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Charles Mitchell
Thu, 3 Dec 1998 12:37:40
Lloyds Bank plc v Independent Insurance Co


In the Times today: the Court of Appeal's decision in Lloyds Bank plc v Independent Insurance Co Ltd - a bank made a payment via electronic fund transfer to its customer's creditor in the mistaken belief that the customer's account was sufficiently in credit to cover the payment - in fact, there was less in the customer's account than the bank had thought because he had previously deposited a cheque which was then dishonoured - the bank sought to recover the amount paid from the creditor

Held: (i) the effect of the bank's payment was to discharge the debt - this followed from the fact that the customer had authorized the bank to pay - ie this was not a stopped cheque case like Barclays v Simms where the bank's mistaken payment was unauthorized - at first instance, the judge had held that on the facts the bank's payment had not been authorized - but once the CA had held otherwise the bank's case was clearly doomed, for it was then predictable that the court would go on to hold that:

(ii) the nature of the bank's mistake was such that it prima facie had a right to recover from the creditor via an action in UE; but that

(iii) the creditor had a good defence to the bank's claim, viz bona fide purchase for value of the money - the value given being the discharge of the debt; alternatively, the creditor could have relied on a change of position defence.

All this was a straightforward application of Barclays v Simms, and as far as I can tell from the report, the case adds nothing new to Robert Goff J's analysis of the defences which can be raised to claims to recover mistaken payments at [1980] QB 695, apart from the weight of Court of Appeal authority.

The case is another illustration of the fact that the courts disregard questions of fault in the context of claims in UE to recover mistaken payments - it was no bar to the bank's claim that its mistake had arisen from its own negligence. But the question arises whether, in Steve Hedley's words (in a message to this group on Kleinwort v Lincoln CC on 3rd November), it is appropriate for the courts to 'treat city banks as deserving the protection of the courts from the consequences of their own mistakes ... like vulnerable children, unversed in the ways of the world' - an argument which is also made by Michael Bridge in his recent JBL piece on BFC v Parc.

The present case was obviously dissimilar to BFC v Parc in the sense that the bank did not confer the relevant benefit on the defendant following protracted commercial negotiations during the course of which it might reasonably have been expected to inform itself about various relevant matters, such as the identity of the parties upon whom it was conferring the benefit in question. And my instinct is to say that we may legitimately distinguish between this BFC type of case, and a case such as the present, where the plaintiff's negligence did not lie in a failure to inform itself properly about the identity and credit-worthiness of the defendant, for the purposes of saying whether the plaintiff's negligence was of a type that in principle should disable it from subsequently claiming in UE from that defendant. But this argument is of course purely academic, since as the law currently stands it makes no difference what type of idiocy the plaintiff has perpetrated, and negligence of whatever kind is no bar to recovery.



Dr Charles Mitchell
Lecturer in Law
School of Law
King's College London

tel: 0171 873 2290
fax: 0171 873 2465

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