Crantrave Ltd v Lloyds Bank Plc

A bank cannot debit a customer's account for an unauthorised payment to the customer's creditor unless the payment was required by due process of law or the bank establishes an effective defence. The customer's claim is for the full contractual balance, rather than damages, and therefore requires no proof of loss.

The mere fact that a voluntary payment benefited the customer does not create an equitable right of recoupment. In the absence of authorisation or ratification, the payment does not itself discharge the customer's debt. The bank bears the burden of proving any ratification, discharge of debt or unjust enrichment relied upon to defeat the customer's claim.

The claimant company, acting through its liquidator, sought repayment of money which its bank had debited from its account and paid to judgment creditors under a garnishee order nisi. The order was never made absolute, and the payment was neither authorised nor ratified by the company.

A district judge granted summary judgment for the company. On 8 March 1999, His Honour Judge Simpson allowed the bank's appeal in the Mayor's and City of London County Court because he considered its proposed reliance on Liggett (Liverpool) Ltd v Barclays Bank Ltd [1928] 1 KB 48 arguable.

The central issue was whether the bank could resist repayment merely because its unauthorised payment was said to have discharged part of the customer's existing debt, so that the customer allegedly suffered no loss.

1. Appeal allowed. Pill LJ held, with May LJ agreeing, that the bank had no defence on the agreed facts. Summary judgment should have been entered for the claimant.

2. Subject to the applicable banking arrangements, a customer is contractually entitled to payment of the full balance credited to its account. A bank cannot reduce that balance by choosing, without the customer's authority or an obligation imposed by due process of law, to pay one of the customer's creditors. The claim is for payment of the contractual balance and is not a damages claim requiring proof of loss.

3. A genuine belief that the bank was entitled to make the payment did not create an equity, particularly where the belief was not reasonable. The unperfected garnishee order imposed no obligation on the bank to pay.

4. Applying Re Cleadon Trust Ltd [1939] 1 Ch 286, Pill LJ held that the mere fact that an unauthorised payment benefited the customer did not establish an equitable right of recoupment. Liggett (Liverpool) Ltd v Barclays Bank Ltd [1928] 1 KB 48 was explained as involving authority to pay the company's current debts. Its principle could not be extended to a payment by an outsider having no direct or indirect authority.

5. In the absence of authorisation or subsequent ratification, payment to a creditor does not itself discharge the customer's liability. Even if an equitable defence could arise without authorisation or ratification, the bank would have to prove that its payment actually discharged the debt. A bare assertion that the customer suffered no loss was insufficient.

6. The bank bore the burden of establishing any equity or unjust enrichment capable of defeating the customer's claim. No authorisation, ratification, discharge of debt or unjust enrichment was proved. May LJ added that ratification, or conceivably other circumstances making recovery unconscionable, might provide a defence in another case.

7. Judgment was entered for the claimant in the agreed updated sum of £21,840, with the claimant receiving the costs of the appeal and the proceedings below.

1. Court of Appeal: Allowed the claimant's appeal, set aside Judge Simpson's decision and entered judgment for the claimant in the agreed updated sum of £21,840.

2. Mayor's and City of London County Court: His Honour Judge Simpson allowed the bank's appeal on 8 March 1999, holding that its reliance on Liggett (Liverpool) Ltd v Barclays Bank Ltd [1928] 1 KB 48 was arguable.

3. District Judge: District Judge Samuels granted summary judgment to the claimant on 18 February 1999 for £20,598.93, including interest.