#6772 - Lloyd’s Bank Plc V. Independent Insurance Co. - Restitution of Unjust Enrichment BCL

Lloyd’s Bank plc v. Independent Insurance Co.

Facts

W.F. 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 W.F. owed at least 162,387.90 to Independent in respect of premium received from an assured called David Glass & Associates.

W.F. 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.

A fax was sent from WF To Lloyd’s bank that said: “As advised, a sum of 16 7,621.61 will arrive by CHAPS today. As soon as this happens, please send 162,387.90 by CHAPS to: Royal Bank of Scotland”

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 W.F. by a company called Kaffco Ltd…. Mr. Flagg replied that payment could be made only after the cheques had cleared, three working days later, 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 W.F.'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 W.F.'s account (debiting the value of the cheque) and putting the account substantially into overdraft.

Now, the bank seeks to recover this amount from Independent Ltd.

Holding

Waller LJ

On the basis of the interpretation of communication between WF and the bank and in particular, the meaning assigned to the words “as soon as possible” by the parties, he concluded thus, “in the result it is my view that in making the payment on 19 July 1995 the bank were not acting outside their actual authority.”

Mr. Hapgood on behalf of the bank boldly submits that condition 2(b) as set out by Robert Goff J. in Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. [1980] Q.B. 677, 695, is inaccurately expressed.

What Mr. Hapgood submits is that Independent are as unjustly enriched at the bank's expense whether the payment was authorised by W.F. and the bank made the mistake which they did or whether the payment was unauthorised and the bank made the same mistake. He submits that if Independent are entitled to retain the money they will have received a windfall at the expense of the bank.

I follow in one sense the point that it can be said that even an authorised payment leaves Independent enriched at the expense of the bank. But clearly one of the points that lay at the root of Robert Goff J.'s reasoning in the Simms case [1980] Q.B. 677 was the recognition that restitution would not be ordered where the payment made under a mistake had in fact discharged an existing debt. If restitution could be ordered even where a debt was discharged, it would have been quite unnecessary to consider whether the bank in that case was acting within its authority. But Robert Goff J. recognised that if a payment by an agent (the bank in that case as in this) did discharge a debt, that would provide a payee with a defence to a restitutionary claim. That being fundamental to his reasoning it is inaccurate to suggest that his formulation of the principle expressing that view was obiter.

It also seems to me that the proposition that if the debt was discharged the payee would have a defence to a restitutionary claim in fact simply applies basic principles relating to restitutionary remedies. There are, as I see it, two bases which support the fundamental proposition in restitutionary terms. First, arguably, where the debt has been discharged the payment has been made for good consideration. But the second basis does have Goff Jones's support in the same paragraph. If a payment has discharged the debt, then unless an order to return the money...