Relfo Ltd v Varsani [2015] 1 BCLC 14

Facts

• Relfo Ltd alleged that its director, Mr. Gorecia, breached fiduciary duties by diverting company funds.
• The diverted funds were transferred through a series of complex transactions involving third-party intermediaries.
• Mr. Varsani was alleged to have ultimately received funds traceable to Relfo Ltd via these transactions.
• Detailed forensic accounting was undertaken to establish the flow and final destination of the misappropriated assets.
• The case came before the Court of Appeal to determine whether such funds could be traced and recovered from Mr. Varsani under principles of equitable tracing.

Issues

1. Whether the funds transferred from Relfo Ltd could be traced through complex transactions and intermediaries to Mr. Varsani under equitable tracing principles.
2. Whether sufficient evidence had been presented to establish a link between the misappropriated assets and the funds received by Mr. Varsani.
3. Whether Mr. Varsani was unjustly enriched at the expense of Relfo Ltd.
4. What remedies, if any, were appropriate, including whether a constructive trust should be imposed.

Decision

• The court held that the funds diverted from Relfo Ltd could be traced into the hands of Mr. Varsani, despite passing through several third-party accounts.
• The forensic accounting evidence was accepted as establishing a clear causal link from the original misappropriation to the defendant’s receipt of the funds.
• The court found that Mr. Varsani had been unjustly enriched by receiving funds traceable to Relfo Ltd without a legal justification.
• Equitable remedies, including a constructive trust and an order for repayment, were granted against Mr. Varsani in favour of Relfo Ltd.

Legal Principles

• Equitable tracing permits claimants to follow and recover assets in their identifiable substitutes, even through multiple transformations and intermediaries.
• The burden of proof in tracing claims requires the claimant to establish, on the balance of probabilities, the connection between the misappropriated funds and the asset now held by the defendant.
• To establish unjust enrichment, the claimant must show enrichment to the defendant, at the claimant’s expense, and lack of legal justification.
• Constructive trusts may be imposed as a remedy to require the return of property obtained through breach of fiduciary duty or unjust enrichment.
• Equitable tracing is a flexible remedy that adapts to complex commercial arrangements to ensure effective redress for financial misconduct.

Conclusion

The Court of Appeal’s decision in Relfo Ltd v Varsani clarified the scope and application of equitable tracing in recovering misappropriated assets, affirmed the evidentiary role of forensic accounting, and confirmed the availability of constructive trusts and unjust enrichment remedies for victims of fiduciary breach and asset diversion.