High Court rules Trafigura can retain $21.6m in mistaken payments following trade fraud - Trade Treasury Payments

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High Court rules Trafigura can retain $21.6m in mistaken payments following trade fraud

A London High Court ruling has clarified the boundaries of unjust enrichment law in the context of trade finance fraud, finding in favour of multinational commodities trader Trafigura in a case brought by Rasmala Trade Finance Fund.

Rasmala, a Cayman Islands-based fund, had sought restitution of $21.6 million it mistakenly paid to Trafigura under forged tripartite trade finance agreements arranged by Dubai-based Farlin Energy & Commodities. Although the underlying transactions were fraudulent, the court found that Trafigura acted in good faith and had materially changed its position based on the payments, defeating Rasmala’s claim.

The judgment, handed down by Mr Justice Rajah on 23 June, reaffirms the protection available to recipients of mistaken payments who rely on them in good faith.

Payments made under forged arrangements

Between August 2017 and March 2018, Rasmala advanced nearly $21.6 million to Farlin to finance a series of coal trades purportedly involving Trafigura. Each transaction was structured using a tripartite payment agreement (TPA), signed by representatives of Rasmala, Farlin, and Trafigura. These agreements directed Rasmala to make payment directly to Trafigura on Farlin’s behalf.

The TPAs were accompanied by a package of supporting documents (i.e., sales contracts, purchase orders, and bills of lading) intended to evidence the underlying transactions. At the time, these materials appeared routine and consistent with standard trade finance documentation. The formal execution of the TPAs and the inclusion of Trafigura as a named party gave the arrangements the appearance of legitimacy.

In reality, Farlin had fabricated the documentation. No coal shipments ever took place, and the referenced trades were fictitious. Instead, Farlin used the funds to settle its pre-existing debts to Trafigura. The fraud was not uncovered until well after the payments had been made.

Industry experts say the case underscores the importance of experienced operational oversight.

“The London High Court’s ruling in Trafigura’s favor and against Rasmala Trade Finance Fund in this case is another critical example of how important it is for financing firms and banks to have a collateral management team in place with extensive physical commodity experience,” said Anton Posner, CEO of Mercury Resources and TTP Global Advisory Panel member. “Had Rasmala scratched the surface and independently worked to verify the documentation that Farlin Energy & Commodities sent them, there’s a good chance this fraud would have been uncovered early on.”

Rasmala, having made the payments under false pretences, later brought a restitution claim against Trafigura, arguing that the funds had been transferred in error and should be returned.

The change of position defence

In response, Trafigura argued that it had no knowledge of the fraud and had acted on the assumption that the agreements were valid. To that effect, it had credited the payments against Farlin’s outstanding liabilities and refrained from pursuing other recovery options. 

These steps, it said, amounted to a “change of position”, a recognised defence under English law that can defeat a restitution claim where the recipient has acted in good faith and relied on the payment.

The court agreed.

Justice Rajah held that Trafigura had “changed its position in good faith and materially,” relying on the documentation provided and its longstanding commercial relationship with Farlin. The TPAs, though later revealed to be grounded in fraud, had been properly executed and consistent with prior dealings. There was no evidence that Trafigura suspected wrongdoing at the time of the transactions.

Others in the trade finance ecosystem say the case should reignite scrutiny of counterparties with controversial track records.

“Farlin are another company well known in the industry as having a chequered background, similar to some of Prateek Gupta’s associates, with whom Trafigura is also in dispute,” said Ian Milne, Executive Director of Sales at MonetaGo. “This should again raise serious concerns about internal controls and the robustness of due diligence by lenders.”

The judgment confirmed that Trafigura’s application of the funds to reduce Farlin’s debt constituted a sufficient change of position to defeat Rasmala’s claim and allow Trafigura to retain the funds.

What are the implications for trade finance claims?

The ruling in this case reinforces the evidentiary threshold required to recover mistaken payments in complex trade finance frauds. While restitution is available in cases of unjust enrichment, the defence of change of position limits its reach where recipients act in good faith and alter their circumstances in reliance on a payment.

It also affirms the legal effect of structured payment arrangements such as TPAs. Even where the underlying transactions are false, the formality and apparent regularity of the agreements (when accepted at face value) can provide a basis for protection under the law.

For trade finance funds and lenders, the ruling is an example of the risk that payments made under seemingly verified structures may not be recoverable if recipients rely on them in good faith. For recipients, it offers assurance that legal certainty can be preserved where conduct was honest and commercially reasonable.

Where the law draws the line

Rasmala’s claim failed because the law does not compel repayment where the recipient has, in good faith, changed their position. Trafigura’s conduct (i.e., applying the funds to extinguish an existing debt and ceasing recovery efforts) was sufficient to invoke that protection.

The case illustrates how, in the context of multi-party trade finance arrangements, the legal framework surrounding unjust enrichment remains closely tied to questions of reliance, documentation, and commercial behaviour. 

Even where fraud is present, restitution is not automatic. The law recognises the practical realities of trade, and that legal certainty must apply to innocent recipients caught in the periphery of fraudulent schemes.