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CCRTF 97/1602/2


3PLR/1998/69 (SCJ)








LLOYDS BANK PLC – Respondent





MR JONATHAN SUMPTION QC and MR ANDREW LENON (instructed by Messrs  Davies Arnold Cooper, London EC4Y 8DD) appeared on behalf of THE APPELLANT

MR MARK HAPGOOD QC and MR MICHAEL KAY (instructed by Messrs Stones  Porter, London EC4A 4AQ) appeared on behalf of THE RESPONDENT



BANKING AND FINANCE LAW:- Banking practices – Irrevocable electronic payment – Payment made by bank on customer’s behalf in the mistaken belief that customer’s check had cleared – Action to recover payment from receiver – How treated





JUDGMENT (As Approved by the Court )

Thursday 26 November 1998


Introduction 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 Company Limited (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 Limited (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.


The Facts

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.


Barclays Bank Limited v Simms [1980] QB 679.

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 (as he then was) having reviewed the authorities, summarised the resulting principle at 695 C-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 debtowed 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 so.”

In this appeal there is no challenge to the judge’s finding that the Bank made a payment under the mistake that there were cleared funds standing in WF’s account and that such a mistake qualified as a mistake of fact prima facie entitling the Bank to recover.

It was Independent’s case before the judge, and has been their case as presented on this appeal, that the money paid to Independent was however paid to discharge a debt owed to Independent by a third party (WF) by whom the Bank had been authorised to discharge the debt. It is the submission of Mr Sumption that if the Bank was authorised to make the payment to Independent then that payment immediately and automatically discharged the debt owed by WF. Thus his submission is that the debt being discharged Independent had given full consideration for the payment or that Independent had changed their position, and on those bases had a defence to restitution.

Mr Hapgood’s submission was that in fact exception (2)(b) was founded on a misinterpretation of the authorities. He accepted that a payer making a payment to discharge a debt owed by the payer would not be able to recover on the basis of mistake, but he submitted that simply because the Bank were authorised to make the payment did not carry with it the result that the Bank were automatically barred from a restitutionary remedy. However, he in any event submitted that the judge was right in holding that the Bank, in this particular case, were not authorised to make the payment, and it is on the question of authority that both counsel concentrated at the commencement of their submissions. It is convenient thus to take the issues in the order as they were argued.

Actual authority

The judge concluded that the payment of £167,621.61 made by the Bank to the Royal Bank of Scotland for the account of Independent on 19 July 1995 was outside the authority which had been vested in them by WF. The judge’s reasoning was on the following lines. First, he concluded that by reference to the express wording of the fax dated 12 July 1995 the initial instruction to the Bank made it a condition precedent to any onward payment for the account of Independent, that £167,621.61 should have arrived and been credited to WF’s account with the Bank. Second, he then examined against that background the extent to which that instruction was superseded or varied by the oral exchanges between Mr Beckingham and Mr Flagg on 14 July 1995. He only had the evidence of Mr Flagg, and on the basis of that evidence reached the following conclusion:

“…. I have to say that I found Mr Flagg an impressive witness and I accept that so far as he is concerned, understood objectively, the only change in the instruction was that necessitated by the new source of funds. When Mr Beckingham asked for the onward remittance to be made as soon as possible, that in no way conveyed that so far as he was concerned, payment was to be effected prior to WF’s account being credited with cleared funds: “as soon as possible” was merely a variant upon “as soon as this happens”, meaning as soon as possible without exposing WF to the risk of an onward payment uncovered by uncleared inward funds. So far as commercial considerations are concerned, the position is exactly the same as that which I explored in relation to the original instruction, above: for all Mr Flagg knew, the Kaffco cheque for £168,000 represented premium which [the Bank] were only to pass on to [Independent] after receipt of cleared funds. In my view therefore the payment to [Independent] made on 19.7.95 was outside the authority which was vested in them.”

The judge was clearly right to approach the question of actual authority by reference to the question whether WF had stipulated some condition precedent to the Bank being entitled to pay on WF’s behalf the sum which they were otherwise requesting the Bank to pay to Royal Bank of Scotland for Independent’s account. Mr Sumption referred us to the passage in the judgment in Barclays Bank v Simms at 699C to 700D which is in the following terms:

“It is a basic obligation owed by a bank to its customers that it will honour on presentation cheques drawn by the customer on the bank, provided that there are sufficient funds in the customer’s account to meet the cheque, or the bank has agreed to provide the customer with overdraft facilities sufficient to meet the cheque. Where the bank honours such a cheque, it acts within its mandate, with the result that the bank is entitled to debit the customer’s account with the amount of the cheque, and further that the bank’s payment is effective to discharge the obligation of the customer to the payee on the cheque, because the bank has paid the cheque with the authority of the customer.

In other circumstances, the bank is under no obligation to honour its customer’s cheques. If however a customer draws a cheque on the bank without funds in his account or agreed overdraft facilities sufficient to meet it, the cheque on presentation constitutes a request to the bank to provide overdraft facilities sufficient to meet the cheque. The bank has an option whether or not to comply with that request. If it declines to do so, it acts entirely within its rights and no legal consequences follow as between the bank and its customer. If however the bank pays the cheque, it accepts the request and the payment has the same legal consequences as if the payment had been made pursuant to previously agreed overdraft facilities; the payment is made within the bank’s mandate, and in particular the bank is entitled to debit the customer’s account, and the bank’s payment discharges the customer’s obligation to the payee on the cheque.

In other cases, however, a bank which pays a cheque drawn or purported to be drawn by its customer pays without mandate. A bank does so if, for example, it overlooks or ignores notice of its customer’s death, or if it pays a cheque bearing the forged signature of its customer as drawer, but, more important for present purposes, a bank will pay without mandate if it overlooks or ignores notice of countermand of the customer who has drawn the cheque. In such cases the bank, if it pays the cheque, pays without mandate from its customer; and unless the customer is able to and does ratify the payment, the bank cannot debit the customer’s account, nor will its payment be effective to discharge the obligation (if any) of the customer on the cheque, because the bank had no authority to discharge such obligation.

It is against the background of these principles, which were not in dispute before me, that I have to consider the position of a bank which pays a cheque under a mistake of fact. In such a case, the crucial question is, in my judgment, whether the payment was with or without mandate. The two typical situations, which exemplify payment with or without mandate, arise first where the bank pays in the mistaken belief that there are sufficient funds or overdraft facilities to meet the cheque, and second where the bank overlooks notice of countermand given by the customer. In each case there is a mistake by the bank which causes the bank to make the payment. But in the first case, the effect of the bank’s payment is to accept the customer’s request for overdraft facilities; the payment is therefore within the bank’s mandate, with the result that not only is the bank entitled to have recourse to its customer, but the customer’s obligation to the payee is discharged. It follows that the payee has given consideration for the payment; with the consequence that, although the payment has been caused by the bank’s mistake, the money is irrecoverable from the payee unless the transaction of payment is itself set aside. Although the bank is unable to recover the money, it has a right of recourse to its customer. In the second case, however, the bank’s payment is without mandate. The bank has no recourse to its customer; and the debt of the customer 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.”

Mr Sumption sought to suggest that there was no difference between the situation envisaged in the above passage and the present case except that the customer’s request in the present case took the form of an instruction to make an electronic transfer, as opposed to drawing a cheque which is then presented by the payee. He must be right in that submission if the request to effect an electronic transfer is unqualified, but where a customer draws a cheque on a bank without funds in the account or an overdraft facility, the cheque constitutes a request to the bank to provide overdraft facilities. That is so by virtue of the unqualified nature of the process of drawing a cheque. In the instant case the question is whether the request to transfer money was qualified; if it was and the qualification was unfulfilled then the Bank would have acted without authority; if it was not, the situation becomes analogous to the drawing of the cheque as analysed in the above passage, and the Bank, even if they had the right, vis a vis their customer to refuse to effect the payment in the absence of funds, would be acting within their mandate if they did pay and then debit the account as if overdraft facilities had been agreed.

Both Mr Sumption and Mr Hapgood accepted that in order to ascertain the ambit of the Bank’s authority it was necessary to find first the terms of the instruction given by WF, and then construe those terms objectively in the context of the facts known to both the Bank and WF. Although both accepted that starting point both were guilty then of seeking to argue what must have subjectively been in the minds of Mr Flagg and Mr Beckingham the persons acting in this instance on behalf of the Bank and WF respectively. Unfortunately, as it seems to me, when Mr Flagg gave evidence he too, under questions from counsel for Independent and questions from the judge, was allowed to speculate as to what might or what might not have been in either his or Mr Beckingham’s mind at the time when Mr Beckingham gave instructions to the Bank, and indeed as a result of the questioning contemplated it as possible that certain matters were actually discussed at the time of the instructions being given which had not in anyway been referred to in his witness statement as being part of Mr Beckingham’s instructions. For example Mr Flagg gave evidence that he thought that it might be of significance that a broker would not want to account for premium before it had in fact been received; he further thought that in the conversation between himself and Mr Beckingham it was likely to have been mentioned that it would not be until 12 noon on Wednesday 19 July 1995 that the proceeds of the cheques being paid in by WF on 14 July 1995 could be treated as cleared funds. However, as to whether Mr Beckingham on that Friday actually qualified the authority of the Bank to make the payment he was requesting the Bank to make, Mr Flagg in his evidence did not add or subtract from the words of his witness statement which were in these terms:-

“[Mr Beckingham] asked me to make the payment he had requested in his fax by CHAPS to Independent. To the best of my recollection he did not ask me to make payment that day although I believe he wanted payment to be made as soon as possible, and I told Mr Beckingham that payment could only be made after the cheque had cleared on 19th July 1995, the following Wednesday.”

At the time of this conversation the facts known to both Mr Beckingham and Mr Flagg were that on 12 July 1995 Mr Beckingham had been desirous of a sum being paid by CHAPS to Independent on that day. Funds had been intended to be deposited in WF’s account at Lloyds to allow that payment to be made, but those funds had not appeared on 12, 13 or 14 July 1995. WF were now producing cheques in place of the funds which would not produce cleared funds that day as a CHAPS transfer would have done. Indeed those cheques would not be cleared until Wednesday 19 July 1995.

A clear distinction must be drawn between what the Bank were entitled to do within its mandate from WF, and what the Bank were obliged to do as a result of the instructions it was accepting. I am for my part doubtful whether the original fax of 12 July 1995 should be construed as imposing a condition precedent on the Bank’s authority to pay as opposed to a recognition of the reality of the situation that, until funds were received, the Bank would not pay. But however the fax is to be construed, by Friday 14 July 1995 a different situation had arisen. WF had at least the three cheques and thus an expectation of funds. It wanted Independent paid “as soon as possible”, and the context in which those words appear in Mr Flagg’s statement i.e. “to the best of my recollection he did not ask me to make payment that day …” demonstrates the illegitimacy of construing that phrase as meaning “as soon as possible without exposing WF to the risk of an onward payment uncovered by uncleared funds”.

The Bank were of course informing Mr Beckingham that the Bank could not pay until the cheques had been cleared on 19 July 1995, but that was making clear that they were not obliged to do so and a qualification they were imposing on their obligation. It was not a qualification being imposed on the Bank’s authority by Mr Beckingham.

Mr Hapgood sought to gain some support for his argument that there had been imposed a qualification on the Bank’s authority by reference to certain documents. First he went to a manuscript note at page 199 of the Core Bundle. The note had been produced on discovery by Independent. The author was unknown. It referred apparently to a conversation that must have taken place between Andrew Paull of Royal Bank of Scotland and Mr Flagg of the Bank at some time after Mr Beckingham paid in the three cheques on Friday 14 July 1995, but before Wednesday 19 July 1995. The indication would be that Mr Paull was told that instructions had been given for the payment to be made once the cheques had cleared. The word “Wed” would indicate the expected day for payment as the Wednesday. This note might have assisted Mr Flagg to recollect what was said between him and Mr Paull, but otherwise was of little help in resolving the critical issue. It, for example, is quite consistent with instructions having been given within the Bank to pay only when cleared funds have been received and not to pay until Wednesday. It does not support the view that Mr Beckingham had placed some qualification on the Bank’s authority to pay.

The second document relied on by Mr Hapgood is a letter dated 28 July 1995 written by Mr Beckingham. Mr Hapgood suggested that after the event both the Bank and WF treated the Bank’s authority as having been limited and that thus should support the view taken by the judge. The letter, he suggested, demonstrated WF’s view of the authority conferred. The context of that letter is conveniently summarised in the judge’s judgment at p.7-8. In short, on 19 July the Bank had entered the amount of the Kaffco cheque as a contra entry, the hope being still that that cheque would ultimately be met because the notified reason for dishonour was merely “effects uncleared”; on 25 July the Kaffco cheque not having been paid, the same was returned to WF, and WF’s account was debited with the £168,000 giving rise to a debit balance of £155,691.39; Mr Beckingham was seeking to persuade Mr Flagg all would be well on the basis that the Kaffco cheque represented premium (which it did not), and that Independent would be sympathetic to a request for debt of the sum paid to them by WF, paid on the faith of an assured’s cheque which had been dishonoured. On 26 July however the Bank refused payment on two cheques drawn in favour of Guardian Insurance (for £983.21) and Independent (for £733.43).

Following the returning of those two cheques Mr Beckingham for WF wrote as follows:-

“Account No: 1019049

I refer to our telephone conversation yesterday and understand that you have returned cheques recently issued by me to pay insurance companies. The reason for this being that the CHAPS payment to Independent which you made against an uncleared cheque has been set against this account thus creating an overdraft, which the aforementioned cheques would have exacerbated. I can not stress strongly enough the seriousness of this action. The ongoing operation of this company has been jeopardized. Unpaid cheques usually result in the cancellation of an insurance agency and therefore this company will have to close. If this happens then I shall certainly seek recompense from the Lloyds Bank as this company has not done anything wrong and has always acted in good faith. Therefore I urge you to contact the insurance companies involved and tell them it was a bank error and that they will be honoured.”

With all respect to Mr Hapgood, I do not see that the way the parties conducted themselves after the event assists in this case. So far as the Bank themselves were concerned, they initially treated themselves as entitled to debit WF’s account and thereby grant overdraft facilities, conduct consistent with them believing they had acted within their authority, but they ultimately opened a separate account so as to attempt to preserve the position. So far as WF were concerned they did not initially protest that the payment had been made without authority, and even following the above letter of protest, which it should be said resulted in the bank meeting the two cheques, they did not protest when their account was sent to them showing an overdraft at £155,720.33 (judgment p.9). Even if it were permissible to seek assistance by reference to conduct or things said after the event, where there is no consistency in that conduct it could only be a fruitless exercise.

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.

Ostensible authority

Having found actual authority, the question of ostensible authority simply does not arise. In deference to the arguments addressed, I would however simply like to record my views on those arguments. First Mr Sumption was not suggesting in this case that the Bank could not deny their authority by virtue of a representation made by WF to Independent, or by virtue of some representation made by the Bank on behalf of WF to Independent. His case was (1) that by virtue of the fax sent to Independent on 11 July, WF held out the Bank as authorised to make the payment; (2) that Independent relied on the Bank being authorised by conducting their business on the basis that the payment was valid; (3) that the above factors were sufficient to lead to the conclusion that as between Independent and WF the payment must be treated as authorised, and WF’s debtMy difficulties with the above argument I will express shortly. First, as the judge said, the weight of authority is to the effect that the doctrine of apparent authority is based on estoppel (see Bowstead & Reynolds on Agency 16th Edition Article 73 para.8-09). It is true that a disposition of property can be effective under the doctrine of apparent authority so as to confer “a real title and not merely a metaphorical title by estoppel” viz a title which can be transmitted to persons unable to rely on the estoppel (see Bowstead & Reynolds Article 85 para.8-126 as relied on by Mr Sumption). But the payment by the Bank in this case does not seem to me to equate with a disposition of property, and there is no question of Independent having sought to transfer anything or even deal with third parties on the basis of a valid payment having been received. Second, as Halsbury 4th Edition Vol. 16 para.951 states: “Estoppel may therefore be defined as a disability whereby a party is precluded from alleging or proving in legal proceedings that a fact is otherwise than it has been made to appear by the matter giving rise to that disability. Estoppel is often described as a rule of evidence, but the whole concept is more correctly viewed as a substantive rule of law”. I am thus unpersuaded that as between the Bank and Independent it is open to Independent simply to assert that because the Bank were held out (if they were) as being persons authorised to pay a certain sum and because Independent received that payment and treated it as valid, as against the Bank the debt must be treated as discharged. I can see that if the issue were to arise as between WF and Independent, and if Independent were to seek as against WF to maintain that the payment was valid, provided there was the requisite representation, reliance and detriment (to which I will turn in a moment), WF would be precluded in such proceedings as were being fought between those two from denying the Bank’s authority. It does not however in my view follow that because Independent could so contend in proceedings where the issue arose, that the debt must as between Independent and the Bank be treated as discharged. That, as it seems to me, is to promote estoppel to a function for which it was not designed.

Conversely I should also say that I would accept that if Independent could establish that by virtue of a representation, and Independent’s reliance thereon, Independent would in fact be precluded from recovering from WF because WF could maintain that the debt had been discharged, that would produce a situation in which Independent should not be liable to restore the payment to the Bank but that would flow from the fact that Independent had changed their position.

What however in my view follows from the above is that in fact the only relevant inquiry if WF had not given actual authority, is whether as between WF and Independent, Independent would be precluded from asserting that the debt had not been discharged.

That inquiry would, as I see it, produce only one answer because if Independent proceeded against WF on the basis that the Bank had no actual authority, it would not be open to WF to rely on any representation they made to Independent as conferring authority ostensible or otherwise.

Even if I be wrong in the above view, in respectful agreement with footnote 25 on p.139 of Goff & Jones 4th Edition relating to the drawer of a cheque, I do not see that a fax identifying the Bank as the payers of funds can be construed as a holding out by WF that the Bank had authority to make the payment so as to preclude them from asserting that the Bank did not have authority. Furthermore, so far as reliance is concerned, Independent on the evidence did not rely on “the bank having authority”. They simply relied on the fact that the money was due. Where a party enters into a contract with an agent negotiating on the other side, it is clear that reliance will be placed on the fact that the agent has authority to agree. In relation to a simple payment of money, it is much more difficult to see why there is any reliance at all on authority particularly in a case such as the present where the money is simply going to be placed to the credit of an account at a bank, and the only matter of moment is whether the money arrives or whether it does not. Finally, although Mr Sumption strove valiantly to establish detriment by showing the ways in which Independent acted once they received the money, in truth he failed to show that Independent had altered their position at all other than conceivably to their own benefit in reliance on the payment being a valid one.

If I had not found actual authority I would accordingly have been against Independent on their alternative case based on ostensible authority.

Does the fact that the Bank was authorised prevent a restitutionary remedy ?

Mr Hapgood on behalf of the Bank boldly submits that condition 2(b) as set out by Robert Goff J in Simms is inaccurately expressed. He indeed submitted in his skeleton argument that part of condition 2(b) is obiter. Condition 2(b) provides that a claim may fail where “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 … by the payer or by a third party by whom he is authorised to discharge the debt The submission is that because Robert Goff J found that in that case the Bank was unauthorised the italicised words are obiter.

The starting point for Mr Hapgood is the words of Sir Peter Millett in his paper “Restitution and Constructive Trusts” published now in Restitution Past, Present and Future: Essays in Honour of Gareth Jones (1998) p.199:-

“The structure of this form of restitution is now firmly established.

There are five questions to be asked:

(1)     has the defendant been enriched?

(2)     if so, is his enrichment unjust?

(3)     is his enrichment at the expense of the plaintiff?

(4)     has the defendant any defence to the claim?

(5)     what remedies are available to the plaintiff?”

He then points out that in Barclays v Simms Robert Goff J at 703 in a passage at the end of the judgment expressed his relief at being able to reach the conclusion he did in the following words:-

“I must confess that I am happy to be able to reach the conclusion that the money is recoverable by the plaintiff bank. If the bank had not failed to overlook its customer’s instructions, the cheque would have been returned by it marked “Orders not to pay,” and there would have followed a perfectly bona fide dispute between the association and the receiver on the question, arising on the terms of the building contract, whether the association was entitled to stop the cheque – which ought to be the real dispute in the case. If the plaintiff bank had been unable to recover the money, not only would that dispute not have been ventilated and resolved on its merits but, in the absence of ratification by the association, the plaintiff bank would have had no recourse to the association. Indeed, if under the terms of the building contract the money had not been due to the defendant company, non-recovery by the plaintiff bank would have meant quite simply a windfall for the preferred creditors of the defendant company at the plaintiff bank’s expense. As however I have held that the money is recoverable, the situation is as it should have been; nobody is harmed, and the true dispute between the association and the receiver can be resolved on its merits”.

Those sentiments were echoed by the judge in the instant case where he said:-

“Finally on this issue, it was sought on behalf of the Defendants to emphasise that recovery is based upon unjust enrichment and it was urged on me that, in effect, I should make some kind of value judgment, preferring the Defendants to the Plaintiffs. For my part, I do not regard this as a legitimate application of the principle in the Lipkin Gorman case, per Lord Goff @ 578-9: unless change of position is established, it seems to me that the justice of allowing or disallowing a debt is irrelevant. In any event, however, I do not think that the exercise would avail the Defendants. 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 WF by appointing them as their agents and by allowing them to collect premium, whereas the Plaintiffs had never been prepared to have WF 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 WF, a company in financial difficulties which had already diverted the premium in question to Kaffco”.

What Mr Hapgood submits is that Independent are as unjustly enriched at the Bank’s expense whether the payment was authorised by WF 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. Indeed he would point out that although on the facts of Barclays v Simms ratification was an unlikely eventuality since the customer had countermanded the cheque, in the instant case it would appear that even if the payment had been unauthorised when made, a unilateral ratification by WF would have led to the result that no restitution should be available if the effect of the ratification would be to discharge the debt. Mr Hapgood then sought to suggest that the authorities on which Robert Goff J had based his conclusion as expressed in Condition 2(b), i.e. Aiken v Short (1856) 1 H&N 210 and dicta in Kerrison v Glyn Mills Currie & Co 81 LJKB 465, were not analysed correctly and did not necessarily lead to the conclusion as expressed in condition 2(b), and in particular did not lead to the conclusion as expressed in that part of Condition 2(b) placed in italics above. 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 was the recognition that restitution would not be ordered where the payment made under a mistake had in fact discharged an existing was discharged, it would have been quite unnecessary to consider whether the bank in that case was acting within their 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 is clear furthermore that whether or not the payee in Aiken v Short had another arguable defence to the restitutionary remedy claimed (as Mr Hapgood would argue), as Robert Goff J showed, Pollock C.B., Platt B and probably Martin B (albeit he did not deliver a judgment) recognised that payment by an agent duly authorised to discharge the debt of the principal could not be recovered. The dictum in Kerrison (supra) referred to at 691 C-D in Simms recognised the same proposition. 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. That is the basis expressed in Robert Goff J’s formulation in Barclays v Simms. Goff & Jones 4th Ed. p.134 could be said not to support that basis with wholehearted conviction. 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 reinstates the debt the payee will have changed his position in no longer having a remedy against the debtor. Mr Hapgood suggests that Bramwell B in Aiken v Short was correct when he said at the conclusion of his judgment:-

“It does not seem to me that the argument derived from the supposed position of the parties, in the event of the money having been refunded, comes to much, because it strikes me that if the plaintiff could recover this money back no difficulty would arise in consequence of Carter saying he has paid the debt In Pritchard v Hitchcock , already referred to, a person having paid a debt and having become bankrupt, and the assignees having got the payment back, the creditor was still held at liberty to sue. So, I take it, here, if this money could have been recovered back, the defendant would have been at liberty to sue George Carter; but, although that part of the argument does not help the defendant, in my mind there are abundant grounds on which I think this rule ought to be made absolute.”

The facts in Pritchard v Hitchcock (1843) 6 Man & G 151, can be summarised as follows. P (the plaintiff) had drawn bills requiring WH to pay P a sum of money three months after date. WH had accepted the said bills. In order to gain further time for WH, GH (the defendant) guaranteed payment of the bills. P pressed for payment. WH did ultimately pay P but was declared bankrupt. WH’s assignees in bankruptcy brought an action against P and obtained recovery of the sum paid as a fraudulent preference. P then sued GH on the guarantee. One defence of GH was that P had been paid and the debt discharged. GH contended that the judgment in favour of the assignees was not admissible to prove non-discharge of the debt The court found that P was entitled to prove in the circumstances payment by WH had not discharged the debt but also accepted that since GH was not a party to the assignee action the judgment in that action was not conclusive. The matter was thus ordered to be retried as to whether there had been “a real and genuine payment of the bills by the bankrupt.” The case is no more than a recognition that a payment may be recovered by an assignee in bankruptcy and if it is the debt will not have been discharged, but that is all as between the principal (or his assignee in bankruptcy) and the payee and on the premise that the principal had no right to make the payment. It does not in my view support the proposition that an authorised payment made by an agent at a time when the payment or transaction cannot itself be impugned as between principal and payee, can simply be ordered to be returned with the effect of reinstating a debt which has been discharged. It also demonstrates incidentally that a decision in favour of A in an action by B that the debt has not been discharged may not assist A in a contest with C.

Mr Hapgood accepted that as between principal and payee the court would not allow restitution on the basis of a mistake if the payment would otherwise discharge a debt. His suggestion was that it should be open to the court to order restitution in favour of his client because they were agents, on the basis that the court could hold that since the money was recoverable at the suit of the agent, once recovered, the non-party WF’s debt would be treated as not discharged.

The difficulty is one cannot start from the assumption that a restitutionary remedy is available in order to discover whether the restitutionary remedy exists. That must particularly be so where the rights of third parties are involved. Indeed Pritchard demonstrates that WF will not be bound by the decision as between the Bank and Independent even if the view supported by Mr Hapgood was a tenable one. That latter fact alone seems to me to demonstrate a change of position because Independent can demonstrate that they on any view might be exposed to an argument that despite restitution having been ordered, the debt in fact remains discharged.

Mr Hapgood did not I confess demonstrate to me how he would suggest that Condition 2(b) should be reformulated so as to allow for restitution where a debt> had been discharged by the payment of an agent which did not expose the payee to the change of position as previously indicated. Mr Hapgood wished to insert a requirement into the condition that where the payer is an agent authorised by a third party to pay, the defence should only apply as against the agent if the agent intended to discharge “for his own benefit”. I do not fully understand that concept . It is true that in the case of Aiken v Short the payer was acting both as agent and in his own interest, but it does not follow that it must always be so if an agent is to be denied restitution. It must be remembered that the formulation in Simms itself contemplates that “… the money is paid to discharge and does discharge a debt owed.& The case further recognises that where the bank meet a cheque payable to A which in fact pays a debt is discharged that surely is the reason why the payee cannot be required to restore the money to the payer, and the interest of the payer cannot alter the fact that the debt has been discharged.

I reject Mr Hapgood’s submissions on this aspect.


I would accordingly allow the appeal.

LORD JUSTICE THORPE: I agree that this appeal should be allowed. Although the argument was extensive and profound in the end I am convinced that there is a simple key to the appeal and it lies in Mr Beckingham’s fax of 11th July 1995 to Independent and Mr Beckingham’s oral instructions of 14th July to Mr Flagg of Lloyds Bank.

The fax has to be construed against the background that Mr Beckingham’s cheque written on 4th July for the payment of the premium due to Independent had been dishonoured. In those circumstances Mr Beckingham risked at a minimum the loss of the agency. The dishonour of the cheque for premium suggested at a minimum that Mr Beckingham was experiencing cash flow problems. The effect of the fax was to communicate to Independent first that Mr Beckingham had set up arrangements with a new banker and second that that bank would be remitting the premium debt by a mechanism that guaranteed absolute transmission of funds on receipt.

Equally the instruction given orally on 14th July was preceded by Mr Beckingham’s fax of 12th July to the bank. In my opinion that represented a self-contained instruction for the conduct of business on that particular day. It constituted an instruction for the disposal of a sum of over £167,000 which ‘ will arrive by CHAPS today ’. Since there was no CHAPS receipt on 12th July the instruction for disposal was nugatory. In my opinion any instructions given by Mr Beckingham two days later in relation to the disposal of the counter credit amounting to over £172,000 were independent and unrelated to the earlier instruction. I disagree with the judge that ‘ what occurred on 14.7.95 represented a partial change in the instruction given in WF’s fax of 12.7.95 ’.

I accept Mr Sumption’s submission that the best evidence of the instruction given by Mr Beckingham orally on 14th July is the evidence of Mr Flagg in chief to the effect that the CHAPS transfer to Independent should ‘ be made as soon as possible ’. It was Mr Flagg who made the obvious banker’s rejoinder that that could not be before clearance of the cheques comprising the counter credit. Read in its entirety I do not consider that Mr Flagg’s evidence in cross examination represents a shift from his evidence in chief. Although Mr Flagg had no knowledge of the diversion of the David Glass premium to Kaffco and equally no knowledge of the dishonoured cheque it must have been plain to him that a customer prepared to meet the expense of a CHAPS transmission was anxious to achieve the transmission to his creditor as a matter of urgency. I therefore disagree with the judge that the instruction as soon as possible ” was merely a variant upon ‘as soon as this happens’, meaning as soon as possible without exposing WF to the risk of an onward payment uncovered by uncleared inward funds” . I equally reject the judge’s view expressed earlier on the same page of his judgment that ‘ the arrival of the £167,621.61 represented a condition precedent to any onward payment to the defendants ’. Both conclusions in my opinion distort the reality that a business man who has not the funds to meet his liabilities strictly as they fall due invariably concentrates upon meeting the most pressing call. Mr Beckingham’s obvious concern was to salvage his relationship with Independent by making good his prior default at the earliest possible moment. I cannot accept that that necessity was outweighed by any need to ensure that Kaffco’s cheque was first honoured.

The only contrary evidence is the letter of 28th July from Mr Beckingham to Mr Flagg, the first two sentences of which read:

“I have referred to our telephone conversation yesterday and understand that you have returned cheques recently issued by me to pay insurance companies. The reason for this being that the CHAPS payment to Independent which you made against an uncleared cheque has been set against this account thus creating an overdraft, which the aforementioned cheques would have exacerbated.”

We know little about Mr Beckingham since he was not a party to the litigation and scarcely gave evidence. Mr Hapgood states that his company subsequently succumbed to insolvency. In my opinion the letter of 28th July reveals little more than the audacity and lack of principle of the incipient insolvent. He had been only too thankful that Lloyds had mistakenly issued the CHAPS transmission against an uncleared cheque with the effect of shoring up his shaky relationship with Independent. His subsequent presentation of that act as going to his disadvantage was at the least disingenuous. In my opinion it does not bear upon the construction of the mandate given to the bank on 14th July.

On that reading of the facts I am in no doubt that Mr Sumption succeeds in his primary submission that the CHAPS transfer made by the bank to Independent’s account at the Royal Bank of Scotland at 10.26am on 19th July was made in accordance with Mr Beckingham’s express authority. Accordingly it falls within paragraph (2)(b) of Goff J’s classification in Barclays Bank Limited v Simms [1980] QB 679 at 695C-D. I would uphold and apply that classification for the reasons given by my lord, Lord Justice Waller, whose judgment I have had the advantage of reading in draft.

LORD JUSTICE PETER GIBSON: Three issues are raised in this appeal.

(1)     Did the plaintiff Lloyds Bank plc (“the Bank”) have actual authority to pay £162,387.90 to the defendant Independent Insurance Company Ltd. (“Independent”) when it made that payment on 19 July 1995?

(2)     If not, did the Bank have ostensible authority to do so?

(3)     If the Bank had actual or ostensible authority, does that authority prevent the Bank from succeeding on its claim for restitution in the sum of £107,387.90 (being the sum paid by the Bank to Independent less £55,000 being a draft from Kaffco Ltd. paid into an account with the Bank for the credit of WF (Insurance Services) Ltd. (“WF”) on 3 August 1995)?

The first issue turns entirely on the interpretation of the evidence, documentary and oral. For the reasons given by Waller L.J. and in acceptance of the argument of Mr. Sumption Q.C. for Independent, I am of the opinion that the Bank had actual authority to make the payment which it did to Independent on 19 July 1995. Although we are differing from the Judge, who gave a full and careful judgment, there is nothing which I wish to add to Waller L.J.’s judgment on this issue.

The second issue therefore does not arise and I would prefer to say nothing on the point.

The third issue arises by the Bank’s Respondent’s Notice and is one of general importance. Mr. Hapgood submitted that it was never a rule of law that an agent who makes a payment under a mistake of fact is unable to recover the payment merely because the agent had authority to make it. He further submitted that even if there was such a rule the law of restitution has now reached the point where it is recognised that unjust enrichment is the unifying factor governing all cases where a restitutionary remedy lies subject to the further recognition in Lipkin Gorman v Karpnale [1991] 2 A.C. 548 of the defence of change of position.

By those submissions Mr. Hapgood sought to challenge the correctness of part of Robert Goff J.’s celebrated formulation in Barclays Bank Ltd. v W.J. Simms Ltd. [1980] Q.B. 679 at 695 of the principles, which he distilled from the authorities, governing the right to recovery of a payment made under a mistake of fact. Robert Goff J. having enunciated the first principle, that of prima facie entitlement to where the mistake of fact under which the payment was made caused the making of the payment, proceeded to indicate three circumstances where the payee might have a good defence to the payer’s claim. The relevant proposition for this appeal is:

“(2)   His claim 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. It is to be noted that in this part of his formulation, Robert Goff J. is basing himself on the defence of good consideration and not of change of position, which is the separate subject of para. (c) of his formulation. The use of the word “may” in “His claim may however fail” is explicable by his qualification of his proposition (b) (at p.695 G-H), viz. where the payer’s mistake is induced by the payee or possibly where the payee, being aware of the payer’s mistake, did not receive the money in good faith: in such cases there will be no defence to the payer’s claim even though the payee has given consideration for the payment by accepting the payment in discharge of a debt owed to him by a third party on whose behalf the payer is authorised to discharge it.

Robert Goff J. derived his proposition (b) from the decision of the Court of Exchequer in Aiken v Short (1856) 35 L.J. Ex. 321 and from dicta of the House of Lords in Kerrison v Glyn, Mills, Currie & Co . (1911) 81 L.J.K.B. 465. Mr. Hapgood submitted that proposition (b) does not accurately represent the true basis of the decision in Aiken v Short (which he accepts was correctly decided) and that there should be added to the end of (b) words to indicate that the payer authorised by a third party to discharge the debt must intend to discharge the debt for the payer’s own benefit if the payee is to have a defence to the payer’s claim.

In Aiken v Short a testator made a first will under which one Carter was to be a residuary legatee. The next year he made a second will under which Carter was only to take a defeasible annuity. After the testator’s death, one Short advanced £200 to Carter on the security of an equitable charge of Carter’s interest under the first will. Short then died, the defendant being his executrix. Subsequently a bank (represented by the plaintiff) advanced money to Carter who conveyed to the bank his supposed interest under the first will subject to Short’s interest. The defendant applied to Carter for the payment of the £200 and interest. Carter referred the defendant to the bank by whom Carter’s debt to Short was paid. The second will was then discovered and the bank sought debt from the defendant of the money paid to her.

Pollock C.B. stated (at p.323) that the defendant had the right to receive the money owed by Carter, and said that he thought that the bank must be considered to have paid that sum for Carter. He said that the case seemed to him to fall within the class of cases in which a man has paid money “in his own wrong”. He continued:

“It may, also, be put upon this ground, that the bankers paid this money rather as the agents of …. Carter than as their own money. If so, it cannot be recovered back.”

Platt B. (at p.324) referred to the defendant wanting the payment by Carter of his debt and applying to Carter for payment. He said:

“He refers her to the bank. They, acting as his agents, upon being referred to, pay his debt. How can that be properly recoverable? Surely the debt is satisfied. The debt was due. It is not as though there were no debt due, and there was a mistake of fact; but here the debt was actually due, and the money was paid to satisfy that debt It appears to me clear, beyond all question, that this money cannot be recovered back.”

Bramwell B. said that Martin B. and he were of the same opinion as that expressed by Pollock C.B. and Platt B., though Bramwell B. went on to make further comments of his own, which I need not rehearse.

In Chitty on Contracts, 27 th ed. (1994), para. 29-022, Aiken v Short is described as an example of failure to recover a payment which was effective to discharge a debt. Robert Goff J. in Simms (at p.687) regarded it as a crucial fact in the case that, the payment having been authorised by Carter, it was effective to discharge the debt in fact owed by Carter to the defendant. He said that the payment was irrecoverable because the defendant gave consideration for the payment.

On that point I respectfully agree. The fact that the bank, by paying the defendant, intended to get rid of the incumbrance on its title which was constituted by the charge to Short explains its motive in paying. But it does not appear to be any part of the reasoning for the decision and in my judgment does not justify a further qualification to proposition (b) in every case where the authorised payment by the agent discharges the debt owed by the principal to the payee.

In Kerrison v Glyn, Mills, Currie & Co. the plaintiff entered into an arrangement with bankers, Kessler & Co., whereby they would honour cheques of one Patterson and when they advised the plaintiff of the amount of the cheques so honoured, the plaintiff would pay Kessler & Co. The plaintiff paid £500 to the defendants for the credit of Kessler & Co., without being advised by Kessler & Co. that that was due, in ignorance of the fact that Kessler & Co. had committed an act of bankruptcy. The plaintiff sought to recover the £500 from the defendants on the basis of mistake of fact. Hamilton J. held that the plaintiff, having paid the money only in anticipation of a future liability, succeeded. The Court of Appeal took a different view on the basis that under the arrangement in force at the time of payment, the plaintiff owed that sum to Kessler & Co. and so the plaintiff could not recover the money paid to the defendants even though it was paid under a mistake of fact. The House of Lords agreed with Hamilton J. Lord Atkinson, giving the leading speech in the House of Lords, (at p.468) said of the Court of Appeal’s conclusion that the plaintiff was bound to pay Kessler & Co. £500:

“But it followed as a necessary consequence of this conclusion …. that when the plaintiff …. lodged with the defendant the sum of 500L to be placed to the credit of Kessler & Co., he was simply in the position of a debtor who had paid to his creditor the debt he owed in ignorance of the fact of that creditor’s bankruptcy, and that this ignorance did not amount to such a mistake of fact as would entitle the debtor to have the money refunded to him. On the assumption that the plaintiff was, by lodging this sum of money, merely paying a debt he owed, the Court of Appeal were, I think, clearly right in this latter conclusion.”

Accordingly the House of Lords was accepting that a payment which is made under a mistake of fact but discharges an existing owing to the principal, on whose behalf the payee is authorised to receive payment, is irrecoverable. That of course was said obiter and is not a case of a payment made by an agent under a mistake of fact. But it provides support for the first part of Robert Goff J.’s proposition (b).

Thus far there is no basis for doubting the correctness of that proposition. But Mr. Hapgood submitted that that proposition no longer represents the law. He rightly said that the law of restitution has developed considerably since Simms, and he referred us to the 5 questions identified by Sir Peter Millett, writing extra-judicially, which Waller L.J. has already set out and I need not repeat. He drew our attention to the comment in Goff & Jones: The Law of Restitution, 4 th ed. (1993) p.134 (see now 5 th ed. (1998) p.205) where the editor appears to prefer change of position to bona fide purchase as the explanation why a payment made under a mistake of fact in discharge of a

My principal objection to Mr. Hapgood’s contentions relates to his assertion that Independent has been unjustly enriched by the payment made to it by the Bank. In my judgment that cannot be said of a payment made to discharge a debt absent the special factors referred to by Robert Goff J. in his qualification of his proposition (b). In Kleinwort Benson v Lincoln City Council [1998] 3 W.L.R. 1095 at p.1145 Lord Hope posed as the third of three questions raised by a claim for restitution of money paid under a mistake: “Did the payee have a right to receive the sum which was paid to him?” He said (at pp.1145,6):

“The third question arises because the payee cannot be said to have been unjustly enriched if he was entitled to receive the sum paid to him. The payer may have been mistaken as to the grounds on which the sum was due to the payee, but his mistake will not provide a ground for its recovery if the payee can show that he was entitled to it on some other ground.”

So here. Independent was entitled to receive the sum paid to it in discharge of the debt owed to it by WF. That, in my view, is not affected by the fact that the payment was made by the Bank as WF’s agent.

I would add that I cannot accept that the defence of bona fide purchase has been overtaken by or subsumed in the defence of change of position. Both defences may coexist (see Lipkin Gorman at pp. 580,1).

It is interesting to note that the conclusion that a payment made under a mistake but in discharge of a debt is irrecoverable is consistent with the American Restatement of the Law of Restitution, to which Mr. Sumption took us. In section 33 it is stated that the holder of a cheque or other bill of exchange who, having paid value in good faith therefor, receives payment from the drawee without reason to know that the drawee is mistaken is under no duty of restitution to him although the drawee pays because of a mistaken belief that he has sufficient funds of the drawer. The commentary states that the payee is entitled to retain the money which he has received as a bona fide purchaser, and the illustrations given by way of typical cases include the payment by a bank of a cheque drawn on it by a customer who has insufficient funds to cover the cheque, the payment going to discharge a mortgage

For these reasons as well as those given by Waller L.J. I would reject the Bank’s contentions on the third issue.

It follows that I too would allow this appeal.

ORDER: (Not part of judgment)

Appeal allowed; judgment to be set aside; respondent to pay the appellant’s costs of the appeal, and the costs of the action at first instance on scale 2; leave to appeal refused; the monies the subject of the action to be returned to the appellant; interest to be paid thereon.


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