Al-Kishtaini v Shanshal [2001] EWCA Civ 264; [2001] 2 All ER (Comm) 601; [2001] Lloyd’s Rep Bank 174
Claimant’s claim to recover money failed because of illegality
Facts
Al-Kishtaini, the defendant at trial, transferred DM700,000 to Shanshal, the claimant, for a proposed Russian oil venture in 1992. Shanshal used the funds for his own purposes and the venture failed. In February 1993, Shanshal paid just under US$500,000 for shares Al-Kishtaini was acquiring. Because the Deutschmark had fallen against the dollar, this exceeded the value of the DM700,000 to be repaid. Shanshal claimed the difference of DM113,569.
Issues
At first instance, Richards J held that Shanshal had breached his duty to use Al-Kishtaini’s money only for the venture, but could recover the overpayment, subject to a set-off for any sum due on an inquiry into that breach. Al-Kishtaini appealed, arguing that Shanshal’s payment was prohibited by the Control of Gold, Securities, Payments and Credits (Republic of Iraq) Directions 1990. The question was whether the Directions still applied to Al-Kishtaini despite his having left Iraq for Jordan before the payment. Shanshal also argued that barring recovery would infringe his property rights under Article 1 of the First Protocol to the European Convention on Human Rights.
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Decision/Outcome
The Court of Appeal allowed Al-Kishtaini’s appeal. The payment prohibition in the 1990 Directions continued to apply to persons resident in Iraq when they came into force, including Al-Kishtaini, despite a later change of residence. Shanshal had not obtained Treasury permission for the payment. His claim to recover the overpayment, whether in contract or restitution, failed because it depended on his own prohibited act. Furthermore, assuming that the claimant was entitled to invoke the right to property under the European Convention on Human Rights at all, the case clearly fell within the public interest exception to the right and the illegality defence is not incompatible with the claimant’s right to property in terms of the Convention.
The court refused the late attempt to raise a new factual issue about whether Al-Kishtaini had given an order for payment. It did not need to decide the remaining appeal grounds concerning estoppel, settled account, gift and interest.
