Lloyds Bank Plc v Independent Insurance Company Ltd

Waller LJ:

This is an appeal from the decision of His Honour Judge Hallgarten QC under which he gave judgment in favour of Lloyds Bank plc (“the bank”) in the sum of £107,387.90 together with interest. By his judgment, delivered on 24 November 1997, the judge found that the bank had transferred money by an interbank electronic transfer to the account of Independent Insurance Co Ltd (“Independent”) at the Royal Bank of Scotland by mistake. Independent's defence was that the bank made the transfer with their customer's authority in discharge of a debt due from that customer, WF Insurance Services Ltd (“WF”). The judge held that WF had not authorised the transfer and gave judgment in favour of the bank. Independent seek to argue on this appeal that the judge should have found either that the bank were expressly authorised or alternatively that they had ostensible authority to transfer the money and that in those events a debt due from WF to Independent was discharged by the payment which provides a defence to the restitution claim of the bank. The bank seek to uphold the judge's findings in relation to authority but in the alternative seeks to argue that even if authorised the bank were entitled to succeed on their restitutionary claim.

There is no dispute about the essential facts and I can take them as conveniently summarised in the appellant's skeleton argument.

WF was an insurance agent which solicited business on behalf of insurers, including Independent. Under the terms of its agreement with Independent it was authorised to receive premium from assureds on Independent's behalf, and obliged to remit the same to them net of commission. At the beginning of July 1995 WF owed at least £162,387.90 to Independent in respect of premium received from an assured called David Glass & Associates.

On 4 July 1995 WF drew a cheque for the above amount in favour of Independent on an account at Royal Bank of Scotland. On 12 July 1995 that cheque was dishonoured on presentation. That was a serious matter for WF in that dishonour of a cheque was liable to lead to the summary termination of WF's agency.

WF had, as recently as 30 June 1995, opened another account at the Warminster Branch of Lloyds Bank, which, as at 5 July 1995, had a credit of £982. On 11 July 1995 when it must have already been plain that the cheque drawn on Royal Bank of Scotland would be dishonoured, Mr Beckingham, who owned and ran WF, sent a fax on their behalf to Independent in the following terms:

“I refer to our telephone conversation today and confirm that I have arranged with our new bankers, Lloyds, for them to send to you £162,387.90 by CHAPS to your bank, Royal Bank of Scotland, 83 06 08, 21340254.

I apologise for any inconvenience.”

On 12 July 1995 WF sent a faxed instruction to the Warminster Branch of Lloyds Bank in the following terms:

“As advised, a sum of £167,621.61 will arrive by CHAPS today. As soon as this happens, please send £162,387.90 by CHAPS to Royal Bank of Scotland: Sort Code 83 06 08. Independent Insurance Company, a/c no. 21340254. I will speak with you late morning to check matters.”

No CHAPS payment arrived on 12 July 1995 or at all. Instead, on 14 July 1995 Mr Beckingham came to the bank in person and paid in three cheques totalling £172,131.97 including a cheque for £168,000 drawn in favour of WF by a company called Kaffco Ltd. The value of these cheques was credited to WF's account as uncleared effects. Mr Beckingham told the manager, Mr Flagg, that he would like the payment to the appellants to be made as soon as possible. Mr Flagg replied that payment could be made only after the cheques had cleared, three working days later, on 19 July 1995. It is on this conversation that express authorisation depends, and I will return to consider precisely what was said, and in what terms, later in this judgment.

At 10.26 am on 19 July 1995, before the Kaffco cheque had been cleared, the bank paid £162,387.90 to Royal Bank of Scotland by CHAPS transfer for Independent's account. A CHAPS transfer is an instantaneous electronic interbank transfer which is irrevocable, as between banks, once made. The payment was made at this stage because two of the bank's employees mistakenly believed that the value of the cheques entered on WF's account on 14 July 1995 represented cleared funds.

Shortly after the CHAPS payment had been made, the branch was notified that the Kaffco cheque had in fact been dishonoured. The bank immediately made a contra-entry on WF's account (debiting the value of the cheque) and putting the account substantially into overdraft.

The argument in this case from both Mr Sumption QC and Mr Hapgood QC has centred round consideration of the above authority. The factual situation in that case was that Barclays had made a payment to the defendant company in liquidation, overlooking the fact that its customer, the drawer of a cheque, had countermanded payment. Robert Goff J having reviewed the authorities, summarised the resulting principle at p. 695C-D as follows:

“(1) If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact. (2) His claim may however fail if (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; or (c) the payee has changed his position in good faith, or is deemed in law to have done...