Lloyds Bank v Independent Insurance

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Now, a Court of Appeal judge is undoubtedly a guardian of the Queen’s English, and far be it from this snitty little rogue to have an opinion (I mean, can you imagine?), but Lord Justice Waller’s habit of referring to a corporation as if it were a crowd, and therefore a plural is an abomination.

It is galling enough when members of the internet do this, to their favourite foopball teams or pop bands, where there is at least an argument, however misguided, that the whole is no more than the collection of its members, but a corporation, under his honour’s own freaking law, is its own legal personality. It is — must be, at a profoundly ontological level — a singular entity.

And nor can we put this down to wokeness: firstly, it was 1998, so everyone was racist, misogynist and cis-biased etc. etc. etc. — i.e., no-one was woke — and secondly, in any case, “bank” takes the neuter pronoun “it”, so would have been perfectly woke in the singular anyway.

I have re-rendered the Lord Justice’s pronouns as, in my opinion, they should be.

Right.

Background

Lloyds transferred money into Independent’s account at the Royal Bank of Scotland by mistake. Independent argued that Lloyds made the transfer on behalf of its customer WFL, with its authority, to discharge WFL’s debt that was due to Independent.

At first instance, the court held that WFL had not authorised the transfer.

Independent appealed, arguing that Lloyds was authorised, or that it was ostensibly authorised to transfer the money, so the payment discharged WFL’s debt to Independent, thus providing a defence to Lloyds’ claim restitution.

Lloyds argued the first instance judge was right, but even if he wasn’t, Lloyds should still succeed on its restitutionary claim.

Facts

There is some confusion to be navigated not only on account of Lord Justice Waller’s curious facility with pronouns, but because both WFL and Independent had accounts at RBS. WFL was apparently moving its business from RBS to Lloyds. There was a bit of a S.N.A.F.U. where WFL first sent Independent a cheque drawn on RBS, which bounced, but this is all a bit of pre-conflict theatre.

The meat of the action happened when WFL instructed its new bank, Lloyds, to credit the same amount, £162,387.90, to Indepedent’s RBS account by wire transfer. At the time, Lloyds account only had £982 in it. Lloyds said, “We’ll do it as soon as you put us in cleared funds”. Funds were incoming by means of a cheque for £168,000 drawn in WFL’s favour by a third party, Kaffco.

Lloyds credited Kaffco’s cheque to WFL’s new account but marked it as “uncleared funds”, awaiting clearance from Kaffco’s bank.

You’ll never guess what happened next.Before Kaffco’s bank could clear the cheque, Lloyds only went and paid out the £168,000 to Independent by mistake, didn’t it.

And you’ll never guess what happened after that: the Kaffco cheque bounced. Whoops! Lloyds put WFL’s account into overdraft, but in the meantime, asked Independent for the money back.

Issues

Actual authority: Did Lloyds have actual authority to pay £162,387.90 to Independent? The Court of Appeal was unanimous: it did. This puts this case on a different footing from both Barclays Bank v WJ Simm, where the bank explicitly did not, and Citigroup v Brigade Capital Management, where the bank had no instructions at all.

Ostensible authority: If not, actual authority, did the bank have ostensible authority? This is a tricky area and Lord Justice Peter Gibson, realising he did not have to address this question, preferred not to. Discretion is the better part of valour, and all.

Restitution: If Lloyds had any kind of authority, could it claim restitution of the mistaken payment? Here, the Court of Appeal unanimously agreed it could not, and pointed to the famous “condition 2(b)” articulated by Robert Goff J in Barclays Bank Ltd v WJ Simms:

“(2) [A claim for restitution] may however fail if [...] (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”

Lloyds had made the rather careful argument that, whether or not it was authorised to make the payment, Independent would be receive a “windfall” enrichment at Lloyd’s expense, since the effect of authorisation would be to discharge the debt. Enrichment, yes; “unjustified”, no: this was no “windfall” in Independent’s hands (except to the extent WFL could not meet the debt at all), but the satisfaction of a debt. Nor was Lloyds’ without legal remedy: as they had acted within their mandate, Lloyds had a claim, in the form of their overdraft, against WFL.

It is true that there is an economic argument here, which Robert Goff adverted to in Barclays:

“It is, of course, true that the mistake was entirely of the Plaintiffs’ making and that the Defendants were not at fault in any way in accepting or indeed for the time being seeking to retain the payment; on the other hand, the Defendants were prepared to extend credit to WFL by appointing them as their agents and by allowing them to collect premium, whereas the Plaintiffs had never been prepared to have WFL as a debtor. Moreover, if the Defendants are entitled to retain the payment, it may properly be regarded as a windfall: had the Plaintiffs not made the mistake which they did, the Defendants would have been left to their remedies against WFL ...”

In Barclays Bank Ltd v WJ Simms Robert Goff J had found there was no actual authority and the bank’s payment did not discharge the debt in question. There, restitution was available, not being defeated by Condition 2(b). Here it was not.

See also

• Discharge-for-value defense

• Judgment transcript
• Citigroup v Brigade Capital Management
• Barclays Bank Ltd v WJ Simms