| Seagate Technology Pte Ltd and Another v Goh Han Kim [1995] 1 SLR 17; [1994] SGCA 128 |
| CA 13/1994 | |
| 14 Nov 1994 | |
| Court of Appeal | |
| Goh Joon Seng J, Karthigesu JA, L P Thean JA | |
| Govindarajalu Asokan and Low Chai Chong (Rodyk & Davidson) for the appellants, Michael Khoo, Cheah Kok Lin and Josephine Low (Michael Khoo & BB Ong) for the respondent |
Judgment
[Please note that this case has not been edited in accordance with the current Singapore Law Reports house style.] Judgment reserved. LP Thean JA (delivering the grounds of judgment of the court): The facts 1 The first appellants are a company incorporated in Singapore and at the material time carried on the business of manufacturing and repairing computer and data processing equipment and accessories. They employed one Jocelyn Heng Eng Li (Heng) as a planner, and her duties entailed, inter alia, the collation of information on the usage requirements of materials, raising purchase requisitions and scheduling delivery of the materials required to the first appellants’ production plants in Singapore and Thailand accordingly. The second appellants are a corporation incorporated in the Cayman Islands with a branch office registered in Singapore and own all the shares of the first appellant company. The respondent is the sole proprietor of a business called Gold Circle Enterprise (Gold Circle) and was one of the suppliers of materials to the first appellants for their business. Since 1983, Gold Circle had been supplying the first appellants with static control products (anti-static polythene bags, bubble packs and rolls) and clean room products (cotton swabs). 2 The respondent became acquainted with Heng through his dealings with the first appellants as a supplier. He met with her once or twice a week to take orders from her. In late 1986, Heng contacted the respondent and in tears, told him that her uncle in the United States of America was in financial difficulties and asked him as a personal favour to help her uncle clear his business stocks. The respondent was aware that that was a personal request on her part and not one made in her capacity as the planner for the first appellants. Heng said that her uncle dealt in two products known as Alpha Texwipe (AT) and Lint Free Swabs (LFS) and had stocks of these products, and that the first appellants used these products as well. Up to that time, the respondent had not supplied these products to the first appellants and did not even know what they looked like. Heng requested the respondent to purchase these products from her uncle and then sell them to the first appellants. She could arrange for these materials to be shipped from the United States to Singapore. She agreed to give him a commission of $3 per packet sold. Upon receiving payment from the first appellants, the respondent would make payment to her after deducting what was due to him as commission. She told him that this arrangement was necessary as her uncle did not have any company in Singapore. 3 After considering the request, the respondent agreed to the venture which he thought was genuine. As the respondent had not at that time supplied the materials in question to the first appellants before, he approached the first appellants’ staff in charge and obtained approval for Gold Circle to supply the materials to the first appellants. 4 There were in fact two schemes which were devised by Heng. The first scheme was carried out on 12 occasions and was implemented in this way. At that time, a company known as Utopia Aire Pte Ltd supplied LFS to the first appellants. When a particular supply came in, Heng would raise a request form to the storekeeper to transfer the supply of LFS to the shipping department. She would tell him that these materials were meant for use in the first appellants’ Bangkok plant. Once they had been transferred to the shipping department (which was located in the same premises), Heng would tell the person in charge in that department not to ship them to Bangkok and give instructions to return them to the supplier. The shipping department would not know who the actual supplier was. Heng would then contact one Tan Cheng Oon (Tan), Gold Circle’s delivery contractor, to go to the shipping department to collect the LFS. The LFS would be brought back to a warehouse in Jurong owned by one Lim Choon Huat (Lim) of Weng Moh Warehousing and Transportation, whose services the respondent had used since 1980. The LFS were then repacked and subsequently redelivered to the first appellants’ store with the Gold Circle delivery order. The orders to repack came from Heng, and Lim did not question her instructions to repack the LFS or to alter the delivery order by adding in the LFS. He did check with the respondent as regards the LFS but the respondent told him that as long as there was a matching purchase order it was in order. 5 When the audit team of the first appellants slackened in their checks, Heng put a simpler scheme into action, one that did not involve any physical goods but merely book entries. As Gold Circle was now an approved supplier of AT and LFS, Heng would raise a purchasing requisition which included Gold Circle as a supplier of the items. A purchasing requisition was a form used by the first appellants to identify three months’ requirements for materials that would be running out of stock. She would then raise the requisition requirement by a certain percentage. For instance, if the actual requirement was 1,000 packets, the purchasing requisition would be raised to 2,000. Utopia Aire Pte Ltd would supply the 1,000 packets which was the actual requirement for the first appellants, while Gold Circle would purportedly supply the other 1,000 packets which was falsely generated by Heng but with no goods being delivered. When Tan from Gold Circle delivered other supplies to the first appellants’ premises, the standard procedure was that the first appellants’ store keeper would sign four copies of the documents. The first appellants’ store keeper would keep one copy and the rest would be returned to the supplier. This one copy would be passed on to Heng who kept it and would not forward it immediately to the finance department as she was expected to. When Tan next delivered Gold Circle’s materials to the first appellants again (generally a day or two later), Heng would place that copy of Gold Circle’s delivery order in an envelope with a ‘post-it’ note attached indicating the quantity of LFS to be added in that delivery order. The delivery contractor would bring back the envelope to Gold Circle’s store in Jurong to Lim, who was in charge of issuing stocks and delivery orders, and he would duly type the amount of LFS on that delivery order as well as on the copies returned earlier (all of them bearing the same serial numbers). When Tan made the next trip with Gold Circle’s supplies, he would hand the delivery order with the additional item typed in to Heng who would then forward it to the finance department. As the copy of the altered delivery order supplied for invoicing matched the altered copy handed to the finance department by Heng, the finance department would pay accordingly. The respondent stated that he knew Lim since 1980 and initially he prepared his own delivery orders and handed them over to him. Later, he trusted Lim to prepare them on his behalf by handing him a book of delivery orders. Tan, who had collected the LFS initially for the first scheme and later the envelope with the note to amend the delivery orders had done so at Heng’s request and did so unquestioningly as she was a senior officer of the company. 6 To evade further detection by the audit team, since there were no physical goods involved, Heng would key into the store’s computer system the amount of LFS ‘received’ from Gold Circle and would at the same time release that amount to Bangkok, indicating that the LFS had been shipped to Bangkok, thus avoiding a discrepancy should a physical count be made. 7 On 7 November 1988, one Goh Yong Chew, the first appellants’ director of materials control, carried out an audit on LFS and realized that delivery orders had been altered to give the false impression that Gold Circle had delivered various quantities of LFS. He also discovered that the quantity of LFS purportedly shipped to Bangkok was exaggerated. The first appellants’ senior management was informed, as was their director of security, one Letchamanan Thambiah (Thambiah). On 17 November 1988, Thambiah and two employees of the first appellants, Alan Leong (Leong) and Stanley Aloysius (Aloysius), interviewed first Heng and then the respondent, and statements were recorded from both of them. In the respondent’s statement, he admitted that four delivery orders contained ‘fictitious’ items. 8 Subsequently, on 21 November 1988, the first appellants commenced this action against Heng and the respondent claiming $1,984,740 for conspiracy to defraud and/or as moneys had and received. The respondent resisted the claim and counterclaimed $366,864.71 being the price of goods supplied by him to the first appellants between August and November 1988. On 3 December 1988, Heng was convicted in a district court of five counts of cheating the first appellants of a total sum of $1,984,740 and attempting to cheat the first appellants of a sum of $347,300. She was sentenced to a total of three years’ imprisonment. On 27 January 1989, the first appellants obtained judgment in default against Heng but this judgment was only partially satisfied since only $942,940.93 was recovered by the police and paid over to the first appellants. The action against the respondent for the balance sum of $1,041,799.07 continued to trial. 9 Before the case came to trial, the first appellants’ holding company, Seagate Technology Inc, also recovered US$259,876.82 from their insurers under a policy protecting them against loss resulting from the dishonesty of an employee. This payment, made on 30 July 1992, was in return for a partial release executed in favour of the insurers to the extent of the payment. However, by an agreement dated 13 January 1993, the insurers and Seagate Technology Inc agreed that the payment made previously should be in full and final settlement of the latter’s claim against the former. The terms of the agreement released both the insurers and Seagate Technology Inc of all rights to subrogation and/or indemnity that either party then had or may in future have had against one another. 10 The action against the respondent was heard before Mr Goh Phai Cheng JC on 23 to 25 August 1993 and on 7 October 1993. Written submissions were then filed by the first appellants and the respondent on 15 November and 13 December 1993 respectively. On 30 December 1993, before the court could deliver judgment, the first appellants applied for and obtained an order of court to add the second appellants as a party to this action primarily on the ground that the second appellants had purchased the first appellants’ business as a going concern, including all the assets, rights and liabilities of the first appellants and steps had been taken to wind-up the first appellants pursuant to a members’ voluntary winding up. The decision in the High Court 11 In a reserved judgment, reported in 12 Having so decided, the learned judicial commissioner said that there was no further need to deal with the question of whether the appellants could recover any money from the respondent despite the fact that the appellants’ insurers had actually paid out a sum under a policy insuring the appellants against employee dishonesty. Neither was there any need to deal with the further question of whether the first or the second appellants could continue this action against the respondent in the light of the voluntary winding-up of the first appellant company. 13 Finally, on the respondent’s counterclaim, the learned judicial commissioner said that there was no dispute that the sum of $366,864.71 was due and owing to the respondent being the price of goods supplied by him to the first appellants. Accordingly, he gave judgment to the respondent on the counterclaim. The appeal 14 The appellants appealed against the learned judicial commissioner’s findings that the respondent had not been a party to the conspiracy to defraud the first appellants and that the respondent was not liable to the appellants for moneys had and received. The respondent on his part filed a respondent’s notice to the effect that the learned judicial commissioner’s decision should be affirmed on the following additional grounds, namely, that the appellants were estopped from recovering any money from the respondent by virtue of the settlement of their insurance claim and that there was no party capable of maintaining the action below. Conspiracy to defraud 15 The essence of conspiracy is an agreement, and the question is whether the appellants had proved that there was in existence an agreement or at least some arrangement between the respondent and Heng to defraud the first appellants; and a high degree of proof is required. Mr Govin for the appellants submitted that, on the totality of the evidence, the appellants had discharged this high burden of proof. 16 We now turn to the evidence adduced before the learned judicial commissioner. The only direct evidence of the respondent’s complicity in the fraud perpetrated by Heng was the statement recorded from the respondent by Thambiah. On this statement, the respondent’s evidence was that he had been badgered into giving a statement by Leong who used words like: ‘You had better tell the truth or you will not be so comfortable sitting here as we will be putting you to the CID and there will be long investigations’ and ‘I give you five minutes to think it over and give me a true statement.’ He testified that he was given the impression that he could not leave until he gave a statement. At that point, Thambiah came into the room and assured him saying: ‘You are not involved. Never mind you make a statement for me.’ A statement was then recorded before Thambiah and sent for typing. The respondent said that he read the statement before signing it but concentrated on the figures more than anything else. He also said that he did not understand the word ‘fictitious’ in the statement. The learned judicial commissioner made the following finding in respect of that statement, at p 550: The second defendant has disputed the validity of the matters stated in the statement recorded by Mr Thambiah. Having regard to the explanation given by the second defendant as to the circumstances under which the statement was recorded from him, his level of proficiency in the English language and the fact that the word ‘fictitious’ found in his statement also appears in the statement recorded by the first plaintiffs from the first defendant, I think no weight should be given to the second defendant’s statement. 17 Before us, Mr Govin challenged this finding and submitted that the learned judicial commissioner had erred in deciding not to place any weight at all on this statement. We were urged not to accept the respondent’s evidence that Leong had badgered him into giving the statement. In this connection, Mr Govin referred us to PP v Ramasamy a/l Sebastian to illustrate that words like ‘you had better tell the truth’ have been held not to amount to an inducement, threat or promise so as to result in the inadmissibility of the statement and also cited other cases in support. In our view, this and other criminal cases cited are of little assistance here. There is no question of excluding this statement on the ground that it was given under an inducement, threat or promise. The statement had already been admitted in evidence, and the only question was what weight we should accord it. 18 On this question, Mr Khoo for the respondent pointed to a highly significant part of Aloysius’ evidence where he said that the respondent’s statement had been recorded verbatim in a question and answer format, and that when it was typed, it was paraphrased and expressed differently. It was this paraphrased version that was handed to the respondent to sign. Aloysius said that he could not remember which parts of the statement had been paraphrased by him and which parts by Thambiah. Nor could he produce the original handwritten record. Given the fact that Thambiah had recorded a statement earlier from Heng where the word ‘fictitious’ was also used in her statement, and given that the learned judicial commissioner found that the respondent’s command of English was poor, it seems to us highly likely that the word ‘fictitious’ might well have been paraphrased by Thambiah or Aloysius in the final statement which would then have escaped the comprehension of the respondent when he read and signed it. Undoubtedly, the manner in which the statement was recorded was unsatisfactory and detracts from the weight it is to be accorded. All these reinforce the conclusion which the learned judicial commissioner came to after hearing both the appellants’ and the respondent’s versions of how the statement was recorded. In the event, we are not disposed to disturb the learned judicial commissioner’s decision not to give any weight to the statement in question. 19 The statement aside, the appellants relied on the following circumstances which, Mr Govin submitted, led to the inference that the respondent had entered into an agreement with Heng to defraud the first appellants. First, although the respondent supposedly only knew Heng through business dealings, he was willing to help her uncle as a personal favour. Secondly, he did not inquire as to Heng’s uncle’s business credibility. Thirdly, all payments were made by cash cheques and without any receipts being issued. Fourthly, there were no documents used concerning the goods from Heng’s uncle. Fifthly, the respondent never bothered to examine the goods himself as he was ‘too busy’. Next, the respondent knew that the goods were being collected from the appellants’ premises, and although he asked Heng where they came from, he accepted her word that they were shipped in from the United States of America. He did ask for the shipping documents but Heng never produced them. Although his suspicions were aroused, he chose not to make enquiries with the first appellants for fear of offending their goodwill. Finally, when the second scheme was implemented and the goods were no longer brought to Gold Circle’s warehouse for repacking, the respondent simply accepted Heng’s explanation that they were going directly from the United States to Bangkok. He did query the employees of the first appellants but they referred him to Heng. 20 The countervailing submissions made by Mr Khoo were these. These circumstances were less suspicious when it is realized that Heng was in a position of responsibility and influence in the employment of the first appellants and so was likely to be trusted by the respondent who had been dealing with the first appellant company through her for quite some time. There was the evidence of Goh that they maintained a tight security system. Furthermore, the relatively small profit retained by the respondent was a relevant factor in showing the respondent’s innocence; as the first appellant company was one of his major customers, the respondent would not have risked so much for so little. 21 Undoubtedly, the commercial transactions were peculiar ones, if only for the fact that they proceeded with minimum documentation and formality. But it has to be borne in mind that Heng was a senior employee of the first appellants, occupying a position of responsibility and influence. She was the planner and her duties involved, inter alia, raising purchase requisitions as well as the scheduling and directing delivery of materials to the first appellants’ productions plants in Singapore and Thailand. In respect of ordering supplies of goods from the respondent and others and scheduling their delivery, she was the officer in charge. The unquestioning manner with which the store and shipping departments of the first appellants complied with her directions as to acceptance of delivery and return of the goods delivered was clear evidence of the extent of her authority. Looking at the evidence in totality, we are not persuaded that the circumstantial evidence relied upon by the appellants led ineluctably to the inference that the respondent and Heng were acting in concert pursuant to an agreement to cheat the first appellants. The learned judicial commissioner had examined the evidence in great detail, and having had the benefit of hearing the evidence and seeing the witnesses at first hand he accepted the evidence of the respondent and was satisfied with the respondent’s explanation that he did not think it possible for someone to take goods belonging to the first appellants from the first appellants’ premises in view of their tight security, and also with the respondent’s explanation that he did not insist on documentation for the goods as he was under the impression that the goods belonged to Heng’s uncle. The learned judicial commissioner said, at p 551: To my mind, the first defendant [Heng] made use of the second defendant [the respondent] in her scheme to cheat the first plaintiffs and there is no evidence before me that the second defendant knew of the first defendant’s intention to cheat the first plaintiffs or that no goods were in fact delivered to the first plaintiffs. Mr Low submitted that the second defendant knew that the goods that were purportedly sold by [Gold Circle] to the first plaintiffs had been taken out of the first plaintiffs’ premises. Having heard Mr Goh’s evidence on the tight security controls and system, I was satisfied with the second defendant’s explanation that he did not think it was possible for someone to take goods belonging to the first plaintiffs from the first plaintiffs’ premises. I also believed his explanation that he did not insist on documentation for the goods as he was under the impression that the goods belonged to the first defendant’s uncle. I was not convinced, on a balance of probabilities, that there was an agreement or arrangement between the first and second defendants to cheat the first plaintiffs. Accordingly, in the absence of an agreement, the first plaintiffs’ action founded on a conspiracy to defraud the first plaintiffs, involving the first and second defendants, must fail. 22 On the evidence before him, the learned judicial commissioner was justified in making this finding. In our judgment, the appellants’ appeal on the issue of conspiracy to defraud must fail. Moneys had and received 23 We now turn to the second main issue. The action for money had and received will lie where the defendant has received money of the plaintiff under such circumstances that he is obliged by the ties of natural justice and equity to refund it: he is regarded in law as having received the money to the use of the plaintiff and the law imposes an obligation upon him to repay it to the plaintiff on the principle that he has unjustly benefitted: see Vol 27 of Atkin’s Court Forms (1991 Issue) at p 208. 24 In the present case, the moneys were paid out by the first appellants under mistakes of fact. Under Heng’s first scheme, the first appellants thought that the respondent had delivered goods which required payment when actually the goods delivered were the first appellants’ own property. Under Heng’s second scheme, the first appellants paid out moneys to the respondent thinking that the respondent had delivered goods to them when actually none had been delivered. This is also a case where moneys were paid for consideration which had totally failed or for which no consideration had been provided, as no goods whatsoever were delivered to the first appellants. There is no dispute that the first appellants had paid to the respondent throughout the relevant period various sums totalling $1,984,740 of which he retained a sum of $127,240 representing his commissions and paid the balance sum of $1,857,500 to Heng. In so far as the sum of $127,240 is concerned, the respondent had handed to the police a sum of $80,850 which was subsequently returned to the first appellants, and before us Mr Khoo conceded that the balance of $46,390 should be refunded to the first appellants. The only issue is whether in respect of the balance sum amounting to $995,409.07 (ie $1,041,799.07 – $46,390), the appellants were entitled to claim it from the respondent as money had and received. 25 It is not in dispute that the respondent did not retain any part of this sum of $995,409.07 and the whole of it had been paid to Heng. Although the respondent was the immediate recipient in respect of this sum of money, the actual and indeed the effective recipient was Heng. In the course of his argument, Mr Khoo sought to make out a case that the respondent in respect of this amount was acting as an agent of Heng and therefore was not liable to the first appellants for the sum as money had and received. In other words, the respondent was the intermediary or a mere conduit-pipe for channelling the money to Heng. He relied on the following passage of the judgment of the High Court of Australia in Australia and New Zealand Banking Group Ltd v Westpac Banking Corp, at p 162: The prima facie liability to make restitution is imposed by the law on the person who has been unjustly enriched. In the ordinary case of a payment of money, that person will be the payee. However, when the person to whom the payment is directly made receives it as an intermediary (eg as agent for a designated principal), there may be uncertainty about the identity of the actual recipient of the benefit at the moment of payment. If the circumstances are such that the intermediary is to be seen as being himself the initial recipient of the benefit, his prima facie liability will ordinarily be displaced when he has handed the money received on to the person for whom he received it. In such a case he has, in the event, not retained ‘the benefit of the windfall’ but been ‘a mere conduit-pipe’ … . 26 The short answer to this is that the respondent did not receive the moneys as agent for Heng; he clearly received them as principal. It was submitted that, nevertheless, the respondent had not been unjustly enriched in respect of the amount of $995,409.07; this sum had been paid to Heng prior to the discovery of the fraud. Therefore, in the circumstances, the respondent was not liable for this amount as money had and received. We are unable to accept this submission. The mere fact that the respondent had paid out the money to Heng is no defence to the claim for money had and received. In Carman v Edwards and Wormald M/s E & W, a firm of solicitors, brought an action against A in the name of C, the holder of a bill for £15. A thereupon paid M/s E & W the amount plus interest. Upon receipt of the sum, M/s E & W paid it to M purporting to be the agent for C. It transpired that C had never given the authority to M to bring the action. It was held that A was entitled to recover the money from M/s E & W as money had and received, notwithstanding that they had parted with the money. In Agip (Africa) Ltd v Jackson & Ors at p 282, Millet J said: … the common law claim for money had and received is a personal and not a proprietary claim and the cause of action is complete when the money is received. With only limited exceptions, it is no defence that the defendant has parted with the money. The claim does not depend on any impropriety or want of probity on the part of the defendants. 27 The respondent is prima facie liable to pay this sum of money to the first appellants as money had and received. The respondent, however, relied on the defence of change of position which we now turn to consider. Change of position 28 This defence was considered and applied in Lipkin Gorman (a firm) v Karpnale Ltd. In that case, C, a partner of a firm of solicitors had authority to operate the firm’s client account. He withdrew moneys from that account from time to time and used the moneys to gamble at the defendants’ club. He used various methods to withdraw moneys from that account. From time to time, he paid back to the account from the winnings made from the club to cover up the shortfalls. When the fraud was discovered, there remained a net shortfall of £222,908.98. It was not in dispute that at least £154,695 won by the club and lost by C was derived from money obtained by C from the solicitors’ client account. The solicitors claimed against the club the full sum of £222,908.98 as money had and received. At first instance the claim failed, and on appeal the Court of Appeal by a majority dismissed it. The solicitors appealed, and the House of Lords held the club had given no valuable consideration for the moneys placed as bets since, by reason of the Gaming Act 1845, gaming and wagering contracts were void and that the defence of change of position was available to the club to the extent of the winnings paid to C, and only the net amount of all the bets placed by C less such winnings would be recoverable from the club. Lord Templeman had this to say with reference to the claim for money had and received, at pp 559–560: … the law imposes an obligation on the recipient of stolen money to pay an equivalent sum to the victim if the recipient has been ‘unjustly enriched’ at the expense of the true owner. In Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd ‘It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep.’ The club was enriched as and when Cass staked and lost to the club money stolen from the solicitors amounting in the aggregate to £300,000 or more. But the club paid Cass when he won and in the final reckoning the club only retained £154,695 which was admittedly derived from the solicitors’ money. The solicitors can recover the sum of £154,695 which was retained by the club if they show that in the circumstances the club was unjustly enriched at the expenses of the solicitors. … In my opinion in a claim for money had and received by a thief, the plaintiff victim must show that money belonging to him was paid by the thief to the defendant and that the defendant was unjustly enriched and remained unjustly enriched. 29 Later, his Lordship discussed the case where an innocent recipient of the money has changed his position relying on the validity of the receipt. He said, at p 560: … an innocent recipient of stolen money will be enriched if the recipient has not given full consideration. If Cass had given £20,000 of the solicitors’ money to a friend as a gift, the friend would have been enriched and unjustly enriched because a donee of stolen money cannot in good conscience rely on the bounty of the thief to deny restitution to the victim of the theft. Complications arise if the donee innocently expends the stolen money in reliance on the validity of the gift before the donee receives notice of the victim’s claim for restitution. Thus, if the donee spent £20,000 in the purchase of a motor car which he would not have purchased but for the gift, it seems to me that the donee has altered his position on the faith of the gift and has only been unjustly enriched to the extent of the secondhand value of the motor car at the date when the victim of the theft seeks restitution. If the donee spends the £20,000 in a trip round the world, which he would not have undertaken without the gift, it seems to me that the donee has altered his position on the faith of the gift and that he is not unjustly enriched when the victim of the theft seeks restitution. 30 It was in the speech of Lord Goff of Chieveley that the defence of change of position was fully discussed and formulated. Lord Goff said at pp 579–580: … where an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself be a good defence in such cases as these. The principle is widely recognized throughout the common law world. … I am most anxious that, in recognizing this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way … . At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. 31 We agree with the learned judicial commissioner that this defence is available in our jurisdiction. The availability depends on whether the defendant’s position has so changed that it would be inequitable in all the circumstances to require him to make restitution or restitution in full to the plaintiffs. What is relevant here is whether any inequity might result from an order to make restitution. Importantly, the inequity itself must arise from the defendant’s change of position, and in this all the circumstances relating to the change of position should be taken into consideration. A circumstance crucial to the availability of the defence of change of position is the bona fides of the defendant. It was not merely a change of position but a ‘bona fide change of position’ which Lord Goff considered as a good defence. His Lordship said, at p 580: It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. 32 The above extract makes it clear that knowledge of the facts entitling the plaintiff to restitution would bring the defendant’s bona fides into question and disentitle him from relying on this defence. What Lord Goff left uncertain was what degree of knowledge he was referring to. In turning our attention to this question, we find of some assistance the following extract from Peter Gibson J’s judgment in Baden v Société General Pour Favoriser le Developpement du Commerce et de L’industrie en France SA6 at p 235: … knowledge can comprise any one of five different mental states which [counsel] described as follows: (i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. More accurately, apart from actual knowledge they are formulations of the circumstances which may lead the court to impute knowledge of the facts to the alleged constructive trustee even though he lacked actual knowledge of those facts. 33 Although these ‘levels of knowledge’ were discussed by the learned judge in relation to constructive trusts, we find them a convenient rubric for the analysis of ‘knowledge’ in our context as well. In Agip (Africa) Ltd v Jackson at p 293, Millet J further developed the analysis as follows: According to Peter Gibson J, a person in category (ii) or (iii) will be taken to have actual knowledge, while a person in categories (iv) or (v) has constructive notice only. I gratefully adopt the classification but would warn against over refinement or a too ready assumption that categories (iv) or (v) are necessarily cases of constructive notice only. The true distinction is between honesty and dishonesty. It is essentially a jury question. If a man does not draw the obvious inferences or make the obvious inquiries, the question is: why not? If it is because, however foolishly, he did not suspect wrongdoing or, having suspected it, had his suspicions allayed, however unreasonably, that is one thing. But if he did suspect wrongdoing yet failed to make inquiries because ‘he did not want to know’ (category (ii)) or because he regarded it as ‘none of his business’ (category (iii)), that is quite another. Such conduct is dishonest, and those who are guilty of it cannot complain if, for the purpose of civil liability, they are treated as if they had actual knowledge. [Emphasis added.] 34 We respectfully adopt Millet J’s view that the true distinction is between honesty and dishonesty. We also respectfully agree that dishonesty connotes (i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; and (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make. 35 In Agip (Africa) Ltd v Jackson & Ors, the plaintiff company were involved in oil exploration in Tunisia. The first and the second defendants were in partnership together as chartered accountants in the Isle of Man under the firm’s name of Jackson & Co. The third defendant was an employee of the partnership. Payment orders from Agip in Tunisia to third parties were fraudulently altered by Agip’s accountant, Z, who changed the name of the payees to that of B Co and other companies. B Co (and the other companies) had been formed by the first and the third defendants. The first and the third defendants were the sole directors and shareholders of B Co. The payments by Agip were thus diverted to the account of B Co at Lloyds Bank and from there to Jackson’s client account in the Isle of Man. The funds were then paid to various recipients abroad who had no connection with Agip. Most of the moneys had been paid to a company overseas known as Kinz Joailler SARL carrying on jewellery business in Paris and elsewhere in France. The defendants had throughout followed the instructions of their client, a French lawyer acting for unidentified principals. The last payment by Agip was for US$518,822.92; and this was the payment which was the subject matter of the action. B Co was subsequently put into liquidation. By then there was only US$45,000 in the client account of the defendants. Agip sought to recover US$518,822.92. Their claim was at common law for money had and received. The alternative claim against the defendants was in equity as constructive trustees. At first instance, Millet J held that Agip was entitled to trace the US$45,000 in the defendants’ account in equity on the basis the defendants were constructive trustees of these moneys for Agip. Agip’s action in law on the ground of money had and received failed because the defendants had paid over the money, apart from the US$45,000, to their principals. He said, at p 289: In my judgment, the claim to recover the money from Jackson & Co as money had and received without proof of dishonesty or want of probity must fail. It fails as regards the sum in court because of the impossibility of tracing the money at common law. It fails as regards the balance for this and for the additional reason that Jackson & Co accounted to their principals before they had notice of the plaintiffs’ claim. 36 He held that the first and the third defendants were personally liable to account to Agip for the US$518,822.92 not as recipients of the money but on the ground that they had knowingly assisted Z — that is, they were his accessories — to defraud Agip. 37 We revert to the facts of the present case. The respondent had changed his position since receipt of the moneys from the first appellants by making payments to Heng prior to the discovery of the fraudulent scheme. The question is whether in paying the moneys to Heng, he acted in a bona fide manner. We are keenly alive to the fact that the transactions were very peculiar with a total lack or absence of documentation. It seems to us somewhat extraordinary that the respondent in entering into all those transactions with Heng should rely wholly on her words and that he should pay for the goods purportedly sold to him through Heng by way of cash cheques, some of which were for large amounts, and obtain no receipts for such payments. All these would raise the eyebrows of a lawyer. But the respondent is a businessman and not a lawyer; nor is he an accountant as the defendants in Agip5 were. To him, these were business transactions which were entered with Heng at arm’s length. His conduct in relation to the transactions must be looked at in the context of the entire circumstances then prevailing. Since 1983 he had been dealing with the first appellants, a reputable multi-national and sophisticated company with tight control and system, and the person he had been dealing with in that company was Heng. As far as he was aware, Heng was a senior employee holding a position of responsibility and influence and had extensive power or authority in requisitioning the purchase of goods from suppliers and also from which suppliers. He was suddenly asked by Heng to assist her uncle to get rid of some stocks as a personal favour to her. In these circumstances, it is not too difficult to understand why he had acceded to her request. Of course, he did not do it for any altruistic reason merely to help Heng or her uncle; he obviously did it to maintain his goodwill and good rapport with Heng so that he could continue doing business with the first appellants. He also made a small gain. It is also not too difficult to understand that he trusted Heng and accepted her words that the goods sold to him belonged to her uncle and that she had arranged for them to be shipped from the United States, notwithstanding the absence of documents in support. Looking at the totality of the evidence, it would not be realistic to fault the respondent as a businessman for dealing with Heng in the way he did. Nor would it be fair to judge his conduct and dealings with Heng with the benefit of hindsight. 38 To a certain extent this question is linked with the first issue of conspiracy to defraud the first appellants. The learned judicial commissioner has exonerated the respondent from any conspiracy to defraud the first appellants and we agree with him. That finding is also relevant to the question whether the respondent had at all material times acted in a bona fide manner. The following finding of the learned judicial commissioner at p 551 bears repeating: … I was satisfied with the second defendant’s explanation that he did not think it was possible for some one to take goods belonging to the first plaintiffs from the first plaintiffs’ premises. I also believed his explanation that he did not insist on documentation for the goods as he was under the impression that the goods belonged to the first defendant’s uncle. 39 In his evidence, the respondent did say that he did have some suspicion as to the origin of the goods said to be sold to him but in view of the tight security of first appellants, he did not think that it was possible to take goods from the first appellants’ premises. He also believed and accepted Heng’s words that the goods were her uncle’s and therefore he did not insist on the production of documents in support. This conclusion he held, and the learned judicial commissioner who had the benefit of seeing and hearing him believed his testimony. In the face of this finding, the respondent certainly did not have level (iii) knowledge, ie wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make. These findings, as they stand, deny any dishonesty on the part of the respondent. Borrowing Millet J’s words, if the respondent did not draw the obvious inferences or make the obvious inquiries because, however foolishly, he did not suspect wrongdoing or, having suspected it, had his suspicions allayed, however unreasonably, that is not dishonesty. In the light of the learned judicial commissioner’s findings, we are of the view that the respondent could not be said to have acted in bad faith or in the knowledge of the facts entitling the first appellants to restitution. 40 The question still remains whether it is inequitable in all the circumstances to require the respondent to make restitution to the first appellants in respect of the sum of $995,409.07. The learned judicial commissioner dealt with this as follows, at p 552: In the present case, the first defendant, an employee of the first plaintiffs, devised a scheme to cheat her employers. She enlisted the help of the second defendant who believed her story about an uncle in the United States who had stocks of LFS and texwipes to clear. The first defendant, who was employed as a planner by the first plaintiffs, had, at the material time, been put in charge of ‘indirect materials’, which included packaging materials and LFS. According to her then store manager, Mr Goh, she had to check on material requirements and make replenishment. She was responsible for making material requisitions when stocks were running low. She was authorized to make a recommendation on the suppliers for the materials. Mr Goh’s evidence was that audit checks were carried out every month and that he discovered the first defendant’s fraud 11 months after her scheme to cheat her employers was put into operation. The second defendant was innocently drawn into the first defendant’s fraudulent scheme. The first plaintiffs were negligent in failing to detect her fraud earlier. Had the fraud been discovered earlier, the first plaintiffs’ losses would have been much smaller. Having regard to all the circumstances of this case, it would be inequitable to order the second defendant to make restitution to the plaintiffs of the balance of the $1,984,740 which they have failed to recover from the first defendant. 41 We are in agreement with the learned judicial commissioner. In our judgment, the respondent, having paid out most of the moneys to Heng, had so changed his position that it would be inequitable to order him to repay to the first appellants those sums of money apart from the sum of $46,390. In our judgment, the defence of change of position succeeds. 42 What we have decided is sufficient to dispose of the appeal. But the respondent has in the respondent’s notice raised two further issues on which lengthy arguments have been addressed to us by both parties. We therefore think it is right that we should deal with these issues also. The liquidation of the first appellants 43 The respondent resisted the appeal on two other grounds. He contended that the winding up of the first appellant company had progressed to a very advanced stage and that the company has therefore been dissolved, and in consequence the action cannot be continued and this appeal cannot be maintained. We disagree with the respondent’s contention. It is settled law that it is only upon the final dissolution of a company that a cause of action vested in it ceases to exist: see Foster Yates & Thom Ltd v HW Edgehill Equipment Ltd. In this respect, the provisions of s 308 of the Companies Act (Cap 50, 1990 Ed) are pertinent. Section 308(1) states that as soon as all the affairs of the company are fully wound up the liquidator shall call a general meeting of the company for the purpose of laying the accounts to show how the winding up was conducted and to give any explanation thereof. Section 308(3) provides that within seven days after the meeting the liquidator shall lodge a return of the holding of the meeting with the Registrar of Companies and the Official Receiver. Section 308(5) then provides that on the expiration of three months after the lodging of the return with the registrar and the Official Receiver, ‘the company shall be dissolved.’ Only when these requirements in s 308 are satisfied will a company have been finally dissolved. There was no evidence that any of these events have taken place. The respondent points to the fact that the liquidators’ account of receipts and payments and statement of the position in the winding up (Form 75), shows that a sum of $708,212 representing surplus assets had been paid to the contributories (the second appellants) on 27 September 1989. He points also to the liquidators’ account of receipt and payment for the period 13 March 1993 to 12 September 1993 which discloses that no further receipts or payments were made after 27 September 1989. However, this is not enough to satisfy s 308 of the Companies Act. In fact, in a return filed as late as 11 October 1993, the liquidators state that there was a delay in the winding up because of the need to obtain tax clearance. We are therefore of the view that the first appellants still exist and can maintain the action against the respondent through the liquidator who, by virtue of s 272(2) of the Companies Act, continues the action and this appeal in the name of the first appellant company. Insurance 44 The respondent raised another objection to the appellants’ claims. He pointed to the fact that the first appellants’ holding company, Seagate Technology Inc, recovered US$259,876.82 from their insurers as full and final settlement under a policy protecting them against loss resulting from the dishonesty of an employee. Clause 4 of the agreement between that company and their insurers provided, inter alia, as follows: Each party acknowledges that there is a risk that, subsequent to the execution of this agreement, they may incur liability, loss, attorney’s fees or expense which are in some way connected with Seagate’s claim and which are unknown or anticipated at the time this agreement is executed. Each party acknowledges that this agreement accounts for these risks, and each party waives all rights each may have in unsuspected claims. 45 The respondent thus argued that it would be inequitable to permit the first appellants to claim the full balance sum of $995,409.07 and the appellants’ claims should be reduced by US$259,876.82. 46 The first appellants are a different legal entity from Seagate Technology Inc which recovered the amount under the insurance policy in question. However, leaving this fact aside, we are still of the opinion that the payment out under the insurance policy does not bar the first appellants’ claim against the respondent. The contract of insurance creates rights and obligations only between the insured and the insurer. The respondent, not being privy to the contract of insurance, acquires no rights under it. Thus, he cannot seek to rely on the contract to say that the first appellants’ damage or loss has already been compensated as a result of the payment out under the policy. 47 The general rule as established in King v Victoria Insurance is that where an insurer had entered into a bona fide settlement with an insured in satisfaction of a claim brought by the insured, the defendant has no locus standi to question this settlement when he is being sued by the insurer exercising his right of subrogation. The rationale stated for this rule is that the defendant is not a party to the settlement and has no interest to question it. 48 Analogously, we are unable to see how this settlement can create any equitable rights in favour of the respondent. In the present case, both Seagate Technology Inc and their insurers have as between themselves settled the matter of the loss under the policy for the sum of US$259,876.82. Each party has specifically waived their rights to any money recovered by the other party. 49 We are unable to accept that a party who has taken out an insurance policy to guard against loss and who has paid the premiums, cannot now be allowed to retain the proceeds of that payment from the insurers, since the risk has materialized because of some concept of equitable set-off. Furthermore, we are equally unable to accept that the respondent can claim the benefit of any private agreement between the appellants or their holding company and their insurers to which he was not a party and to which he gave no consideration. Equity does not assist a volunteer. The appellants and the insurers had contracted a full and final settlement, but the latter clearly recognized that the appellants could and would take the risk by further pursuing the action against the respondent, which may not yield any further benefits. If the appellants were willing to bear the risk of suing the respondent, it would be their good fortune if they succeed. 50 We accept that the law does not condone double recovery. However, the manner in which the law achieves this is quite different from the respondent’s contentions. Payment out by the insurer under the policy raises the insurer’s right of subrogation and the insured has a duty not to prejudice this right: see West of England Fire Insurance Co v Isaacs at p 229. This right could be prejudiced by any claim against or a settlement with a third party as the third party would then be able to rely on the judgment or settlement between him and the insured as a defence to the insurer’s action which must be brought in the name of the insured. Thus, an insurer may restrain an insured if the latter sues a third party without the former’s sanction: see The Law Fire Assurance Co v Oakley at p 309 per Mathew J. If the insured is allowed to prosecute his claim without interference and succeeds, he must account to the insurer for the amount originally paid under the policy: see Horse, Carriage and General Insurance Co Ltd v Petch. Thus, the way in which the law prevents double recovery is by giving the insurer the right to recover the moneys paid out under the policy in the event that the insured sues the third party successfully. This right to recover is premised upon the insurer’s right of subrogation and it, being the insurer’s right, may be waived by the insurer if he so desires. Whether or not he does, the third party cannot complain. Therefore, the respondent cannot rely on the payment out under Seagate Technology Inc’s insurance policy to bar or offset the claim by the first appellants against him. Conclusion 51 In the result, we affirm the learned judicial commissioner’s finding of fact that there was no agreement between the respondent and Heng whereby they conspired to cheat the first appellants. The action for conspiracy to defraud therefore fails. We are also of the opinion that the first appellants’ action for moneys had and received cannot succeed in respect of the sums paid out by the respondent to Heng as such payment out amounted to a bona fide change of position which would make an order for restitution inequitable. However, this latter claim succeeds in respect of the $46,390 which the respondent still retains. This sum should be paid to the first appellants; and we so order. To that extent only, we allow the appeal. 52 We now come to the question of costs. The appellants have not succeeded substantially in this appeal, and it is the respondent who succeeded on the principal issues. In the circumstances, the respondent should be entitled to part of the costs of the appeal. We accordingly order the appellants to pay to the respondent half of the costs of appeal. There will be the usual consequential order for payment to the respondent of the deposit in court as security for costs. Appeal allowed in part. Reported by Hoo Sheau Peng