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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Al-Kishtaini v Shanshal  EWCA Civ 264 (23 February, 2001)
Cite as:  2 All ER (Comm) 601,  EWCA Civ 264,  Lloyd's Rep Bank 174
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE RICHARDS
QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
Friday 23rd February, 2001
B e f o r e :
LORD JUSTICE RIX
MR JUSTICE HOLMAN
| MAHMUD AL-KISHTAINI
|- and -
|FAKHRY IBRAHIM SHANSHAL
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Martin Young (instructed by Browne Jacobson for the Respondent)
Crown Copyright ©
LORD JUSTICE MUMMERY :
The Outline Facts
"Moreover,Von Claer [the claimant's banker at Ifabanque SA in Paris] informed me that he has reserved for me shares in Haussmann holding for just over half a million dollars, for allotment by the end of the month.
I shall be thankful and grateful if you would please let me know the amounts of money (net) belonging to me with you, and when it is possible to transfer them?"
"Received with thanks your fax. However, Mr Shanshal is currently out of the country for a week, but I did manage to pass on your message to him and in reply he asked me to convey to you that the $350,000 US dollars will be remitted to James von Claer by the end of the month/first few days in February. The remaining just under $150,000 will follow 10 days later."
"You are hereby authorised to debit my personal account for the sum of $500,000.00 (Five Hundred Thousand) for the purpose of Dr Mahmud Al Kishtaini."
The Judgment in Outline
i) The parties contemplated a joint venture for the export of Russian oil involving the direct financial participation of the defendant. The transfer of DM 700,000 by him to the claimant was in connection with the joint venture and was for use only in that business. It was not, as the claimant contended, a loan repayable on request, coupled with an apportionment, in a manner subsequently to be agreed, of any profits made on the Russian oil venture.
ii) There was a relationship of trust and confidence between them which put the claimant under a duty to apply the sum transferred only for the specific purpose of the joint venture. The joint venture was intended to take effect from the time of the performance of the initial contracts that the claimant had put in place. But the contracts were never performed; the business came to nothing; the joint venture never took effect; and the time from which the defendant was to participate did not arrive.
iii) The defendant was entitled to an inquiry on his counterclaim as to the use of his money by the claimant. There was a continuing breach of trust by the claimant from the time when the money was applied to his own purposes "until it was effectively repaid by inclusion in the amount of just under $500,000 transferred by the plaintiff on 5 February 1993 for the purchase of the defendant's shares in Haussmann Holdings." The judge accordingly made a declaration that the sum of DM 700,000 was held by the claimant from 10 September 1992 to 5 February 1993 upon trust and subject to a fiduciary duty on the part of the claimant to apply the same exclusively for the Russian oil venture.
iv) The transfer of just under $500,000 to the defendant on 5 February 1993 did not constitute complete repayment of the DM 700,000. It exceeded the value at the prevailing rate of exchange of the DM 700,000 due for repayment to the defendant. The claimant was entitled to claim the difference, either on the basis of the implication of a loan of the difference, or on the basis of ordinary restitutionary principles entitling him to reimbursement of the US $ transferred. The difference was DM 113,569 (or US $ 68,617.61), that being the amount by which the US $ transferred by the claimant exceeded the sum of DM 700,000. As already indicated, this difference resulted from the fall of the DM as against the US $ in the period between the payment of DM 700,000 to the claimant in September 1992 and the transfer of US $ by the claimant in February 1993.
v) The claim for the difference was, however, subject to a set off in respect of the sum found due on an inquiry ordered on the counterclaim for breach of trust regarding the use by the claimant of the joint venture payment of DM 700,000.
vi) There had not been any clear representation relied on by the defendant so as to estop the claimant from recovering any part of the difference.
vii) The claim for the difference was not based on any illegal act precluding the claimant from recovering any part of it.
"Where the Treasury are satisfied that action to the detriment of the economic position of the United Kingdom is being, or is likely to be, taken by the government of, or persons resident in, any country or territory outside the United Kingdom, the Treasury may give general or special directions prohibiting , either absolutely or to such extent as may be specified in the directions, the carrying out, except with permission granted by or on behalf of the Treasury, of any order given by or on behalf of the government of that country or territory or any person resident therein at the time when the directions were given or at any later time while the directions are in force, in so far as the order-
requires the person to whom the order is given to make any payment or to part with any gold or securities".....
"Except with permission granted by or on behalf of the Treasury, no order given by or on behalf of......any person resident in the Republic of Iraq at the time of the coming into force of these directions or at any later time whilst these directions are in force shall be carried out, in so far as the order:
requires the person to whom the order is given to make any payment or to part with any gold or securities..."
" 5 For the purposes of the directions, a resident of Iraq is any person, including any body corporate, normally resident in that country on 4 August 1990 or at any later time. A branch in Iraq of any business is treated as if the branch were a body corporate resident in Iraq. Orders given by branches outside Iraq of any body corporate resident in Iraq or by branches of any business whose head office is in Iraq are given on behalf of persons resident in Iraq, irrespective of the location of such branches. Persons resident or becoming resident in Iraq should not subsequently be treated as resident elsewhere without prior reference to the Bank of England.
Residential status should be determined by reference to the facts. Cases of doubt should be referred to the Bank of England."
i) The claimant was resident in the United Kingdom at the time of the relevant transaction;
ii) the defendant was resident in Iraq at the time of the coming into force of the Directions on 4 August 1990;
iii) the defendant was not resident in Iraq at the date of the relevant transaction (by then he had become de facto resident in Jordan);
iv) the general permissions granted in the Notice do not apply to the relevant transaction; and
v) no Treasury permission was applied for or obtained for the relevant transaction.
" I do not read section 2(1) of the 1964 Act or article 2 of the Directions as imposing an indefinite prohibition in relation to a person who was resident in Iraq at the time when the Directions came into force. If such a person ceases to be resident in Iraq, then the prohibition ceases to apply to him; just as, in the case of a person who was not resident in Iraq at the time when the Directions came into force, the prohibition begins to apply in relation to him if, and from the time when, he becomes resident in Iraq."
"Accordingly I hold that the prohibition in article 2 of the Directions did not apply to an order by or on behalf of the defendant at the material time, that the plaintiff does not therefore have to rely on an illegal act in order to recover, and that the defendant's submissions founded on the Directions cannot succeed."
i) He left open the further question whether the plaintiff's transfer of funds involved the carrying out of an "order" given by or on behalf of the defendant which "required" the making of a payment or a change in the persons to whose credit a sum was to stand.
ii) The judge did not accept that, if there was a breach of the sanctions regime, it was a deliberate breach on the part of the claimant. He did not consider that any illegality was of "a character that ought to preclude recovery as a matter of public policy if it became necessary to look beyond the question of reliance by the [claimant]on an illegal act".
Construction of Directions
"And here I would add that when a regulation contains a general dispensing power such as the power that is given to the Treasury by reg.2 [ i.e the power to grant permission] it is very difficult to press to a result any argument for a limited interpretation which is based on the absurdity of its literal construction."
"...making a new regulation, not interpreting an existing one."
"....if in order to prove his rights under it he has to rely on his own illegal act..."
The Order Point
The Deliberate Breach Point
"...did not accept that, if there was a breach of the sanctions regime, it was a deliberate breach...[the claimant] sought to comply with the requirements of the regime rather than avoid them..."
" Another effect of illegality is to prevent the plaintiff from recovering under a contract if in order to prove his rights he has to rely on his own illegal act; he may not do that even though he can show that at the time of making the contract he had no intent to break the law and that at the time of performance he did not know that what he was doing was illegal."
Human Rights Point
" Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
" The objection that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice as between him and the plaintiff, by accident, if I may say so. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause if action appears to arise ex turpi causa, or the transgression of the positive law of this country, there the court says he has no right to be assisted."
"It is important to observe that, as Lord Mansfield made clear, the principle is not a principle of justice; it is a principle of policy, whose application is indiscriminate and so can lead to unfair consequences as between parties to litigation. Moreover the principle allows no room for the exercise of any discretion by the court in favour of one party or the other."
i) The Directions embody a very high public interest originating in the resolutions of the Security Council of the United Nations in an international emergency. If public interest of this degree does not fall within the exception in Article 1, it is difficult to conceive of any other matters which would fall within it.
ii) The prohibition in the Directions, the breach of which resulted in the illegality on which the claim is based, is not an absolute one. The prohibition operates in cases in which the requisite permission has not been sought and obtained. The method adopted for the protection of the public interest is the exercise of official control over relevant transactions by means of the grant and refusal of permissions. It was open to the claimant, and to any one else in a similar situation, to obtain advance clearance from the Treasury, so that he could find out precisely where he stood before entering into and carrying out a potentially illegal transaction. It was for the Treasury, acting through the Bank of England, and not for the claimant himself to judge whether it was an appropriate case for the grant of permission. The public interest in effective official control of the specified transactions, as embodied in the Directions, would not be properly served by allowing a person and his advisers to decide for themselves whether Treasury permission was required. The proper course was to apply to the Bank of England to exercise its discretion to grant permission for the proposed transaction. That precaution was available. It was not taken.
"...if anything, there is a greater risk of successful challenge under the present common law illegality rules, which provide no opportunity to assess the proportionality of allowing an illegality defence to defeat the plaintiff's claim to his or her usual rights and remedies and do not apply any test based on the public interest."
MR JUSTICE HOLMAN:
LORD JUSTICE RIX
"The range of what they prohibit, so understood, is indeed exceedingly wide, and it is this very width that lends plausibility to the suggestion that there must be implied some qualification either of the class of persons affected or of the kind of transaction that is brought under control…
"But I think that it must be so interpreted…And here I would add that when a regulation contains a general dispensing power such as the power that is given to the Treasury by reg. 2 it is very difficult to press to a result any argument for a limited interpretation which is based on the absurdity of its literal construction."
"5. For the purposes of the directions, a resident of Iraq is any person, including any body corporate, normally resident in that country on 4 August 1990 or at any later time…Persons resident or becoming resident in Iraq should not subsequently be treated as resident elsewhere without prior reference to the Bank of England.
"6. Residential status should be determined by reference to the facts. Cases of doubt should be referred to the Bank of England."
"Your firm may therefore use the funds deposited with yourselves for any legitimate purpose, and any funds due to him under Court Judgement may be paid to him however he wishes."
"I further confirm that permission is not required by your firm to pay any funds to him."
"I confirm that, on the evidence provided, I am satisfied that Mr Al-Kishtaini should no longer be regarded as a resident of Iraq. Accordingly, permission is hereby granted on behalf of H M Treasury, pursuant to article 2…"
"Mr Al-Kishtaini is currently regarded as non-Iraqi for the purposes of the [1964 Act]. He does not therefore need to obtain permission from the Bank of England in order to release funds to your client, from any accounts he holds with UK banks."
"If reg. 2 did extend to this transaction it forbade the very act of borrowing, not merely the contractual promise to repay. The act itself being forbidden, I do not think that it can be a source of civil rights in the courts of this country. It is very well to say that the respondent ought not in conscience to retain this money and that that consideration is enough to found an action for money had and received. But there are two answers to this. Firstly, when the transaction by which the money has reached the respondent is actually an offence by our laws, the matter passes beyond the field in which the requirements of the individual conscience are the determining consideration…"
The Human Rights Act point
"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
"The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
"For the purposes of [the first sentence of the first paragraph], the Court must determine whether a fair balance was struck between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights. The search for this balance is inherent in the whole of the Convention and is also reflected in the structure of Article 1."