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REPUBLIC OF TRINIDAD AND TOBAGO

IN THE COURT OF APPEAL C.A. NO. P114 of 2016 CV2014-00218

BETWEEN

JASON KHAN Appellant/First Defendant

AND

THE HOUSE OF MARKETING Respondent/Claimant (TRINCITY) LIMITED

Appearances: Mr. Anthony Manwah, attorney-at-law for the Appellant

Mr. Lee Merry, attorney-at-law for the Respondent

PANEL:

N. Bereaux JA

A. des Vignes JA

M. Dean-Armorer JA

DATE OF DELIVERY: 8th May, 2020

JUDGMENT Introduction 1. The primary issue in this appeal was whether the trial judge was plainly wrong in holding

that the Appellant, Jason Khan (JK) (the second defendant in the proceedings below)

was liable as an accessory to the breach by the first Defendant, Rianna Khan (RK) of the

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fiduciary duties which she owed to the Claimant, when there was no plea as of either

dishonest assistance or knowing receipt in the Statement of Case.

2. On March 2, 2020, we heard viva voce submissions and directed that further written

submissions be filed on the issue of tracing. Whereas attorneys-at-law for the

Respondent filed further submissions on March 13, up to the date of this judgment, no

further submissions had been filed on behalf of the Appellant.

3. It is my view that notwithstanding the absence of a plea of knowing receipt in the

Statement of Case, the issue of the Appellant’s knowledge had been alive throughout

the proceedings and had been treated as such by attorneys-at-law for the second

defendant. It is therefore my view that, as to the primary issue, the appeal should be

dismissed.

4. However, JK should have been made liable only for the funds, which he knowingly

received and, for this reason, the order of the trial judge should be varied to specify that

the Appellant was liable to repay the sum of $937,455.65.

5. I also considered whether the funds, which were knowingly received by the Appellant

could be traced into other assets, which he held. For reasons stated below, I hold that

the process of tracing could not be used in these proceedings.

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Background Facts

6. The first Defendant Rianna Khan (RK) and the Appellant (JK) were husband and wife but

their marriage was dissolved in 2014. In the year 2000, RK became an employee of the

Claimant, the House of Marketing (HOM). She quickly won the trust of her employers,

particularly that of Mr. David Duncan, Principal Director of HOM In 2004, she was

promoted from Accounts Clerk to Senior Accounts Clerk. In that capacity her duties

included liaising with the bank and other financial institutions.

7. In the year 2011, HOM registered for use of the Automated Clearance House System

(ACH), which was a facility which was offered by Republic Bank Ltd. The ACH system

enabled registered users to transfer sums of money to third party accounts. Mr.

Duncan, Director of HOM having immense trust and confidence in RK, gave her access

to his password, so as to enable her use of the ACH system.

8. In September, 2014, Mr. Duncan learnt from a banking officer that large sums had been

transferred out of the company’s account. Upon investigation, RK admitted that sums

were transferred to accounts held by herself and by JK. A total transfer of $3,757,599.69

was made to various accounts held by RK and JK. Of this sum, $937,455.65 was

transferred to the account of JK.

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9. The directors of HOM promised to refrain from pursuing criminal proceedings if the

misappropriated money was returned. 1

10. RK did not return the funds, and so in January 2015, HOM obtained a mareva injunction

and instituted proceedings in the High Court.

11. RK took no part in the proceedings. She was unavailable for cross-examination and at

trial, her attorney-at-law informed the Court that she was in Jordan.

12. JK, by his evidence, insisted that he had no knowledge of the transfer of funds into his

accounts. Although he had been divorced from RK since 2014, he indicated that he

trusted her. He did not question the deposit of funds into his account and in June, 2014,

he transferred the sum of $259,800.00 into HOM’s account, at the request of RK. This,

JK did without question and simply in obedience to the request of RK.

13. It was this apparent innocence that aroused the suspicion of the trial judge, who said

that the testimony of JK “did not inspire confidence in the Court”.

Decision of the Trial Judge

14. The trial judge identified two issues for determination:

i. Whether the actions of RK amounted to a breach of fiduciary duty and

ii. If the actions of JK did amount to a breach, whether JK benefited from such

breach.2

1 See the affidavit filed by the Claimant on January 6, 2015 paragraph 44 2 Paragraph 6 of the Judgement dated March 18, 2016

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15. After analyzing the evidence, the trial judge made a finding in favor of HOM against RK

and JK in these terms:

“(29) In any event, I cannot attach any weight at all to Rihanna Khan’s

evidence, such as it was, since it was untested. House of Marketing’s evidence

was tested and Mr. Duncan proved to be a credible witness. I accept his version

of events. I find RH breached her fiduciary duty when she converted House of

Marketing monies to her use and benefit by depositing the sums into accounts

and leaving them there”.3

16. The trial judge identified one issue in respect of the JK; that is to say, whether he

benefited from the breach of RK. The trial judge cited Bristol and West Building Society

v Mothew 4and said:

“BRISTOL reaffirms the position that a third party must not benefit from the

fiduciary’s actions without the informed consent of the principal.”

17. The trial judge accepted as undisputed that JK had received deposits into his account

without the consent or approval of HOM and proceeded to consider JK’s explanation

that he had no knowledge of the money that had been deposited into his account. The

trial Judge found that JK’s testimony “did not inspire confidence” and held:

3 Paragraph 29 of the judgment dated 18th March,2016 4 [1996] 4 ALL ER. 698

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“JK’s defense does not shield him from the fact that he knew that the funds

belonged to HOM and as such he ought not to have dealt with the funds upon

instructions of RK without more.…”

18. There was no appeal by RK (possibly because she had fled the jurisdiction). JK, however

challenged the decision of the trial judge on August 5, 2016 and it is his appeal which

now engages our attention.

Submissions

19. Parties relied on written submissions, which had been filed before the trial judge and as

well as those which were filed before this Court. HOM filed extensive submissions at

first instance and argued essentially that RK owed a fiduciary duty to HOM.

20. In respect of JK, HOM submitted that JK had dishonestly assisted RK in the breach of

her fiduciary duty to HOM. In his submissions in reply however, attorney-at-law for

HOM stated HOM’S case against JK on the law of knowing assistance.

Thus at paragraph 2 of their submission in Reply, attorneys-at-law for HOM wrote:

“As to the case against the second Defendant, the Claimant company wishes

to reiterate that same is predicated upon knowing assistance”

21. I have observed that the confusion between the two causes of action, knowing receipt

and dishonest assistance appeared throughout the submissions on behalf of HOM. It is

noteworthy that the trial judge made no finding of dishonest assistance. Her decision

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was based on the finding of knowledge on the part of JK that he had received

misappropriated funds. The distinction between these two forms of accessory liability

will be considered later in this judgment.

22. Mr. Manwah, Counsel for JK argued that there were no allegations of wrong doing or

dishonesty on the part of JK and that the issue of dishonesty or knowledge, not having

been pleaded, did not arise for the court’s determination. 5

23. Upon appeal, JK renewed his argument as to the lack of pleadings on the part of HOM.

Mr. Manwah argued further that it was not open to HOM or its Director, Mr. Duncan,

to deny that he had signed the transmittal form, since this denial was not supported by

the pleadings of the HOM. JK also relied on the arguments at first instance, as to the

failure of HOM to plead dishonest assistance or knowing receipt.

24. Following the hearing of the appeal, the Court requested written submissions on the

issue of tracing. There was compliance by HOM. Mr. Manwah, on the eve of this

judgment explained by email that he was entitled to an extension of time by reason of

the Pandemic Practice Directions.6 Mr. Manwah indicated however, that should there

be no issue of tracing, he would forgo his right to file further submissions. As will

become apparent later in this judgment, it was not necessary to call on Mr. Manwah to

make submissions on the issue of tracing.

5 See paragraph 10 of the Written Submissions of the Second Defendant filed on October 13,2015 6 Gazette No. 50 of 2020 dated April, 2020

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Analysis

25. It is well established that an appellate panel will not interfere with the findings of fact

of a trial judge unless this is shown to be plainly wrong.7

26. In Petroleum Company of Trinidad and Tobago v Ryan and Others8 their Lordships

approved the following extract from Henderson v Foxworth Investments Ltd9 at

paragraph 67:

“It follows that, in the absence of some other identifiable error, such as….a

material error of law, or the making of a critical finding of fact which has no

basis in the evidence….an appellate court will interfere with the findings of fact

made by a trial judge only if it is satisfied that his decision cannot reasonably

be explained or justified….”

27. Guided by these principles, I proceeded to consider the three issues canvassed in the

appeal:

i. whether the trial judge could be held to have been plainly wrong in

respect of her finding, as a matter of fact that RK transferred funds

without the knowledge of Mr. Duncan, and by accepting the evidence

of Mr. Duncan that he had not signed the transmittal form

7 See Bahamasair Holdings v Messier Dowty Inc (Bahamas) [2018] UKPC 25 at paragraph 36 8 [2017] UKPC30 9 [2014] 1 WLR 2600

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ii. whether the trial judge was plainly wrong to enter judgment against JK

in the absence of any plea in the statement of case as to the elements

of dishonest assistance (“the pleading issue”); and

iii. whether the trial judge was wrong in finding the entire sum passed

through the account of JK.

Whether Mr. Duncan signed the transmittal Form

28. In my judgment that the trial judge was justified in rejecting the evidence of RK in so far

as she was absent from the trial and her evidence was not tested in cross-examination.

It was RK’s assertion that Mr. Duncan signed the transmittal form and it was her

obligation to prove it. Her failure to make herself available for cross-examination

entitled the trial judge to disregard her evidence, even to the extent of striking out her

affidavit.

29. Mr. Duncan did not contend that his signature had been forged. He simply denied

signing. A witness cannot be called upon to prove a negative, and in the absence of any

positive evidence from RK, in my judgment, the trial judge was correct in accepting Mr.

Duncan’s evidence, that he had not signed the transmittal form.

30. Accordingly, there was no merit in the first issue and the trial judge could not be faulted

in any way for preferring Mr. Duncan’s evidence to the untested evidence of RK.

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The Pleading Issue

31. I turn therefore to consider the second and more critical issue in this appeal, that is to

say whether the trial judge was wrong to make findings of fact on the evidence in the

absence of a relevant plea in the Statement of Case. Counsel for HOM has not resisted

the suggestion that the Statement of Case contains no plea that there had been either

dishonest assistance or knowing receipt on the part of JK. In fact, an examination of the

Statement of Case reveals that the only allegations which had been made against him

had been made at paragraph 20 and 23 of the Statement of Case. At paragraph, 20 the

HOM averred:

“Further, the second Defendant was not entitled to any monies from the

claimant and as such there is no good reason or explanation why monies have

been transferred from the Claimant’s accounts to the second defendant’s

account”

At paragraph 23, HOM makes this plea,

“$937,455.65 was transferred to accounts belonging to the second

Defendant…”

32. On the basis of this pleading, HOM proceeded to trial contending at various times that

JK, had dishonestly assisted RK in the misappropriating HOM’s funds, and at other times

that JK had knowingly received portions of the misappropriated funds.

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Distinction Between Dishonest Assistance and Knowing Receipt

33. Dishonest assistance and knowing receipt are causes of action known as accessory

liability. They may be directed at accessories to the breach of a fiduciary duty. The

differences between these causes of action were highlighted by Lord Millett in

Twinsectra Ltd v Yardly 10, where he had this to say at paragraph 105:

“Liability for "knowing receipt" is receipt-based. It does not depend on fault.

The cause of action is restitutionary and is available only where the defendant

received or applied the money in breach of trust for his own use and benefit:

see Agip (Africa) Ltd v Jackson [1990] Ch 265, 291-2; Royal Brunei Airlines Sdn

Bhd v Tan [1995] 2 AC 378, 386. There is no basis for requiring actual

knowledge of the breach of trust, let alone dishonesty, as a condition of

liability. Constructive notice is sufficient, and may not even be necessary. There

is powerful academic support for the proposition that the liability of the

recipient is the same as in other cases of restitution, that is to say strict but

subject to a change of position defence.”

Lord Millett then addressed the concept of dishonest assistance and said at

paragraph 107:

10 Twinsectra Ltd v Yardly [2002] 2 A.C. 164

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“The accessory's liability for having assisted in a breach of trust is quite

different. It is fault-based, not receipt-based. The defendant is not charged with

having received trust moneys for his own benefit, but with having acted as an

accessory to a breach of trust. The action is not restitutionary; the claimant

seeks compensation for wrongdoing. The cause of action is concerned with

attributing liability for misdirected funds. Liability is not restricted to the person

whose breach of trust or fiduciary duty caused their original diversion. His

liability is strict. Nor is it limited to those who assist him in the original breach.

It extends to everyone who consciously assists in the continuing diversion of the

money. Most of the cases have been concerned, not with assisting in the

original breach, but in covering it up afterwards by helping to launder the

money”.

34. Thus, both dishonest assistance and knowing receipt are both forms of accessory

liability. However, only the former requires proof of dishonesty on the part of the

accessory. In order to establish dishonest assistance, the Claimant is required to plead

and to prove four elements:

i. That there has been a disposal of his assets in breach of trust or of

fiduciary duty;

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ii. the Defendant has assisted in or has procured the breach of fiduciary

duty;

iii. The Defendant has acted dishonestly;

iv. There was resulting loss to the Claimant. 11

The locus classicus on dishonest assistance was Royal Brunei Airlines v Tan12, where

a travel agency, Borneo Leisure Travel breached its trust in respect of funds held for

the airline. The travel agency was a limited liability company which went into

liquidation. The airline was successful however in proving dishonest assistance,

against the managing director.

35. The concept of knowing assistance was considered in Abdul Ghani El Ajou v Dollar Land

Holdings 13 where Lord Hoffman identified the elements of knowing assistance in this

way:

“This is a claim to enforce a constructive trust on the basis of knowing receipt.

For this purpose the plaintiff must show, first, a disposal of his assets in breach

of fiduciary duty; secondly, the beneficial receipt by the defendant of assets

which are traceable as representing the assets of the plaintiff and thirdly,

11 Bullen & Leake & Jacob’s Precedents of Pleadings 15th Edition Volume 2 at paragraph 53:02 12 Royal Brunei Airlines v Tan [1995] 2 A.C. 378 13 Abdul Ghani El Ajou v Dollar Land Holdings [1993] EWCA 4

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knowledge on the part of the defendant that the assets he received are

traceable to a breach of fiduciary duty.”

36. Accordingly, the Claimant who contends that an accessory is liable for knowing receipt

must show:

a) That there has been a disposal of the Claimant’s assets in breach of

trust or of fiduciary duty

b) The defendant has beneficially received assets which are traceable as

representing the Claimant’s own assets

c) The Defendant has knowledge that the assets he received are traceable

to a breach of fiduciary duty.14

37. The trial judge did not hold that JK dishonestly assisted RK in the breach of her fiduciary

duty. She also made no finding of dishonesty in respect of JK, that is of course, apart

from the credibility of his testimony at trial. In my view, the issue of dishonest assistance

does not arise in this case.

38. In her judgment, however, the trial judge made findings that RK had deposited funds

into her account in breach of her fiduciary duties; that some of those funds had been

deposited into the account of JK, and critically, that JK was aware of the deposit.

14 Bullen & Leake & Jacob’s Precedents of Pleadings 15th Edition Volume 2 at paragraph 53:02.

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Although the trial judge did not use the phrase knowing receipt, her decision was based

on all three of the elements identified by Lord Hoffman in El Ajou. 15

39. The question which arises is whether the Judge’s decision is plainly wrong because

there was no plea of knowing assistance in the statement of case.

40. It is well established that evidence is inadmissible and liable to be struck out unless such

evidence is adduced pursuant to a plea of a material fact in the relevant pleading. This

rule pre-dates the Civil Procedure Rules 1998 (CPR) and, in the CPR, finds expression in

Part 8.6, which provides:

“8.6 (1) The claimant must include on the claim form or in his

statement of case a short statement of all the facts on which he

relies.

(2) The claim form or the statement of case must identify or

annex a copy of any document which the claimant considers

necessary to his case.”

41. Mr. Merry for HOM has relied strongly on the judgment of de la Bastide, CJ in WASA v

Sooknanan Singh 16. In that case, the Learned Chief Justice allowed the Claimant to rely

on the alternative claim of quantum meruit. De la Bastide, CJ noted that although there

was no claim for quantum meruit by the plaintiff, the question had been raised by the

15 See footnote 12 supra 16WASA v Sooknanan Singh Civ App 106 of 1989

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defendant in its pleadings. De La Bastide, CJ observed further that the quantum meruit

was a live issue on which evidence was led and that both parties had this issue in the

forefront of their minds.

42. It is my view that, as in WASA v Sooknanan Singh, the issue which had not been formally

pleaded was present as a live issue throughout the proceedings. It was present in the

defence of JK and throughout his cross-examination.

43. Accordingly, at paragraph 5 of his defence, the JK denied knowledge of the deposited

funds in these terms:

“In further answer to the Claimants claim, the second Defendant avers as

follows:

a) That any of the Claimant’s monies deposited into and

withdrawn from the Second Defendant’s accounts were done so

without his knowledge request or consent….”

44. The presence of knowledge on JK‘s part continued to be a live issue throughout the

evidence. Thus, one finds that throughout his affidavit he set out to paint a picture of

blind reliance on the financial wizardry of his wife. Of particular relevance to this claim

was paragraph 16, where, JK deposed that RK would make deposits into his account to

cover incidental expenses.

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45. The issue of knowledge also permeated JK’s cross-examination. In the course of cross-

examination, he was asked whether the deposits were on average between $10,000

and $18,000 per transaction. His answer, alluded to his knowledge:

“I know that now however at the time I was not aware of that.” 17

46. Counsel for HOM then raised the issue of knowledge directly by putting to JK that he

was not telling the truth when he said that he had no idea that these monies were going

into his account. There was no objection to HOM putting this suggestion, no word of

caution, on behalf of JK that the issue was not pleaded.

47. Similarly, at page 435 of the Record of Appeal, Counsel for HOM is recorded as having

said:

“….you keep seeing (sic) that you were not aware this was a significant

transaction of money your money didn’t seem to have an interest in looking to

see what was happening….”

To this, JK replied that he had utmost trust in his wife.

48. Once again, one finds at page 438, JK was asked:

“….we are saying that you knew full well what the status of your bank account

was, am putting that to you…..”

This question was asked and answered without objection from counsel for JK.

17 See page 428 of the Record of Appeal

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49. Accordingly, in this appeal, one finds an issue, which is almost identical to the issue

addressed and adjudicated upon by de la Bastide in CJ in WASA v Sooknanan Singh. An

issue, which had not been pleaded was nonetheless a live issue in the defence as well

as throughout the evidence. In my judgment, the words of de la Bastide CJ are

appropriate and applicable:

“Even though there is no such claim pleaded by the plaintiff, the question….was

raised by the Defendant in its pleading and was a live issue on which evidence

was led in the Court below”

50. In the circumstances, the trial judge was justified in holding that indeed JK had the

requisite knowledge, and had indeed knowingly received the misappropriated funds

into his account, although there was no formal plea of knowing receipt.

51. I shall now proceed to consider whether the Judge could be faulted in respect of the

order that JK repay the entire sum of $3 Million.

The extent of JK’s liability

52. The clear evidence, before the trial judge was that $3,757,599.69 had been

misappropriated by RK. Equally clear and uncontradicted, was the evidence that, of the

sum of $3,757,599.69, the sum of $937,455.65 had been deposited into the account of

JK. See paragraph 54 of the affidavit of David Duncan. This was also consistent with

HOM’s pleaded case, as set out at paragraph 23 of the Statement of Case. I consider

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that it would be wrong to order JK to pay a sum in excess of what he had received. The

order of the trial judge ought to be varied to require JK to repay the amount which he

knowingly received.

Tracing

53. Mr. Merry for HOM argued that the Court ought to direct that there be a tracing order

in respect of the misappropriated funds.

54. Tracing is not a remedy but a process and was defined by Lord Millett in Boscawen v

Bajwa18:

“Tracing properly so-called, however, is neither a claim nor a remedy but a

process. Moreover, it is not confined to the case where the plaintiff seeks a

proprietary remedy; it is equally necessary where he seeks a personal remedy

against the knowing recipient or knowing assistant. It is the process by which

the plaintiff traces what has happened to his property, identifies the persons

who have handled or received it, and justifies his claim that the money which

they handled or received (and, if necessary, which they still retain) can properly

be regarded as representing his property. He needs to do this because his claim

is based on the retention by him of a beneficial interest in the property which

18 (1996) WLR 328

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the defendant handled or received. Unless he can prove this he cannot (in the

traditional language of equity) raise an equity against the defendant….”

55. Tracing is akin to the process of following. The difference was explained where the

learned authors Hanbury and Martin’s Modern Equity19 wrote:

“Following and tracing are both exercises in locating assets which are or may

be taken to represent an asset belonging to the Claimants….Following is the

process of following the same asset as its moves from hand to hand; tracing is

the process of identifying a new asset as substitute for the old”

The process of tracing could have been employed, for example to trace funds from the

account of the JK into goods or real property that he may have purchased with the

funds.

56. In these proceedings, however there is no evidence to show how the funds were spent.

The only available evidence discloses that JK now holds a total of $12,303.94 in the

accounts which had been frozen by the Mareva injunction. For this reason, it is my view

that a tracing order may be futile and is accordingly refused.

Orders

57. The decision of the trial judge is varied at paragraph 3 as follows:

19 Hanbury and Martin’s Modern Equity 18th Edition at paragraph 23-042

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3(a)The First Defendant to repay forthwith the sum of Three Million, Seven Hundred

and Fifty-Seven Thousand, Five Hundred and Ninety- Nine dollars and Sixty-Nine cents

($3,757,599.69) to the Claimant.

3(b) The Second Defendant to repay forthwith the sum Nine Hundred and Thirty-

Seven Thousand, Four Hundred and Fifty-Five Dollars and Sixty-Five cents

($937,455.65).

58. Parties are directed to file and exchange written submissions on the issue of costs,

within 14 days of this judgment.

Dated this 8th day of May, 2020

/s/ M. Dean-Armorer Justice of Appeal

I have read the judgment of Dean-Armorer JA and I agree with it.

N. Bereaux

Justice of Appeal

I have read the judgment of Dean-Armorer JA and I agree with it.

A. des Vignes

Justice of Appeal