Home Information Cases RE I (2007)

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RE I (2007)

Summary

Funds placed with a hawala company for transfer to a foreign account had not been held on trust as the hawala system was totally inconsistent with the existence of a trust and it was inherent in the system that customers' funds were consolidated and constituted the general funds of the company.

Facts

The claimant (C) sought a declaration that the second defendant receiver held on trust funds placed by C with the first defendant hawaladar (H). H had operated a hawala, a money transfer facility. H would receive money from customers and agree to pay the equivalent amount in another currency, minus a small commission, to a designated foreign account. Before making those payments for his clients, H would consolidate funds from different customers in his general cash flow and make a profit on them by manipulating fluctuations in exchange rates. The funds were also used to discharge other company expenses. C paid a sum of money in sterling to H, who agreed to pay the corresponding amount in rupees into the bank account of C's sister in Pakistan. C submitted that the money he placed with H had been held on trust. C argued that H was bound to apply the money to a specific purpose and if he failed to do so, he was bound to return it. C further argued that his money did not constitute part of H's general business cash flow as he had not intended the funds to be treated as such.

Held

H was a trader, using his customers' money for trade: he was not a trustee of his customers' money. It was inherent in the hawala system that money paid by customers was not kept in separate accounts. On the contrary, those monies constituted the general funds of the company from which H made a profit by manipulating exchange rates. The hawala system was totally inconsistent with the existence of a trust, H, Re (2003) EWHC 3551 (Admin) applied. While C might not have intended that the money be placed in the company's general cash flow, there was no evidence of a mutual intention to that effect. Further, C had received no assurance that the money would be held on trust and it was safe to assume that if C had asked for such assurance, H would not have obliged.

Judgment for defendants

Queen's Bench Division
Sullivan J
Judgment date
4 July 2007
References

​LTL 5/7/2007: (2007) ACD 88