the fraud was uncovered, the plaintiff was the owner of 1�5m shares in ECG having an intrinsic worth of about $12,000 which had been bought at a cost of more than $13m. Mr Murad was confronted, arrested and thrown into gaol in Riyadh. He agreed to repay $1�5m to the plaintiff, and was released from prison. He has repaid $1,375,000. The plaintiff does not accept that he should give credit for this sum. The plaintiff also brought pressure on Tower to repurchase the shares which it had sold. Between August and November 1985 the plaintiff resold shares to Tower at prices at or near the prices paid for them and recovered $2,382,000. The sales affirmed the corresponding purchases, and the plaintiff agrees to give credit for the sums realised.
   In August 1987 the plaintiff commenced proceedings in Gibraltar to recover sums totalling $3,635,000 which had been transferred from Panama to Valmet Gibraltar in January 1987 and which had been frozen on the instructions of Valmet Geneva issued at the request of the Swiss authorities. The funds had been intended to be invested by Mr D'Albis on behalf of the Canadians who were proposing to use three further Panamanian companies for the purpose: Laxey Inc, Portan Holdings Inc and Unico Finance SA. Mr Van Apeldoorn was joined as a co-plaintiff in the Gibraltar proceedings in his capacity as trustee in bankruptcy of Tower and United. In 1991 proceedings were also commenced in Toronto by the plaintiff and Mr Van Apeldoorn against the Canadians, Singer and Goldhar. The Canadians made no pretence that they were not the persons behind the fraud. By this time, however, Lindzon had died, and the plaintiff and Mr Van Apeldoorn were given cause to believe that the Canadians had no significant assets in Canada and were judgment proof in that jurisdiction. The Gibraltar and Canadian proceedings were therefore compromised. The plaintiff and Mr Van Apeldoorn took 90% of the money blocked in Gibraltar (which they divided between themselves in the proportions 75:25) and allowed 10% to be released to the Canadians. The plaintiff's share amounted to $2,773,817.
   In addition, he has recovered a further £70,000 from Banque Scandinave en Suisse in Geneva (Banque Scandinave) in circumstances which I shall describe later. The plaintiff has thus recovered a total of $6,495,817 and £70,000. He agrees to give credit for all but $1,375,000 of these sums.
   In July 1985 the plaintiff's English solicitors sent a telex addressed to one of Mr Ferdman's fellow directors of SAFI seeking information. The telex disclosed the fact that in May 1985 Tower had sold the plaintiff 1�5m shares in ECG (for which, it will be remembered, SAFI had subscribed 25 cents a share) at $8�25 a share. In726 evidence to me Mr Ferdman admitted that he had been shown the telex and that it probably caused him some concern. On 16 October 1985 the plaintiff's Swiss lawyer, Mr Farina, wrote to SAFI making express allegations of fraud. Mr Farina gave many details and identified Goldhar (though not the Canadians) as being behind the fraud. He asked a number of detailed questions. Mr Ferdman took legal advice, and replied at length by letter dated 22 October. He gave particulars of SAFI's activities in relation to the impugned transactions, confirmed that SAFI was acting for a client (which he declined to identify), and denied all knowledge of the transactions entered into by Tower. Mr Ferdman's concern, which ought to have been increased by the terms of Mr Farina's letter, did not prevent him from writing on the very same day to his clients in Panama committing SAFI to a sale of a further 500,000 shares in ECG to Dunberry at 26 cents a share. In fairness to Mr Ferdman, it is possible, as he later told the examining magistrate in Geneva, that the shares had already been delivered to Tower and that his letter was merely regularising a fait accompli. Nevertheless, it must have been plain to him by now if not before that his clients were implicated in a fraud.
   Mr D'Albis was a friend of Mr Ferdman's. Their offices were close, and from time to time they had lunch together; though they had no business dealings with each other. According to Mr D'Albis, Mr Ferdman told him about Mr Farina's letter, and they discussed what they should do. Mr D'Albis told me that he had already become uncomfortable about his clients and had decided to withdraw from the association; though it is to be noted that neither his discomfort nor Mr Farina's letter was sufficient to prevent him from continuing to act for the Canadians in the management of their funds in Geneva and their eventual transmission to Panama.
   Mr Ferdman did not dispute that as a result of the conversation with Mr D'Albis he became aware that the Canadians had been involved in the fraud. He comforted himself by the reflection that his principals were Singer and Goldhar, not the Canadians. But, as he frankly (though unavoidably) admitted to me, he knew perfectly well that the scheme was a fraudulent one; that Dunberry had been buying at 25 cents and selling at $8�25; that such transactions could not be honest; and that the Canadians were involved with Goldhar and Singer and not just behind them.
   Mr Ferdman had already met Roth during a visit to Toronto in the summer of 1985, when he was introduced to him by Singer. Roth told him that he and associates of his were interested in investing in real estate in Europe, and asked him to look out for suitable opportunities for them.
   In addition to bringing civil proceedings, the plaintiff made complaint to the fraud squad in Amsterdam, and caused criminal proceedings to be instituted in Switzerland. Mr D'Albis was arrested, charged and held in custody for some months before the charges were dropped. In 1988 he and Mr Ferdman were interrogated by the examining magistrate in Geneva. According to Mr Van Apeldoorn, the Canadians had prudently adopted a policy of not including residents of Canada or the Netherlands among their victims, and they have never been prosecuted.

Dollar Land Holdings
   DLH is an English company which was formerly listed on the London Stock Exchange. In June 1985 its entire issued share capital was acquired by Keristal Investments and Trading SA (Keristal), a Panamanian company beneficially owned by a Liechtenstein foundation. In the annual reports of DLH Mr Ferdman, its chairman, described himself as the beneficial owner of Keristal, but727 that was not the case. Mr Ferdman was, as usual, acting purely in the capacity of a fiduciary agent, and regarded his instructions to preserve the anonymity of his clients as justifying him in falsely describing himself as beneficial owner. His principals, the founders and beneficiaries of the Liechtenstein foundation, were two US citizens resident in New York (the Americans), whose identity has been disclosed to me, but who the plaintiff is satisfied have no connection of any kind with the Canadians or their associates or any of the other persons involved in the fraud.
   DLH was acquired as a vehicle for the Americans' property dealings in the United Kingdom. Its business activities were under the direction of Mr William Stern, a property dealer who suffered a spectacular and well-publicised bankruptcy as a result of the 1974 property crash. He was engaged in the business of identifying opportunities for property investment and introducing them to investors willing to pay him a fee or a share in the eventual profits. Mr Stern had lived in Geneva as a boy and was acquainted with Mr Ferdman. They became friends, though they lost contact with each other for some years. Mr Stern knew that he was a fiduciary agent and had established SAFI which he believed still to be jointly owned by Mr Ferdman and a reputable cantonal bank. From time to time he suggested deals to Mr Ferdman and inquired of him whether he had any suitable investors among his clients.
   Mr Ferdman introduced the Americans to Mr Stern, who was able to recommend a successful investment in a United Kingdom property. The Americans were willing to make further investments in the United Kingdom, and Mr Stern suggested that he should look for a suitable English vehicle, if possible a quoted company, which they could acquire and use as a medium for further investment. Mr Stern found DLH, and Keristal acquired it as a pure cash shell in June 1985. Mr Ferdman and Mr Favre and Mr Jaton, two fellow directors of SAFI, were appointed directors, and Mr Ferdman was appointed chairman. They were nominee directors representing the interests of the beneficial owners. They played no part in the conduct of DLH's business. That was carried on by Mr Stern in consultation with the Americans.
   Mr Stern was not a director of DLH, but he was appointed managing director of Dollar Land Management Ltd, a subsidiary of DLH. He held no ordinary shares in DLH, but was allotted convertible deferred shares which could be converted into ordinary shares if the net asset value of DLH was doubled within a period of three years. Mr Stern succeeded in achieving the target, and his deferred shares were converted into ordinary shares in December 1986. The shares represented 24�5% of the equity, and were held by Mr Stern and members of his immediate family.
   The board was strengthened by the appointment of Mr Babet, a Paris lawyer, in April 1987 and by Mr Fielding, the senior partner of Grangewoods, and Mr Herzka, a New York lawyer, in May 1987. Mr Ferdman, who had undergone open heart surgery in December 1986, resigned as director in June 1987 and Mr Fielding was appointed chairman in his place.
   DLH was in a substantial way of business, and was able to raise very large sums on the security of its assets. At the end of 1986 it had secured bank loans and other mortgage creditors of more than £10m. By the end of 1987 that figure had risen to more than £30m.

The Nine Elms project
   The Nine Elms project was introduced to DLH in February 1986. It involved the speculative purchase of a piece of waste land in Battersea without the benefit of planning permission but with a view to residential development. Mr Stern728 asked Mr Ferdman if he could find an investor willing to put up equity finance. This method of finance was and still is normal practice for DLH. Mr Ferdman, who was to receive an introductory commission of 5% of the funds obtained, brought Roth to London in March 1986 and introduced him to Mr Stern. Together they inspected the site. It is possible that Lindzon was also present. Mr D'Albis was not. Mr Stern was made aware that Roth was acting for a consortium of three Canadians. Mr Stern provided Roth with a detailed 'investment proposal' which included a profit forecast.
   All negotiations were conducted between Roth and Mr Stern. Mr Ferdman played no part. By a letter dated 20 March 1986 and addressed to Roth c/o SAFI in Geneva, Mr Stern set out the terms which had been agreed between them. The contract for the purchase of the site was to be signed by Dollar Land (London) Ltd (DLH London), a subsidiary of DLH. Roth was to make a sum of £270,000 available by 24 March to enable contracts to be exchanged, such sum to be paid into Grangewoods' client account at the Royal Bank of Scotland and to be used exclusively for the payment of the deposit on exchange of contracts. If contracts were not exchanged the money was to be returned. Mr Stern recorded that it was DLH's intention, after exchange of contracts but before completion, to enter into a joint venture with a builder of national repute under which the builder would undertake the development at its own cost in return for a share of the profits realised from the sale of completed units. Subject to such a contract being signed, Roth was to make available a further sum of £1,030,000 two days before the contractual date for completion, on receipt of which DLH was to complete the purchase of the site for £2�7m. In return, Roth was to receive an 'interest factor' together with 50% of the profits realised by DLH for the project.
   On 25 March Mr Ferdman copied the letter by telex to Mr D'Albis, who gave instructions on the same day to Valmet Geneva's bank to transfer the sum of £270,000 to the Royal Bank of Scotland for the account of Grangewoods. As I have already mentioned, a sum of £90,000 was debited to the account of each of the second tier Panamanian companies on the same day. Subsequently, Mr Ferdman sent a duplicate of the telex in the form of a letter on DLH's headed paper but over his own signature, dated 7 April, and addressed to Yulara Realty Ltd (Yulara) in Panama. Yulara was yet another Panamanian company owned by the Canadians. It had not been formed by Mr D'Albis or Mr Ferdman and was not controlled by either of them, though Mr Ferdman knew that it was a vehicle for the Canadians' investment in the Nine Elms project. Mr Ferdman retained on his own files a copy of the letter countersigned by a Panamanian lawyer on behalf of Yulara by way of acceptance, but he did not forward a copy to Mr Stern until much later.
   The terms of Mr Ferdman's telex and subsequent letter differed from those of Mr Stern's letter of 20 March to Roth in two respects. First, the Canadians' obligation to provide £1,030,000 for completion was replaced by an obligation to provide 'a global guarantee of £1,3 million [sic]': other terms of the telex show this to be an error for £1�03m. Secondly, an additional term required Yulara to be given five days' notice to provide the money. Mr Stern had nothing to do with the changes, which I infer to have been made at the request of the Canadians.
   Contracts for the purchase of the site were exchanged on 26 March. The purchaser was DLH London. The £270,000 which Grangewoods had received on the previous day was used to pay the deposit. On 11 June 1986 DLH London assigned the benefit of the contract to DLH for £100,000, and on the same date DLH entered into a contract for the sale of the site to Regalian Properties (Northern) Ltd (Regalian) for a purchase price equal to 40% of the aggregate gross proceeds of sale of the flats, garages and parking spaces to be constructed on the729 site. Regalian was to pay £1�7m on account of the purchase price immediately and the balance as the completed units were sold and was to undertake the construction work. Completion took place on the same day. The purchase price of £2�7m was paid to the vendor and the site was transferred at the direction of DLH London to Regalian. The transfer records £1�7m of the purchase price as paid by Regalian and £1m as paid by DLH.

The funding of the project
   On 6 May 1986 Yulara entered into an agreement with Keristal by which Yulara agreed to make $2.5m available to Keristal in order to obtain a bank guarantee of £1�3m in favour of DLH. Keristal undertook to raise the funds 'in order to make a joint venture in a certain real estate investment in London' and 'to grant [sic] a bank guarantee of £1�3 million to be issued in favour of [DLH] or another company owned by [DLH]'. The word 'grant' is obviously an error for 'obtain'. The wording of the agreement is consistent with Keristal being used as a vehicle for the Canadians to make their investment in the project rather than as a vehicle for DLH to receive the funds. The agreement was signed on behalf of Keristal by Mr Ferdman and on behalf of Yulara by the Panamanian lawyer. On 12 and 16 May respectively two sums of $1,541,432 and $1,143,000, making a total of $2,684,432, were credited to an account of Keristal (the Keristal No 2 account) at Banque Scandinave. The account was operated by SAFI and was used exclusively for the purpose of funding the Nine Elms project. The sum of $1,541,432 is shown in the bank statement as having been received from the Bank of America. The source of the other sum is not shown.
   Pursuant to arrangements made by Mr Ferdman, Scandinavian Bank Group plc in London (Scandinavian Bank) now agreed to advance £1�3m to Factotum. The advance was supported by a guarantee given by Banque Scandinave secured on the moneys in the Keristal No 2 account.
   £2,445,598�60 was required on completion, of which £2,430,000 represented the balance of the purchase price (£2�7m less the deposit of £270,000 already paid) and £15,598�60 represented interest for the late completion. This was discharged as to £1�7m by Regalian and as to £745,598�60 out of moneys in Grangewoods' client account.
   The whole of the loan from Scandinavian Bank to Factotum was drawn down and £1,030,000 was paid to Grangewoods on 29 May. £150,000 was remitted by Grangewoods in accordance with Mr Ferdman's instructions. According to Mr Ferdman, this sum included his introductory commission of £65,000. The other £85,000 is not accounted for, but Mr Stern accepted that the whole of the £150,000 was used to discharge obligations of DLH. The balance of £880,000 was used to discharge the amount of £745,598�60 due on completion and to make various other payments at the direction of DLH.
   The balance of the loan from Scandinavian Bank amounting to £270,000 was paid by Scandinavian Bank direct to SAFI and was credited to the Keristal No 2 account on 2 June. £209,655�43 was subsequently paid out of that account to Valmet Geneva, presumably for the benefit of the Canadians. It is not clear what happened to the balance.

Mr Ferdman's role
   There is much confusion as to the capacity in which Mr Ferdman made the financing arrangements. He had, of course, more than one capacity. In effecting the introduction of the Canadians, he acted on his own account and earned commission for doing so. In copying and signing Mr Stern's offer he was acting730 on behalf of DLH, though he exercised no independent judgment or discretion of his own but acted on instructions and merely as a nominee or fiduciary agent. In substituting Yulara for Roth he was complying with a request from the Canadians. The financing arrangements with Banque Scandinave and Scandinavian Bank were made at the insistence of the Canadians; they did not wish to send money direct to London and evolved the alternative mechanism. Mr Ferdman made the arrangements, but whether he did so as the agent of the Canadians and on their behalf, or as chairman of DLH and on its behalf in order to accommodate the Canadians' requirements, is impossible to determine: it is probably a meaningless question.
   According to Mr Ferdman, he was acting for DLH and Mr D'Albis was acting for the Canadians. Mr D'Albis denied this; according to him, he had ceased to act for the Canadians when he transmitted the money to Panama at the end of March, and he did not become involved again on their behalf until they fell out with Mr Ferdman in 1987. He thought that Mr Ferdman had taken over from him as fiduciary agent for the Canadians. Mr Stern was not consulted about the financing arrangements, and was not aware of them at the time. He denied that they had anything to do with DLH and assumed that Mr Ferdman must therefore have been acting exclusively for the Canadians. When the Canadians made the money available, Mr Ferdman told me, he ensured that it was paid into an account which was under his own control so that he could protect the interests of DLH to whom the money was ultimately to be paid. Mr Stern was extremely angry when, much later, he discovered that Mr Ferdman had called the account 'the Keristal No 2 account', since in his view it was a SAFI account held for the Canadians, and had nothing to do with DLH. This is supported by the terms of the agreement of 6 May in accordance with which the money was provided to Keristal. But whether Keristal received the money as principal or as agent for Yulara is immaterial; it did not receive the money as agent for DLH and it has not been suggested that it did.
   Factotum was a shelf company which Mr Ferdman had formed some time previously. It had been intended by Mr Stern to use it to take title to the site, in which event it would have become a subsidiary of DLH. In the event, Regalian objected, and the idea was dropped. Mr Ferdman decided to make use of it as a convenient vehicle for channelling the money to DLH. The terms of the agreement of 6 May between Yulara and Keristal indicate that both Mr Ferdman and the Canadians regarded Factotum as part of the DLH group. But in borrowing the money from Scandinavian Bank and making it available to DLH it acted as principal and not as nominee. Whatever its status and whatever the true nature of Mr Ferdman's role, its receipt of the money cannot be treated as receipt by DLH, and the contrary has not been suggested.

The Canadians fall out with Mr Ferdman
   By the end of 1986 SAFI was in serious financial difficulties and Mr Ferdman had undergone major heart surgery. He was obliged to tell the Canadians that SAFI was unable to repay $1m of their money which they had deposited with SAFI and which he had misappropriated. The money had no connection with the Nine Elms project. It had been placed with SAFI for investment. DLH did not know of the deposit which had no connection with any of its affairs.
   Not surprisingly in the light of this revelation the Canadians insisted that the money in the Keristal No 2 account should be transferred to an account outside SAFI's control. In February 1987 the fund was transferred to the account of HRH, 731a Djibouti company controlled by Mr D'Albis on behalf of the Canadians, but similarly hypothecated to secure repayment of the loan to Factotum.
   When the Canadians demanded the repayment of their money, Mr Ferdman sought Mr Stern's advice. At first Mr Stern thought that Mr Ferdman would be able to sort out his difficulties with them, but by February 1987 he realised that Mr Ferdman was not in a position to repay the money, and understood that the Canadians were threatening to report the matter to the Swiss police. Mr Ferdman begged Mr Stern to help him out, and Mr Stern agreed to do so. He did so for several reasons, but his main reason was that it would be highly embarrassing to DLH for its chairman to be arrested and charged with stealing $1m from a client.
   A meeting took place on 16 February 1987 at DLH's London office. It was attended by Mr Ferdman, Mr Stern, Mr D'Albis and two of the Canadians. This was the first and only occasion on which Mr Stern and Mr D'Albis met. Mr D'Albis was introduced to Mr Stern as a fiduciary agent who was acting for the Canadians. They demanded that they should be repaid their money. In Mr Stern's presence they repeated their threat to report the matter to the Swiss police. I find it impossible to judge whether the threat was genuine or whether the Canadians were bluffing; but I am satisfied that Mr Stern, who had no reason not to, took the threat seriously.
   By the end of a two-hour meeting terms were agreed which Mr Stern confirmed by letter to Mr D'Albis the same day. By the letter DLH guaranteed repayment of Mr Ferdman's indebtedness to Mr D'Albis' clients limited to 15% of DLH's beneficial entitlement in the Nine Elms project, and assigned to Mr D'Albis' clients a 15% share in the project by way of security. The Canadians were far from happy with this. They pressed Mr Stern for more; but they had to be satisfied with what they got. Mr Stern did not consult the Americans, but he reported to them that same afternoon and obtained their approval.
   The transaction was strongly criticised by counsel for the plaintiff, but I do not regard it as commercially incapable of justification. DLH was guaranteeing the repayment of a debt due from its own chairman. It would be extremely embarrassing to DLH if the debt were not discharged. It was not giving money away; if the guarantee was called on, Mr Ferdman would remain liable to reimburse DLH. DLH was paying substantial fees to Mr Ferdman, and Mr Stern saw his future earnings from DLH as a potential source of repayment.
   In addition, Mr Stern had a personal interest in helping Mr Ferdman. He had persuaded the Americans to invest in DLH. He had introduced Mr Ferdman to them. They trusted Mr Stern, but their trust was not limitless. They did not make him a director. If Mr Ferdman had been arrested and charged with theft while still chairman of DLH, it would have severely damaged Mr Stern's relationship with the Americans.
   Mr Ferdman resigned as chairman and director of DLH in June 1987. He did so primarily for health reasons. It is not clear whether Mr Stern had pressed him to resign, but his resignation was not unwelcome to Mr Stern, who was worried that Mr Ferdman's financial position might yet prove an embarrassment.

The Canadians are bought out
   In December 1987 Mr Ferdman, who by then had no formal connection with DLH, telephoned Mr Stern and told him that the Canadians were anxious to withdraw from the joint venture without waiting for the completion of the sales programme. This suited Mr Stern very well, as he had discovered that for technical reasons DLH was unable to raise finance on the security of its interest732 in the project, and it enabled him to contemplate the possibility of selling out the whole investment to Regalian. Mr Ferdman gave Mr Stern no explanation for the Canadians' sudden desire to repatriate their funds, which may not have been unconnected with the freezing of their money in Gibraltar and the course of the criminal investigations in Geneva. But it was not in itself suspicious. There had been a sharp fall in stock market prices on both sides of the Atlantic on 'Black Monday' in October, the property market had turned flat, and there could well have been good commercial reasons for the Canadians wishing to realise their investment sooner rather than later.
   Roth came to see Mr Stern on 18 December 1987, and Mr Stern agreed to arrange for DLH to buy out the Canadians' interest in the Nine Elms project for the sum of £2m payable no later than 31 January 1988 in return for the release of DLH from the guarantee which it had given to assist Mr Ferdman. Mr Stern did not ask Roth why the Canadians wanted to be bought out. He played 'hard to get', and stressed that an early pay out would be highly inconvenient to DLH. He was a tough negotiator and took full advantage of his superior bargaining position to obtain a very good deal for DLH. As he conceded in evidence, £2m was significantly less than the value of the expected return on Yulara's investment discounted for early payment.
   Grangewoods duly drew up formal documentation between DLH and Yulara to carry this agreement into effect, but it was never signed. Meanwhile, Mr Stern opened negotiations with Regalian for the sale to Regalian of DLH's 40% interest in the project. As soon as he was confident that Regalian would proceed, he met Roth in New York and confirmed his willingness to complete the purchase of Yulara's interest. There is no evidence that Mr Stern told Roth of his own negotiations with Regalian. Roth undertook to reinvest part of the proceeds in another property deal in the United Kingdom which Mr Stern was contemplating.
   A few days before the expected completion with Yulara, Mr Stern received a telephone call from Roth who told him that, owing to the sudden deterioration of the health of one of his partners, the Canadians had decided to divide up their investment funds earlier than expected and would not be reinvesting any part of the funds they were due to receive from DLH. Mr Stern was furious, but he seized the opportunity to secure a reduction in the amount payable by DLH to £1�75m. A formal agreement to this effect was signed on 16 March.
   The sum of £1�75m was paid by DLH on the same day. This was possible because on 9 March DLH had concluded the sale of its interest in the project to Regalian for £4�65m. The £1�75m was paid direct to Yulara. The original financing arrangements by which Yulara had provided its contribution to the project were allowed to unwind automatically. Factotum was unable to repay the loan from Scandinavian Bank, which duly called upon the guarantee of Banque Scandinave. Banque Scandinave in turn recouped itself from the money in the HRH account. The balance in that account, amounting to approximately £70,000, was eventually recovered by the plaintiff.

Tracing the money
   In Agip (Africa) Ltd v Jackson [1992] 4 All ER 451 at 466, [1991] Ch 547 at 566 Fox LJ restated the principle, settled by Re Diplock's Estate, Diplock v Wintle [1948] 2 All ER 318, [1948] Ch 465, that it is a prerequisite of the right to trace in equity that there must be a fiduciary relationship which calls the equitable jurisdiction into being. This makes it necessary to consider separately the common law and equitable tracing rules. In the present case, it is manifestly impossible to follow733 the money at common law. The international transfers of money were made electronically; the plaintiff's money was mixed, not merely with the money of other victims or of the fraudsters themselves, but with the money of innocent third parties in the accounts of Valmet Geneva and Valmet Gibraltar, and passed on several occasions through the clearing systems of New York and London; while the back-to-back financing arrangements with Banque Scandinave and Scandinavian Bank would seem to present an insuperable obstacle to the common law, even if it had not lost the trail long before.
   As counsel for DLH properly concedes, however, none of these features creates a problem for equity. Nor has the plaintiff any difficulty in satisfying the precondition for equity's intervention. Mr Murad was the plaintiff's fiduciary, and he was bribed to purchase the shares. He committed a gross breach of his fiduciary obligations to the plaintiff, and that is sufficient to enable the plaintiff to invoke the assistance of equity. Other victims, however, were less fortunate. They employed no fiduciary. They were simply swindled. No breach of any fiduciary obligation was involved. It would, of course, be an intolerable reproach to our system of jurisprudence if the plaintiff were the only victim who could trace and recover his money. Neither party before me suggested that this is the case; and I agree with them. But if the other victims of the fraud can trace their money in equity it must be because, having been induced to purchase the shares by false and fraudulent misrepresentations, they are entitled to rescind the transaction and revest the equitable title to the purchase money in themselves, at least to the extent necessary to support an equitable tracing claim: see Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 387-390 per Brennan J. There is thus no distinction between their case and the plaintiff's. They can rescind the purchases for fraud, and he for the bribery of his agent; and each can then invoke the assistance of equity to follow property of which he is the equitable owner. But, if this is correct, as I think it is, then the trust which is operating in these cases is not some new model remedial constructive trust, but an old-fashioned institutional resulting trust. This may be of relevance in relation to the degree of knowledge required on the part of a subsequent recipient to make him liable.
   Subject to two points, counsel for DLH concedes that the plaintiff can successfully trace the money from Amsterdam to London. He submits (1) that the plaintiff has not established that the money which reached the Keristal No 2 account on 12 and 16 May 1986 represented the money which was last seen leaving Gibraltar for Panama on 30 March and 1 April 1986, and (2) that the equitable remedy depends on the continuing subsistence of the plaintiff's equitable title, and cannot be invoked where the money is transferred to recipients in civil law jurisdictions like Switzerland and Panama which do not recognise the trust concept or the notion of equitable ownership.
   I reject both submissions.

(1) Tracing through Panama
   It is, of course, beyond dispute that the money which was received in the Keristal No 2 account was the Canadians' money. It is, however, true that the plaintiff is unable by direct evidence to identify that money with the money which Mr D'Albis had sent to Panama only a few weeks before. If the question arose in proceedings between the plaintiff and the Canadians, then, in the absence of evidence to the contrary, the court would draw the necessary inference against the latter, for they would be in a position to dispel it. But DLH is not; it is as much in the dark as the plaintiff.

734

   Nevertheless, in my judgment there is sufficient, though only just, to enable the inference to be drawn. One of the two sums received in the Keristal No 2 account was $1,541,432 received on 12 May 1986 from Bank of America. That corresponds closely with the sum of $1,600,000 transferred to Bank of America, Panama on 1 April 1986. In relation to the later transaction, Bank of America may, of course, merely have been acting as a correspondent bank in New York and not as the paying bank; and the closeness of the figures could be a coincidence. It is not much, but it is something; and there is nothing in the opposite scale. The source of the other money received in the Keristal No 2 account is not known, but from the way in which the Canadians appear to have dealt with their affairs, if one sum came from Panama, then the other probably did so, too.
   The plaintiff points out that the deposit was paid out of funds held by the second tier Panamanian companies immediately before they were sent to Panama, and submits that it is a reasonable inference that the rest of the money came from the same source. If the Canadians had substantial funds elsewhere to invest in the project, the plaintiff asks, why did they not use them to provide the deposit? There is force in this submission. Against it, DLH points out that, by the time the money was sent to Panama, Roth had already struck the deal with Mr Stern, and the Canadians knew that another £1,030,000 would be needed in London within a few weeks. Why send it to Panama? Far simpler to leave it in Geneva, especially when the Canadians had already decided to use it to support a back-to-back guarantee, as the terms of Mr Ferdman's telex demonstrate. There is force in this observation, too. But, in my judgment, any attempt to weigh the Canadians' motives is too speculative to form the basis of any inference. They may have decided to remove the funds at least temporarily from Geneva in order to conceal from Mr D'Albis that they were transferring their allegiance to a different Swiss fiduciary agent; or they may have decided to launder the money through Panama before making any long-term investment in Europe. Their request to be given five days' notice before coming up with the money is neutral; it may have had more to do with the time needed to arrange the back-to-back guarantee than any additional time needed to bring back funds from Panama.
   But the fact remains that there is no evidence that the Canadians had any substantial funds available to them which did not represent proceeds of the fraud. This is acknowledged by counsel for DLH. For the source of the money he points to the $1�45m received by Zawi and the payments totalling $4,927,000 made by Herron and Wilmington which cannot be accounted for. But it has not been shown that any of these moneys were still at the disposal of the Canadians in May 1986. They had many expenses to meet out of moneys received by Herron and Wilmington (commissions to salesmen, for instance, not already accounted for); and Singer and Goldhar would presumably need to be looked after.
   But, in my judgment, this is irrelevant. The money in the accounts of Herron and Wilmington represented proceeds of the fraud. It can be traced in equity from those accounts to the Keristal No 2 account as well as through Zawi or any other intermediate recipient as through the first and second tier Panamanian companies. The victims of a fraud can follow their money in equity through bank accounts where it has been mixed with other moneys because equity treats the money in such accounts as charged with the repayment of their money. If the money in an account subject to such a charge is afterwards paid out of the account and into a number of different accounts, the victims can claim a similar charge over each of the recipient accounts. They are not bound to choose735 between them. Whatever may be the position as between the victims inter se, as against the wrongdoer his victims are not required to appropriate debits to credits in order to identify the particular account into which their money has been paid. Equity's power to charge a mixed fund with the repayment of trust moneys (a power not shared by the common law) enables the claimants to follow the money, not because it is theirs, but because it is derived from a fund which is treated as if it were subject to a charge in their favour.
   Counsel for DLH, however, submits that in the present case the plaintiff is confined by his pleading. In the statement of claim he has alleged that his money was paid to the first and second tier Panamanian companies whence it eventually found its way to the Keristal No 2 account. Accordingly, counsel submits, he cannot now claim to trace it by a different route. But the plaintiff's case has not changed. He still asserts that which he must establish, viz that the money in the Keristal No 2 account was derived from the moneys in the Herron and Wilmington accounts. It is still his case that it reached the Keristal No 2 account via the first and second tier Panamanian companies; but that is not essential to his claim. DLH could not defeat the claim by proving that, although the money in the Keristal No 2 account was derived from the Herron and Wilmington accounts, it had come by a different route. Still less can it defeat the claim by demonstrating that it may possibly have done so.
   In my judgment, there is some evidence to support an inference that the money which reached the Keristal No 2 account represented part of the moneys which had been transmitted to Panama by the second tier Panamanian companies some six weeks previously, and the suggestion that it was derived from any other source is pure speculation.

(2) Tracing through civil jurisdictions
   Counsel for DLH next submits that the plaintiff's claim, whether personal or proprietary, depends on the continuing subsistence of his equitable title to the money, and cannot be established where the money had passed through the hands of recipients in civil law jurisdictions which do not recognise the concept of equitable ownership. In my judgment, this argument is not open to DLH. Foreign law is a question of fact. It must be pleaded and proved by expert evidence. The court cannot take judicial notice of foreign law, though it be notorious: Lazard Bros & Co v Midland Bank Ltd [1933] AC 289 at 297, [1932] All ER Rep 571 at 576. In the absence of evidence, foreign law is presumed to be the same as English law. In the present case no question of foreign law has been pleaded, and no evidence of foreign law has been tendered.
   But, even if the argument were open to DLH, I would reject it. In my judgment, it is misconceived. For technical reasons, the plaintiff's claim is brought in equity, where it is of a kind generally described as a case of 'knowing receipt'. This is the counterpart in equity of the common law action for money had and received. Both can be classified as receipt-based restitutionary claims. The law governing such claims is the law of the country where the defendant received the money: see Dicey and Morris The Conflict of Laws (11th edn, 1987) r 203(2)(c) and Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1979] 3 All ER 1025, [1981] Ch 105. Whatever money or property DLH received was received by it in England and, accordingly, the plaintiff's claim falls to be governed by English law, including the principles of equity. It is not necessary to consider whether the concept by which equity gives effect to the claim by permitting the plaintiff to trace his money and identify it as his in the hands of the736 recipient is procedural or substantive, since on either footing it too is governed by English law, either as the lex fori or as the law of the restitutionary obligation.
   Although equitable rights may found proprietary as well as personal claims, it has long been settled that they are classified as personal rights for the purpose of private international law. The doctrine was stated by Lord Selborne LC in Ewing v Orr Ewing (1883) 9 App Cas 34 at 40 as follows:

   In Cook Industries Inc v Galliher [1978] 3 All ER 945, [1979] Ch 439 Templeman J entertained an action in which the plaintiff claimed a declaration that the defendants held a flat in Paris together with its contents in trust for the plaintiff, and made an order compelling the defendants to allow the plaintiff to inspect the flat. The fact that the subject matter of the alleged trust was situate in France, a civil law country, was no bar to the jurisdiction.
   DLH is, therefore, answerable to the court's equitable jurisdiction as regards assets situate abroad, even in a civil law country. A fortiori, it is amenable to the court's equitable jurisdiction as regards assets which were formerly in a civil law country but which it has received in England in circumstances which are alleged to render it unconscionable for it to retain them.
   DLH's argument is based on the premise that, for the plaintiff to succeed in tracing his money in equity through successive mixed accounts, he must have been in a position to obtain an equitable charge against each successive account. Even if the premise were correct, however, it would not matter where the accounts were maintained. It would be sufficient (and necessary) that the account holders were within the jurisdiction. But, in my judgment, it is not correct. It is not necessary that each successive recipient should have been within the jurisdiction; it is sufficient that the defendant is. This is because the plaintiff's ability to trace his money in equity is dependent on the power of equity to charge a mixed fund with the repayment of trust moneys, not upon any actual exercise of that power. The charge itself is entirely notional. In Lord Portarlington v Soulby (1834) 3 My & K 104 at 108, [1824-34] All ER Rep 610 at 612 Lord Brougham LC said:

   An English court of equity will compel a defendant who is within the jurisdiction to treat assets in his hands as trust assets if, having regard to their history and his state of knowledge, it would be unconscionable for him to treat them as his own. Where they have passed through many different hands in many different countries, they may be difficult to trace; but in my judgment neither their temporary repose in a civil law country nor their receipt by intermediate recipients outside the jurisdiction should prevent the court from treating assets in the legal ownership of a defendant within the jurisdiction as trust assets. In the present case, any obligation on the part of DLH to restore to their rightful owner737 assets which it received in England is governed exclusively by English law, and the equitable tracing rules and the trust concept which underlies them are applicable as part of that law. There is no need to consider any other system of law.

Knowing receipt
   The plaintiff seeks a personal remedy based on 'knowing receipt'. As I have previously pointed out, this is the counterpart in equity of the common law claim for money had and received. The latter, at least, is a receipt-based claim to restitution, and the cause of action is complete when the money is received: see Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 512 at 527, [1991] 2 AC 548 at 572. So, in my judgment, is the former, unless arbitrary and anomalous distinctions between the common law and equitable claims are to be insisted upon. But it is necessary at the outset to identify the assets which DLH received, and the occasions upon which it received them. The plaintiff alleges that DLH received the sum of £270,000 in March 1986, and a further £1,030,000 in June 1986.
   In my judgment, however, the position is somewhat more complicated than that. The sum of £270,000 was never received by DLH. It was paid into Grangewoods' client account, and their client at the time must be taken to have been DLH London. DLH London was not a nominee or agent for DLH. As had previously been agreed between Roth and Mr Stern, it was the intended contractual purchaser of the site, and the money was to be used exclusively for the payment of the deposit on exchange of contracts. In my judgment, DLH did not receive the money at all, and DLH London did not receive it beneficially but upon trust to apply it for a specific purpose. DLH London used the money, as it was bound to do, to pay the deposit on the site, and thereby acquired for its own benefit a corresponding interest in the site which it subsequently sold and transferred to DLH. The plaintiff can follow his money through these various transactions, but the relevant asset capable of being identified as having been received by DLH is an interest in the site corresponding to the payment of the deposit.
   The sum of £1,030,000 was also paid into Grangewoods' client account, but by then their client had become DLH. The money was disbursed on the instructions and for the benefit of DLH. Only £745,598�60 was used to pay the money due to the vendor on completion, but this was the result of the arrangements which DLH had made with Regalian. So far as Yulara is concerned, the whole £1�3m must be taken to have been disbursed as agreed between them on the acquisition of a 40% interest in the project. Moreover, in my judgment, on a proper analysis of the transaction between Yulara and DLH, Yulara's money should be treated as having been invested in its share of the project, and not in or towards the acquisition of DLH's share.
   The investment proved highly successful. In itself it was not a breach of trust and caused the plaintiff no loss. Had he been able to intervene before the Canadians were bought out, he could have claimed the whole of Yulara's interest in the project; but whatever the extent of DLH's knowledge of the source of Yulara's funds, his claim would have been confined to Yulara's interest in exoneration of that of DLH. In the events which have happened, the plaintiff is in my judgment bound to treat his money as represented by Yulara's interest in the project, and must rely exclusively on the transaction on 16 March 1988 when Yulara's interest was bought out by DLH.
   By that date Yulara's interest had (unknown to Yulara) crystallised into a 50% share in a sum of £4�65m, which it sold to DLH (at an undervalue) for £1�75m. In738 those circumstances the plaintiff can, in my judgment, either affirm the transaction and claim payment of the purchase price (£1�75m) for which DLH did not obtain a good receipt or repudiate the transaction and claim an account of its share of 50% of the £4�65m (£2,325,000).
   On electing to repudiate the sale of Yulara's interest, the plaintiff could if he wished have an account of what DLH did with the £4�65m it received from Regalian, or the balance remaining after payment of the £1�75m to Yulara, in an attempt to identify it as still in the possession of DLH with a view to asserting a proprietary claim against it to the extent of £2,325,000. The plaintiff has not sought to do so, seeing no advantage in the attempt. DLH is solvent and good for £2,325,000, and there is nothing to be gained by making a proprietary claim.
   All this, of course, is dependent on the plaintiff establishing that DLH possessed the requisite degree of knowledge at the time of its purchase of Yulara's interest. DLH claims to be a bona fide purchaser for value without notice. Unfortunately, the nature of the knowledge required is highly controversial, at least where the recipient is a volunteer and the plaintiff brings a personal claim. In Re Montagu's Settlement Trusts, Duke of Manchester v National Westminster Bank Ltd [1992] 4 All ER 308 at 330, [1987] Ch 264 at 285 Megarry V-C expressed the view obiter that, in such a case, dishonesty or want of probity involving actual knowledge or wilful blindness is required. In Agip (Africa) Ltd v Jackson [1992] 4 All ER 451 at 467, [1991] Ch 547 at 567 Fox LJ expressed the view that dishonesty is not required, and that knowledge of any circumstances which would indicate the facts to an honest and reasonable man, and knowledge of circumstances which would put an honest and reasonable man on inquiry, are sufficient.
   That was a case of knowing assistance, not knowing receipt, and it is not clear whether Fox LJ's remarks were intended to apply to the former. But they must at least cover the latter. In Eagle Trust plc v SBC Securities Ltd [1992] 4 All ER 488 at 509-510, [1993] 1 WLR 484 at 506-507 Vinelott J based liability firmly on inferred knowledge and not on constructive notice. For my own part, I agree that even where the plaintiff's claim is a proprietary one, and the defendant raises the defence of bona fide purchaser for value without notice, there is no room for the doctrine of constructive notice in the strict conveyancing sense in a factual situation where it is not the custom and practice to make inquiry. But it does not follow that there is no room for an analogous doctrine in a situation in which any honest and reasonable man would have made inquiry. Vinelott J held that knowledge might be inferred if the circumstances were such that an honest and reasonable man would have inferred that the moneys were probably trust moneys and were being misapplied. He left open the question whether a recipient might escape liability if the court was satisfied that, although an honest and reasonable man would have realised this, through foolishness or inexperience he did not in fact suspect it.
   That question does not arise in the present case. In the absence of full argument I am content to assume, without deciding, that dishonesty or want of probity involving actual knowledge (whether proved or inferred) is not a precondition of liability; but that a recipient is not expected to be unduly suspicious and is not to be held liable unless he went ahead without further inquiry in circumstances in which an honest and reasonable man would have realised that the money was probably trust money and was being misapplied. That approach is in accordance with the preponderance of judicial authority in this country and New Zealand, and is consistent with an analysis of the underlying trust as a subsisting trust. Moreover, I do not see how it would be possible to develop any logical and coherent system of restitution if there were739 different requirements in respect of knowledge for the common law claim for money had and received, the personal claim for an account in equity against a knowing recipient and the equitable proprietary claim. In the present case, for example, it would be illogical and undesirable to require the plaintiff to assert a proprietary claim he does not need in order to avoid the burden of having to prove dishonesty or ask the court to infer it.
   I turn, therefore, to the allegation that by June 1988, if not before, DLH possessed the necessary degree of knowledge that Yulara's funds represented the proceeds of fraud. DLH is a body corporate, and establishing knowledge on the part of an artificial person involves identifying particular individuals and attributing their knowledge to it. For this purpose, the plaintiff has singled out Mr Ferdman and Mr Stern as persons alleged to have possessed the necessary knowledge at the relevant time.

Mr Ferdman's knowledge
   I could not bring myself to describe Mr Ferdman as an honest man. He was deeply implicated in the original fraud. He was willing to assist his clients by pretending that SAFI was a long-term investor when he knew that it was nothing of the kind and that Dunberry intended to market the shares as soon as it acquired them. He must have realised that his clients' scheme was dishonest. He probably suspected the nature of the fraud from the start. At first he thought that Goldhar and Singer were his clients; when he was introduced to Roth in Toronto in the summer of 1985 he did not connect him with the fraud. But he knew of the Canadians' involvement by the end of 1985. The service which he gave his clients was to provide them with the means of concealment. He was prepared to lie to the authorities rather than risk divulging a client's identity. He told me that he was careful that SAFI should not charge substantial fees for its services because he was afraid that, if it did so, it might be regarded as a participant in its client's transaction. That was a highly revealing observation. He obviously realised that his clients' transactions might be questionable. He preferred not to know why his clients needed to keep their activities hidden from the light of day. As he admitted to me, he could not function at all if he had to inquire what his clients were up to. Wilful blindness was part of his job description.
   Despite all this, I have no hesitation in describing Mr Ferdman as an honest and truthful witness. He was disarmingly frank. He did not dissemble. He made no attempt to excuse his conduct. He freely admitted that he knew that the persons who were providing the money for the Nine Elms project were the persons who had been behind the fraud in Amsterdam; and that by 7 April 1986, when he signed the letter to Yulara, he knew (or assumed) that the money which he would be receiving into the Keristal No 2 account was part of the proceeds of the fraud.
   The plaintiff submits that Mr Ferdman's knowledge should be attributed to DLH because (i) he was the chairman of DLH and (ii) he was instrumental in obtaining the money for DLH and should be treated as the agent of DLH in relation to the very transaction in question. I reject both submissions.
   Since a company is an artificial person, the knowledge of those who manage and control it must be treated as the knowledge of the company: see J C Houghton & Co v Nothard Lowe & Wills Ltd [1928] AC 1, [1927] All ER Rep 97 and Re Montagu's Settlement Trusts [1992] 4 All ER 308 at 328, [1987] Ch 264 at 283. This is nothing to do with the law of agency. Those who 'constitute the directing mind and will of the company' are the company for this purpose: Tesco Supermarkets Ltd v Nattrass [1971] 2 All ER 127 at 145, [1972] AC 153 at 187. Their minds are its mind; their intention its intention; their knowledge its knowledge.

740

   Where the company is a one-man company, or all the directors possess the relevant knowledge, there is ordinarily no difficulty. Where the directors are merely nominees with no executive authority, or where only one of several directors has the necessary knowledge, different considerations come into play.
   DLH was not a one-man or nominee company. Unlike the other offshore companies administered by a fiduciary agent which have featured in this narrative, it was not merely a vehicle for the concealment of the identity of the beneficial owners of moneys in a bank account. It carried on a substantial and genuine business. From April 1987 onwards it had an executive board of directors which met four to six times a year in Paris or Geneva. In 1986 its directors were all officers of SAFI, but they were merely nominee directors representing the interests of the Americans. Mr Ferdman was a non-executive director. His only executive responsibilities were to act as a fiduciary agent, represent the interests of the Americans, and ensure that the necessary corporate documentation was in order. The witnesses agreed that, in the early days of DLH, Mr Ferdman played a bigger role than he did; but I do not think that that was due to any change in his role. He was always responsible for the formal paperwork, but not for the business. As the business expanded, so his relative importance diminished. Even in 1986, he played no part in business decisions. These were taken by Mr Stern in consultation with the Americans. In my judgment, Mr Ferdman's position as chairman and non-executive director of DLH was insufficient by itself to constitute his knowledge ipso facto the knowledge of DLH.
   It has not been alleged, still less established, that the other two officers of SAFI, who with Mr Ferdman constituted the board of DLH in 1986, shared Mr Ferdman's knowledge of the source of the Canadians' money, but in my judgment it would make no difference if they did. Like Mr Ferdman, they were merely nominee directors with non-executive responsibility. They had no authority to take business decisions. In relation to its business affairs in 1986, neither Mr Ferdman alone nor the board as a whole can realistically be regarded as the directing mind and will of DLH.
   Nor is it accurate to describe Mr Ferdman as having acted as the agent of DLH in obtaining the money from the Canadians. He introduced the Canadians to DLH as a potential source of finance, but he did so on his own account and for a commission and not as agent for DLH. He played no part in the negotiations between the Canadians and DLH. These were conducted exclusively between Roth on the one hand and Mr Stern on the other. He was not responsible for the decision to accept the Canadians' money. That was made by Mr Stern, or by Mr Stern in consultation with the Americans. Once the decision had been taken, Mr Ferdman assisted in its implementation, but purely in an administrative capacity. He had formal authority only. He had no authority to commit DLH to a transaction without express instructions from Mr Stern or the Americans. It is true that it was his signature on the letter of 7 April 1986 that formally committed DLH to the transaction; but to fix DLH with his state of knowledge on this ground alone would elevate form over substance, and contravene the rule that to affect the principal with the knowledge of his agent, the knowledge must have been acquired by the agent in the course of the same transaction. Knowledge acquired privately or in the course of a previous transaction, however closely connected with the transaction in which the question of knowledge is relevant, is not sufficient. Mr Ferdman knew that the Canadians' money represented the proceeds of fraud, but he knew this before he introduced them to Mr Stern, and he knew it because he had acted for their associates, not because he was acting for DLH.

741

   Moreover, even where the relevant knowledge is acquired by the agent in the course of the same transaction, his knowledge will be attributed to the principal only if the circumstances were such that it was his duty to communicate it to the principal. Where a person is a common officer of two companies, therefore, it is not the law that any knowledge which he has acquired as an officer of one of them is automatically to be treated as the knowledge of the other: see Re Marseilles Extension Rly Co, ex p Credit Foncier & Mobilier of England (1871) LR 7 Ch App 161. Such knowledge will not be attributed to the other company unless he owes a duty to the first company to communicate his knowledge to the second company, as well as a duty to the second company to receive it: Re Hampshire Land Co [1896] 2 Ch 743 and Re Fenwick Stobart & Co Ltd, Deep Sea Fishery Co's Claim [1902] 1 Ch 507.
   Mr Ferdman acquired his knowledge in his capacity as a director of SAFI. He cannot have been under any duty to SAFI to communicate information about SAFI's clients or their associates to DLH without their authority. That would have been directly contrary to SAFI's business interests. Its raison d'�tre lay in its willingness to maintain client confidentiality. Moreover, the only result of passing Mr Ferdman's knowledge to DLH would be to risk the rejection of the Canadians' money and the loss of SAFI's commission. In the witness box Mr Ferdman accepted that he had a moral obligation to tell Mr Stern that he was being offered tainted money, an obligation which, he said, he did not discharge because he knew that, if he did, Mr Stern would reject the Canadians' money and SAFI would lose its commission. But this cannot have been an obligation owed to SAFI; and in any case Mr Ferdman's moral (and possibly legal) obligation was different. It was not to disclose what he knew to DLH, but to the authorities, or at the very least to the plaintiff and his advisers, whose identity was known to him.
   In my judgment, the facts of the present case are indistinguishable in any material respect from those in Re David Payne & Co Ltd, Young v David Payne & Co Ltd [1904] 2 Ch 608. In that case one Kolckmann was a director of company A and was also interested in company B. At a meeting of the directors of company B, at a time when he was acting in his own interest and not as a director of company A, he learned of a proposal that company B should borrow a sum of money for a purpose which was outside the scope of its business. He recommended that an approach be made to company A to borrow the money and effected the introduction. The money was advanced on the authority of the chairman of company A. Kolckmann signed the cheque; and the board of company A later ratified the transaction. The Court of Appeal refused to attribute to company A the knowledge of the intended misapplication of the money which Kolckmann had acquired in the course of the original meeting. In lending the money company A was not bound to inquire as to the proposed application of the money and, that being so, Kolckmann was under no obligation to tell company A what he knew.
   This is essentially the converse case. DLH (company A) was seeking finance, not lending it, and it was the source of the money, not its application, which was questionable; but in all other respects the facts are closely similar. At a time when he was acting in his own interest and as a director of SAFI, and not as a director of DLH, Mr Ferdman discovered that the Canadians were fraudsters and that their money had been obtained by fraud. In seeking finance on ordinary commercial terms, and in the absence of anything to put it on inquiry, DLH was not bound to inquire as to the source of the money it was offered; and, that being so, Mr Ferdman was under no obligation to tell DLH what he knew.

742

   In fact, the present case is stronger than this, for I have so far dealt with this question as if the relevant transaction were the establishment of the original joint venture in the Nine Elms project in March 1986. But, for the reasons I have stated, the relevant transaction, in my judgment, is the acquisition by DLH of Yulara's interest in the joint venture in March 1988. By then Mr Ferdman had ceased to be a director of DLH for nine months, and he had nothing at all to do with the transaction. Even if, contrary to my judgment, Mr Ferdman's knowledge should be attributed to DLH in 1986, it would be quite wrong to treat DLH as still possessing that knowledge in 1988. As Megarry V-C pointed out in Re Montagu's Settlement Trusts [1992] 4 All ER 308 at 329, [1987] Ch 264 at 284, a natural person should not be said to have knowledge of a fact that he once knew if at the time in question he has genuinely forgotten all about it. In my judgment, where the knowledge of a director is attributed to a company, but is not actually imparted to it, the company should not be treated as continuing to possess that knowledge after the director in question has died or left its service. In such circumstances, the company can properly be said to have 'lost its memory'.

Mr Stern's knowledge
   Mr Stern was not a director of DLH but he was the moving force behind its business activities in general and the Nine Elms project in particular. It is not disputed that, in relation to the Canadians' investment in the project, the knowledge of Mr Stern was the knowledge of DLH.
   To make a person liable on the basis of knowing receipt it must be established that he knew (or possibly ought to have known) not only that the money in question was trust money, but that its payment to him was a breach of trust. But the investment by the Canadians in the Nine Elms project was one which a trustee with sufficiently wide powers of investment could properly make. Unless Mr Stern knew (or possibly ought to have known) that the money was not that of the Canadians to invest but had been obtained by them by fraud, DLH cannot be made liable to restore it.
   From Mr Stern's point of view there was nothing suspicious or untoward about the Canadians' initial investment in the project. There was nothing to make him suspect that the money had been obtained by fraud; nothing to put him on inquiry as to its source. The Canadians were introduced by Mr Ferdman who, so far as Mr Stern knew, was a reputable fiduciary agent of many years standing whose business was partly owned by a Swiss cantonal bank (for Mr Ferdman had not told him of the termination of the association). The sum was not so large as to create suspicion. The terms of the deal were strictly commercial. Mr Roth conducted himself as a normal investor. He exercised 'due diligence'. He was provided with a detailed investment proposal complete with profit projections, and Mr Stern was required to report to him on a regular basis. There was nothing to suggest to Mr Stern that the Canadians were merely laundering their money and not investing it on commercial terms; and indeed I do not think that they were.
   Mr Stern told me that he did not suspect for a moment that the money had been obtained by fraud. In my judgment, he had no reason to suspect it. The plaintiff's case must, therefore, fail unless Mr Stern actually knew that the money had been obtained by fraud. He cannot have known that unless Mr Ferdman told him. Both Mr Ferdman and Mr Stern denied that he did. Their evidence is not contradicted, and I accept it.
   I was strongly pressed to infer that Mr Ferdman told Mr Stern about the Canadians from the length and closeness of their relationship. They had known743 each other for more than 40 years, and had dealt with each other for more than 25. When Mr Ferdman got into financial difficulties, it was to Mr Stern that he turned for assistance, and Mr Stern was generous in his help. But their relationship, though long, was intermittent and was not particularly close. It was primarily a business relationship. They were not close friends or confidants. In my judgment, the suggestion that Mr Ferdman would have volunteered information about his clients or their associates (and by 1986 he knew that the Canadians were associates of Goldhar and Singer) to Mr Stern is most implausible. The maintenance of client confidentiality was a guiding principle of his business life. He would not willingly have broken that principle. Even though he conceded in the witness box that strictly speaking he owed no duty of confidentiality to the Canadians because they were not his clients in relation to the relevant transactions, I do not think that he would have drawn such nice distinctions at the time in order to break the habits of a lifetime.
   Moreover, Mr Ferdman had no occasion to tell Mr Stern about the Canadians before he introduced them to him and, when he did introduce them, he had an incentive not to tell him. In the witness box Mr Ferdman volunteered the information that he did not tell Mr Stern that the Canadians had obtained the money by fraud because, had he done so, Mr Stern would have rejected the deal and SAFI would have lost its commission. I found this observation particularly illuminating, not only for what it said about Mr Ferdman but for what it said about his perception of Mr Stern. Having seen and heard Mr Stern subjected to a long and vigorous cross-examination, I find myself in complete agreement with Mr Ferdman's perception. Mr Stern had suffered a major and well-publicised bankruptcy. He was working his passage back to acceptance in the commercial world. He was beginning to regain the confidence of banks and other financial institutions. The last thing he would have wanted was to be associated with dirty money. It was not as though he needed it. Finding equity finance for property development in the United Kingdom in 1986 was not particularly difficult. I accept Mr Stern's evidence that, had he known, or even suspected, that the Canadians' money had been obtained by fraud, he would have had nothing to do with it.
   I was invited to infer that Mr Stern must have known that the Canadians were fraudsters and that the money they had invested in the project was obtained by fraud from the fact that he had been willing to help Mr Ferdman meet their demands in February 1987. The terms of the transaction were exceedingly generous, and it was suggested that this showed that Mr Stern was desperate to placate the Canadians rather than risk exposure. Mr Stern described the suggestion as 'unmitigated rubbish' and I agree. As he himself said, had he known that the Canadians were fraudsters, he would have 'felt more comfortable', knowing that they could not go to the police. But Mr Stern did not simply yield to the Canadians' demands. They asked for more and Mr Stern refused. I am satisfied that the terms of the transaction were commercially justifiable in DLH's interests, and are consistent with Mr Stern's ignorance of the source of the Canadians' money.
   In my judgment there is not a scrap of evidence that Mr Ferdman told Mr Stern anything to the discredit of the Canadians before they invested in the project or, for that matter, before he resigned as Chairman of DLH in June 1987.
   That, of course, is not the end of the matter for, as I have pointed out, the relevant date is March 1988 when Yulara was bought out. In his witness statement Mr Stern volunteered the information, which otherwise would have remained undiscovered, that in or about February 1988 Mr Ferdman called him744 on the telephone and told him that Mr D'Albis had been arrested in Geneva and was held in custody; that he himself was being questioned by a magistrate; and that the matter related to the Canadians. According to Mr Stern, he gave no details, but did make it clear that he himself was not guilty of anything untoward. Mr Stern said that he did not wish to embarrass Mr Ferdman by asking for any further information.
   In the witness box Mr Stern did not go beyond what he had said in his witness statement. What he remembered of the conversation was being told that Mr Ferdman had been called before an examining magistrate in Geneva in a case concerning the Canadians. He was familiar with Swiss legal procedures and knew that many cases which the English legal system would treat as civil claims were handled in Switzerland through the criminal justice system. He did not, therefore, assume that the Canadians were accused of engaging in what in England would be classified as criminal activity. Mr Ferdman's telephone call, he told me, did not alert him to the possibility that the Canadians had been involved in a fraud, and the thought that the money they had invested in the Nine Elms project had been obtained by fraud did not cross his mind.
   Mr Ferdman did not mention the telephone conversation in his witness statement, though he confirmed it in the witness box. He remembered very little of it, and did not recall mentioning the Canadians.
   In my judgment, unless Mr Stern was told more than he was prepared to admit, what he learned from Mr Ferdman was nothing like sufficient to convey to the mind of an honest and reasonable man the probability that the money which the Canadians had invested in the project had been obtained by them by fraud. The most he could have understood was that they might have been implicated in some way in irregular and possibly criminal conduct, but there was nothing to indicate that they were accused of fraud or to link the subject matter of the Swiss proceedings with the money which the Canadians had invested in the project. Had Mr Stern already cause to suspect the truth, Mr Ferdman's information might well have been enough to turn the scales and make it unreasonable for him not to make further inquiry. But, in the absence of other cause for suspicion, I do not accept the plaintiff's submission that what Mr Stern learned from Mr Ferdman was enough to put him on inquiry. I accept Mr Stern's evidence that he still did not suspect that the money which the Canadians had invested in the project represented the proceeds of fraud, and that his failure to press Mr Ferdman for further details was out of regard for his feelings and not from any wish not to know the truth.
   I was invited to find that Mr Stern was told more than he was prepared to admit, and to infer this from the terms on which he bought out the Canadians. They were very disadvantageous to the Canadians. They received only £1�75m for a half share in a project which Mr Stern had only just realised (without telling them) for £4�65m. It was probably not a transaction which, as between partners, a court of equity would allow to stand.
   The transaction was negotiated in two stages. In December 1987 Mr Stern agreed to pay the Canadians £2m for their interest. This was before Mr Ferdman's telephone call in February 1988, but it was after he had learned from Mr Ferdman that the Canadians were anxious to realise their investment. With hindsight, this was obviously because they knew that the net was closing in, and they wanted to repatriate their money as soon as possible. But hindsight was not available to Mr Stern, and there was nothing suspicious in itself about the Canadians' wish to realise their investment prematurely, and nothing sinister in Mr Stern's exploitation of the fact.

745

   At the second stage in March 1988, the consideration payable to the Canadians was reduced to £1�75m. Despite his denials, I think that Mr Stern was taking further advantage of the financial pressure he knew that they were under. Perhaps he was also taking advantage, consciously or subconsciously, of his knowledge that they were in some kind of trouble in Switzerland. But I can see no ground for concluding that Mr Stern must have learned more from Mr Ferdman's telephone call than he was prepared to admit, or that he must have known that the Canadians' investment in the project represented the proceeds of fraud.
   In cross-examination, Mr Stern was strongly pressed with a memorandum dated 21 March 1988, just five days after completion of the purchase of Yulara's interest, and which he addressed to Mr Favre at SAFI, who was still a director of DLH. It was in the following terms:

   The memorandum was written in reply to a note from Mr Favre, which stated:

   It was put to Mr Stern that 'Yulara's troubles' was a reference to the proceedings in Switzerland, and that the terms of his memorandum betrayed his anxiety to distance DLH from Yulara because of his knowledge that the money which Yulara had invested in the project represented the proceeds of fraud. Mr Stern denied this. He knew that the Canadians were under financial pressure, he explained, and that was all that he understood or intended by 'Yulara's troubles'. This is confirmed by his reference in the memorandum to the possibility of Yulara's liquidation. He had been concerned that DLH should not have to pay out twice for Yulara's interest. He had instructed Grangewoods to satisfy themselves that Yulara was entitled to give a good receipt for the money-a sensible precaution, given that his own offer of a participation in the project had been addressed to Roth, even though a copy of Mr Ferdman's letter to Yulara had subsequently reached his own files. Grangewoods had taken appropriate steps to746 satisfy themselves on this point, and in the circumstances, Mr Stern could not see how DLH could be affected by the Canadians' financial difficulties. That was all he was intending to convey by the second paragraph of his memorandum. In the last paragraph Mr Stern explained, he was dealing with a different matter. He was furious when he discovered that, at a time when, in his view, Mr Ferdman was acting for the Canadians, he had put their money in an account bearing Keristal's name without his knowledge or that of the Americans.
   I accept Mr Stern's explanation. I think that he did want to distance DLH from Yulara, but for understandable and proper reasons. He knew that the Canadians were under financial pressure. He contemplated the possibility that Yulara might be put into liquidation. He also knew, from Mr Ferdman's telephone conversation, that the Canadians were in some kind of trouble in Geneva. No wonder he wanted to distance DLH and the Americans from them. But to jump to the conclusion that he ought to have realised that they were probably fraudsters and that the money they had invested in the project probably represented the proceeds of fraud would, in my judgment, be quite unwarranted.
   I have had the advantage of seeing Mr Stern in the witness box and hearing him subjected to a long and rigorous cross-examination. I accept him as an honest and truthful witness. He knew that Yulara was a front for the Canadians; that they were investing offshore funds handled by a fiduciary agent; and that they did not want to be identified as the beneficial owners of the investment. But this was not a cause for suspicion: Mr Stern himself and the Americans were acting in a similar fashion in operating through Keristal and DLH. By the time the Canadians were bought out, he knew that they were under financial pressure and were anxious to realise their investment; and he had also learned from Mr Ferdman that they were involved in criminal proceedings in Geneva. In my judgment, and without the benefit of hindsight, this was not enough to convey to the mind of an honest and reasonable man that the Canadians were probably fraudsters and that the money they had invested in the project probably represented the proceeds of fraud. I accept Mr Stern's evidence that he did not know, and did not suspect, that this was the case; and that, had he done so, he would have taken legal advice before paying any money out to the Canadians.

Conclusion
   It follows that the action fails. This makes it unnecessary to consider what the proper remedy would have been if it had succeeded, bearing in mind that the plaintiff was only one of the victims of the fraud and that he has not been appointed to represent the others. Counsel for DLH submitted that he could have recovered only a proportion of the value of the assets which DLH received. I doubt that I would have accepted that submission. The court would, of course, have been concerned to protect DLH from further claims by other victims, but that could have been achieved in a number of ways. Whether the agreement between the plaintiff and Mr Van Apeldoorn would have been sufficient by itself to prevent the risk of further claims is a matter which in the circumstances I need not explore.

747

   I dismiss the action.