Commerzbank Aktiengesellschaft v IMB Morgan Plc & Ors

Victims who establish a proprietary claim may trace misappropriated or mistakenly paid money through a mixed correspondent bank account. A payment made for a specific purpose may also be held on trust where that purpose fails.

The rule in Clayton’s Case is a rule of convenience. It need not be applied where its operation would be impracticable or unjust. Where claimants have equal rights to a mixed fund, the ordinary fair method is distribution pari passu, in proportion to the amounts of their valid claims.

Commerzbank held dollar and sterling correspondent accounts for IMB Morgan. The accounts were frozen after evidence linked transactions to fraud and money laundering. Numerous remitters, fraud victims and other parties claimed proprietary rights in the remaining balances.

Commerzbank obtained interpleader relief under RSC Order 17 and paid the balances into court after deduction of its costs. The court assessed the documentary claims, determining which claimants had proprietary rights and how the limited funds should be distributed. The principal distribution issue was whether the rule in Clayton’s Case applied to the mixed funds.

1. The claimants had to establish a proprietary right rather than merely a debt due from IMB Morgan. A person defrauded may trace property into the hands of the recipient, including through a bank account in which the money has been mixed with other funds. The court relied on Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, El Ajou v Dollar Land Holdings plc (No. 1) [1993] 3 All ER 717 and related authorities.

2. A payment made by mistake may support a proprietary claim where there is an identifiable fund, the payment was made at the recipient’s request, and the recipient has notice of the claim. In those circumstances it would be unconscionable for the recipient, or other claimants to the fund, to retain the benefit.

3. Money paid for an unfulfilled purpose is held on trust for the payer. This principle applied to the claims of Mr Vine and Hawick Plant Auctions and Mr Baker.

4. The claims substantially exceeded the balances. The court adopted a proportionate assessment based on the documents, deciding on the balance of probabilities whether each claimant had a proprietary claim and, if so, its amount.

5. The rule in Clayton’s Case attributes withdrawals to deposits chronologically. It is a rule of convenience and need not be applied where it would be impracticable or unjust. The correspondent-account structure made it extremely difficult to identify which funds had been paid away by IMB Morgan. Applying the rule would therefore be both impracticable and unjust.

6. The remaining balances were to be distributed pari passu, in proportion to the valid claims on each account. The sterling claimants would receive approximately 46 per cent of their claims and the dollar claimants approximately 9 per cent.