Unjust enrichment, good faith and fraud in Rasmala Trade Finance Fund v Trafigura Pte Ltd

Background

Between August 2017 and March 2018 Rasmala Trade Finance Fund ("Rasmala") provided financing to a coal trader – Farlin Energy & Commodities FZE ("Farlin") – pursuant to five coal trading contracts which Farlin said it had entered into with Trafigura Pte Ltd ("Trafigura") for the supply of coal from Trafigura to Farlin (the "Contracts"). In reliance on the Contracts, Rasmala made five payments to Trafigura, totalling $21,596,630.  At the time, Farlin was a regular customer of Trafigura and had accumulated significant debt in relation to past transactions.

It transpired later that Farlin had forged or doctored the Contracts, none of which were genuine or valid. Further, it became apparent that Farlin had forged Rasmala's signatures on tri-partite agreements between itself, Trafigura and Rasmala ("TPAs") which allowed the application of Rasmala's payments to satisfy Farlin's pre-existing debt in relation to prior transactions.

Rasmala initially alleged fraud on the part of Trafigura, but at trial those allegations were narrowed down to a plea of dishonesty against Mr Harsh Jasani, the trader at Trafigura who dealt with Farlin. Further, Rasmala sought restitution of US$ 21.6 million from Trafigura on the ground of unjust enrichment. 

High court's decision

• Allegations of fraud cannot be advanced without credible evidence

Rajah J observed that the primary facts pleaded by Rasmala appeared to be consistent with both honesty and dishonesty which was fatal as where the facts are consistent with innocence, it is not open for the Court to find fraud.^[1]

Further, the judge refused to infer dishonesty from certain facts raised by Rasmala.

First, Mr Jasani's potential financial incentive in turning a blind eye to the forged documents was not indicative of dishonesty. The judge observed that most people have at some point financial incentive to be dishonest but are not.

Second, Trafigura's failure to call Mr Jasani to give evidence was also insufficient to infer dishonesty. The judge noted that Mr Jasani left Trafigura in 2019, had a busy personal and business life in India, had no apparent personal interest in the outcome of the proceedings and, in the judge's view, had no real case to answer.

Consequently, the judge determined that the allegation of dishonesty was hopeless and remarked that such serious allegation of impropriety must not be made for tactical reasons without credible evidence in support.

• The elements of a claim for unjust enrichment

The judge confirmed that in a claim for unjust enrichment the Claimant must prove that (i) the Defendant has been enriched; (ii) the enrichment is at the Claimant’s expense; and (iii) the enrichment at the Claimant’s expense is unjust.

As established in Samsoondar v Capital Insurance Co Ltd,^[2] if the Claimant proves those elements, then it is for the Defendant to prove that there is a defence.

Trafigura accepted that it was enriched from Rasmala's payments, so the judge turned to the other two elements.

After examining the effect of the arrangement between each of the three parties with each other, the judge determined that Trafigura was enriched at Rasmala's expense. This was so because, contrary to Trafigura's assertions, the payments were not made by Rasmala as Farlin's agent so that Farlin had no authority to determine how those payments should be used, as a result of which Rasmala's payments did not discharge Farlin's debts.

Finally, the judge relied on Barclays Bank v WJ Sims, Son & Cooke^[3] to determine that Rasmala's mistaken belief as to the true facts surrounding the payments constituted an unjust factor justifying restitution.

Having determined that Trafigura was unjustly enriched, the judge turned to the available defences pointing out that a claim for restitution would fail if the Defendant demonstrated good consideration or change of position.

• There was no good consideration

The judge dismissed the good consideration defence in summary fashion. Rajah J determined that when it made the payments, Rasmala did not intend to discharge Farlin's old debts but to purchase coal. No good consideration therefore existed.

• Liability in unjust enrichment can be escaped if restitution is inequitable

At the outset, the judge reiterated that a claim in unjust enrichment in respect of mistaken payment would fail if the Defendant had in good faith changed his position and it would now suffer substantial detriment if required to repay.^[4] The judge found that the circumstances of this case justified such finding.

First, the judge found that if the payments were not made, Trafigura would not have continued trading with Farlin. This constituted a change of position resulting from the unjust enrichment.

Second, the judge was satisfied that restitution would cause substantial detriment to Trafigura. When it ceased trading with Farlin, Trafigura was owed US$ 15 million, and its profit margin was less than US$ 600,000. If ordered to repay Rasmala, then Trafigura would incur a loss of a further $22 million amounting to a total deficit of US$ 37 million. The judged considered that such an outcome would be inequitable.

Finally, the judge ruled that Trafigura acted in good faith and accepted the payments without knowledge of Farlin's fraud.

On that basis, Rasmala’s claim for restitution in unjust enrichment failed.

Comment

Non-contractual claims can play a central role in multi-party cross-border transactions.

The judgment in Rasmala Trade Finance Fund v Trafigura Pte Ltd highlights key aspects of the law on dishonesty and unjust enrichment.

Regarding the latter, Defendants may still defeat claims for restitution even if they were unjustly enriched but to do so, it must be established that they have acted in good faith and that restitution would be inequitable. The English court's approach remains pragmatic and seeks to establish overall fairness among the involved parties.

As to the former, the judgment serves as a useful reminder that English courts take allegations of impropriety and dishonesty seriously and will not tolerate frivolous and/or tactical claims that are not supported by credible evidence.