Barclays Bank Ltd v WJ Simms

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An interesting counterpoint to the recent, eye-catching decision of the New York District Court in Citigroup v Brigade Capital Management, in that it came to more or less the exact opposite conclusion. There is no discharge for value defence in the English law of restitution. A bank who pays its customer’s creditor without instructions to do so does not discharge its customer’s debt and, subject to the usual conditions, can recover the payment from the creditor in an action in restitution.

Facts

The customer made out a cheque to his builder, but then cancelled the instruction before the cheque was presented. The bank paid it anyway, by mistake. Clearly the bank was not entitled to claim the money from its customer, as it had acted in breach of its instructions, so it claimed the money back from the builder under the principles of restitution. By lucky hap the case came before Robert Goff J (as he then was), the father of the modern law of restitution.

He found for the bank, and set out his throughts on the extent of a banker’s obligations to its customers, and the elements of a claim in restitution:

(1) If a person pays money where a mistake of fact is the operating cause of the payment, she is prima facie entitled to recover it as money paid under a mistake of fact.

(2) Her claim may however fail if:

(a) she intended that the payee should have the money anyway, even if the facts were false; or

(b) she made the payment for good consideration, in particular if it discharges a debt the payer (or her principal, if she is an agent) owed to the payee (or his principal, where he is an agent); or

(c) the payee has changed his position in good faith in reliance on the payment.

Robert Goff J (as he then was) wrote in a peculiarly leaden style which, because life is too short, I have edited it for brevity to remove his compulsive demnations and alternative articulations of the same thing:

[after reviewing cases where a bank honours a cheque within its mandate]“In other cases, however, a bank which pays a cheque drawn ... by its customer pays without mandate. A bank does so if, for example [here many fascinating, but irrelevant, examples followed] if it overlooks notice of countermand of the customer. In such cases the bank pays without mandate and, unless the customer ratifies the payment, the bank cannot debit the customer’s account, nor will its payment discharge any obligation of the customer, because the bank had no authority to discharge such obligation.

The judge considered two types of mistaken payment by the bank: (i) where it is mistaken belief that the customer had sufficient funds to meet the cheque when it didn’t; and (ii) where it overlooks notice of countermand given by the customer.

In the first case by making payment the bank effectively accepts the customer’s (implied) request for a loan; the payment is therefore within the bank’s mandate, and the bank has recourse to the customer, but the customer’s obligation to the payee is discharged.

In the second case, however, the bank has no mandate. The bank therefore has no recourse to its customer; and the customer’s debt to the payee on the cheque is not discharged.

Prima facie, the bank is entitled to recover the money from the payee, unless the payee has changed his position in good faith, or is deemed in law to have done so.