His conscience would be affected as a constructive trustee because it was high probable that the director had explained Mr Varsani the whole arrangement, cf Re Montagu’s ST [1987] Ch 264.
The Court of Appeal held that the liquidator of Relfo Ltd was entitled to be repaid money that had ended up in Versani’s hands because the sums were causally linked through various transactions.
Although not necessary, in a claim for unjust enrichment, it did not matter that Varsani had not received the Intertrade payment directly from Relfo Ltd.
Mr Salter submits that the cases show that normally the defendant has to be a person to whom the claimant directly transferred the benefit.
Professor Burrows calls the principle now set out in section 8 "the direct providers only" rule, though he accepts there are exceptions to it.
Mr Salter's submissions involve the analysis of a large number of authorities, including Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759, Banque Financière de la Cité v Parc Battersea Ltd [1991] 1 AC 221 and Kleinwort Benson Ltd v Birmingham City Council [1997] QB 380.
We were also taken for completeness to Gibbs v Maidstone and Tunbridge Wells NHS Trust [2010] EWCA Civ 678, and Uren v First National Home Finance Ltd [2005] EWHC 2529 (Ch) but they do not significantly assist on the question of whether a principle exists which defines when a claimant can succeed on his claim in unjust enrichment against an indirect recipient.
Mr Salter accepts that the decision of Henderson J in Investment Trust Companies v HMRC [2012] EWHC 458 (Ch); [2012] STC 1150 ("ITC") is the first case in which the question of the nature of the connection has been squarely addressed.
Henderson J held: "[68] The real question, therefore, is whether claims of the present type should be treated as exceptions to the general rule.
So far as I am aware, no exhaustive list of criteria for the recognition of exceptions has yet been put forward by proponents of the general rule, and I think it is safe to assume that the usual preference of English law for development in a pragmatic and step-by-step fashion will prevail.
Nevertheless, in the search for principle a number of relevant considerations have been identified, including (in no particular order): (a) the need for a close causal connection between the payment by the claimant and the enrichment of the indirect recipient; (b) the need to avoid any risk of double recovery, often coupled with a suggested requirement that the claimant should first be required to exhaust his remedies against the direct recipient; (c) the need to avoid any conflict with contracts between the parties, and in particular to prevent 'leapfrogging' over an immediate contractual counterparty in a way which would undermine the contract; and
For reasons which I develop below, I consider that the judge's ultimate conclusion was correct notwithstanding the withdrawal of the concession in this court.
Furthermore, in my judgment, Menelaou supports the argument that, where the defendant is not the direct recipient of the benefit provided by the claimant, and the claimant has no proprietary right to any asset in the defendant's hands, unjust enrichment may be available on the basis of a general principle rather than on the basis of bringing the case within (say) one of the specific situations in section 8 of the Restatement.
The Appellate Committee of the House of Lords was unimpressed by the fact that Mr Herzig was interposed as borrower and lender.
Lord Hoffmann, with whom a majority of the House agreed, held that to allow the interposition of Mr Herzig to alter the substance of the transaction would be pure formalism.
An example of a case which failed on the third ground is Orakpo v Manson Investments Ltd. [1975] AC 95, in which it was considered that restitution would be contrary to the terms and policy of the Moneylenders Acts."91.
In that case, again as Floyd LJ explains, Mr and Mrs Filby's matrimonial home was subject to a mortgage in favour of the Halifax.
Mortgage Express claimed to be subrogated, amongst other things, to the rights of the Midland Bank against Mrs Filby to the extent that the joint debt to them had been discharged with their money.
Subject to special defences, questions of policy or exceptional circumstances affecting the balance of justice, the enrichment will be unjust if the claimant did not get the security he bargained for when he advanced the money which in reality effected the improvement, and if the defendant's financial improvement is properly seen as a windfall.
Moses LJ, however, did not think it was necessary to rely on economic reality as such on the grounds that this test was uncertain and that a decision-maker might use this concept because he was unable to articulate his real reasoning.
In all the circumstances, Floyd LJ concluded at [42] of his judgment: "Whilst the precise range of relevant factors which are relevant may require consideration in other cases, for my part I would hold that there was a sufficiently close causal connection in the present case between the Bank's agreement to part with its estate in Rush Green Hall and the enrichment of Melissa to hold that Melissa was enriched at the Bank's expense."95.
Nonetheless, particularly read with the passage from the speech of Lord Hoffmann in Banque Financière and the dictum of May LJ set out above, the decision strongly supports the view that the law is moving towards identification of a general principle.
[...] Short of applying the rigid exclusionary rule based on direct transfers only, the judge was bound to conclude on these particular facts that there was a sufficient causal connection between Relfo's loss and Bhimji Varsani's gain to provide for a remedy in unjust enrichment.
I cannot accept the suggestion that the intervening and meaningless arrangements orchestrated by the director, which had no other purpose than to disguise the source of the funds diverted from Relfo, changed what would otherwise have been a direct payment into one which the law will not recognise as sufficiently proximate.