Illegality and its Impact on Running Accounts in Complex Commercial Relationships

Introduction

In the commercial realm, business relationships often aim towards longevity and growth. The natural corollary of this is the formation of complex commercial frameworks, which may include networks of related companies, series of compound transactions, and extensive running accounts between parties. The more complex a relationship, the more difficult to untangle when disputes arise – this was the issue faced in the Singapore High Court case of Deepak Mishra and another v Rashmi Bothra [2025] SGHC 170.

The Claimants and the Defendant in this case had a long-running commercial relationship, in which they established a Running Account involving numerous financial transactions between them and their respective companies over the years. When disputes arose between the parties, they sought to claim against each other for substantial sums owed under the Running Account. This was further complicated by the Claimants’ unpleaded allegations, arising in the midst of the trial, that certain transactions were illegal, rendering the entire Running Account unenforceable.

The Court held that ultimately the Defendant was owed a sum of US$71,321,679.83 under the Running Account, finding that the unpleaded allegations of illegality did not taint the entire Running Account. The Court analysed each transaction to determine if it was related to the illegality, and if not, whether it should be included in the Running Account based on the evidence.

The decision demonstrates the court’s methodical approach to deciphering commercial relationships, and how illegality may affect the enforceability of transactions in the context of running accounts. This Update provides a summary of the key points of this decision.

The Defendant was successfully represented by Vikram Nair, Ashwin Menon, and Han Xin Yi of Rajah & Tann Singapore LLP.

Brief Facts

The Claimants and the Defendant had mutual dealings with each other, both in their personal capacities and through entities which they owned or controlled. This led to formation of the Running Account between the parties, through which numerous transactions took place over several years.

The relationship between the parties eventually soured, leading to litigation. The Claimants initially claimed US$54.7 million was owed to them, while the Defendant counterclaimed for US$137.1 million. By this point, the Running Account was fairly extensive, comprising 287 transactions, with 198 undisputed and 89 disputed. 

During the trial, the Claimants withdrew most of their claims, asserting instead that the Running Account was unenforceable due to illegality. This arose from a series of alleged sham transactions in the Running Account that were intended to deceive banks by creating fake sales to obtain letters of credit and profit from interest rate arbitrage (“LC Discount Trades“). The Defendant denied illegality and pursued her counterclaim.

The Court thus had to determine:

• Whether the Running Account was unenforceable on the ground of illegality; and
• If not, whether to allow the Defendant’s claims and the Claimants’ remaining claim under the Running Account.

Holding of the High Court

The Court found that certain payments under the Running Account were unenforceable due to illegality, but upheld the rest of the Running Account. Based on its assessment of the remaining claims, the Court awarded judgment in favour of the Defendant. 

Illegality and Enforceability

The Court found a series of transactions involving letters of credit purportedly for the sale of goods, but where no goods were actually shipped. These sham transactions were designed to deceive banks into issuing and discounting letters of credit for the non-existent trades. The Court held that 15 of the payments under the Running Account were proven to be part of the illegal LC Discount Trades and thus unenforceable.

However, the Court rejected the Claimants’ argument that the entire Running Account was tainted and unenforceable due to the illegality of the LC Discount Trades. It found no evidence that the Running Account as a whole was set up for an illegal purpose, and many transactions were unrelated to the LC Discount Trades. The Court highlighted that a running account is not rendered unenforceable merely because some entries are invalid or illegal; each transaction is assessed on its own merits.

In reaching its decision, the Court undertook a detailed, transaction-by-transaction analysis, relying on both oral and documentary evidence, to decide which payments were tainted by illegality.

• In particular, for disputed payments, the Court considered whether the Claimants had provided sufficient evidence that they were part of the illegal scheme.
• Where there was partial evidence of illegality, the Court went on to examine the timing and instructions for each payment, and whether the payment sequence was consistent with the LC Discount Trade pattern.

Disputed Claims 

For the disputed claims, the Court analysed each remaining transaction, determining whether it should be included in the Running Account based on the submitted evidence.

• Nature of transaction: The Court examined whether the transaction reflected a mutual dealing or financial arrangement between the Claimants and the Defendant, as opposed to a separate, unrelated business or personal dealing.
• Evidence of instructions and control: The Court looked for evidence that the transaction was made at the instruction of, or for the benefit of, one of the parties to the Running Account.
• Connection to the parties’ entities: The Court considered whether the entities involved in the transaction were among those agreed to be part of the Running Account.
• Purpose and outcome of transaction: The Court looked to the purpose of the transaction, whether that purpose was achieved, and whether the transaction should be accounted for between the parties.

Based on the above assessment, the Court awarded the Defendant US$71,321,679.83, representing the sum due under the enforceable parts of the Running Account. The Court dismissed the Claimants’ remaining claim and most of their objections to the Defendant’s counterclaims, except where specific payments were proven to fall outside the Running Account.

Concluding Words

The Court’s decision demonstrates how illegality affects the enforceability of running accounts. In particular, only transactions proven to be illegal are unenforceable. The presence of some illegal transactions does not automatically taint an entire running account or business relationship. Further, the party alleging illegality must provide clear evidence, which the Court will scrutinise to determine the true nature of the dealings.

The decision also highlights the methodical nature of the court’s approach in assessing disputed transactions in the context of complex commercial relationships. The court will analyse the specific circumstances of each transaction, underscoring the importance of obtaining sufficient evidence to support the submitted interpretation of the transaction.

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