Barclays Bank Plc v Kalamohan & Anor

A person who receives money paid by mistake is liable in restitution where the payment unjustly enriches him and was not received in good faith. The court may also enforce proprietary rights through a trust, knowing receipt and tracing. A change of position defence is unavailable to a recipient who lacked good faith. A fraudster cannot rely on the claimant’s alleged negligence in failing to verify information supplied for a transaction. A principal may be vicariously liable for an agent’s fraud where the agent acted within actual or apparent authority, even if the principal lacked personal knowledge of the fraud.

Barclays Bank plc claimed repayment of a mistaken payment and damages arising from fraudulent representations made in connection with two loans under the Small Firm Loan Guarantee Scheme. The mistaken payment was credited to Mr Alamaigan’s account and transferred by bankers’ drafts into Mr Kalamohan’s account and towards properties owned by the defendants.

The Bank alleged that Mr Kalamohan fabricated or knowingly signed documents falsely recording payments for stock, which were used to support the loan applications. Mrs Kalamohan denied personal involvement but accepted, through the pleaded case, that Mr Kalamohan acted as her agent in the Stomp Road transaction. The issues were whether the defendants were liable in restitution, tracing, knowing receipt and fraud, and whether Mrs Kalamohan was liable for her husband’s acts.

1. Judgment for the Bank. The court found that the defendants were not owed money for stock and that the documents supporting the two loan applications were part of a fraud perpetrated by Mr Kalamohan. He had signed the receipts knowing, and intending, that they would be supplied to and relied upon by the Bank when deciding whether to lend.
2. The mistaken credit was paid out of Mr Alamaigan’s account before the Bank discovered the error. The defendants were unjustly enriched at the Bank’s expense and were liable to repay the sums represented by the bankers’ drafts. The court applied the principles in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, BCCI v Akindele [2001] Ch 437 and Uzinterinpex v Standard Bank plc [2008] 2 Lloyds Rep 456.
3. Alternatively, Mr Alamaigan held the bankers’ drafts on trust for the Bank and it would have been unconscionable for him to deny the Bank’s entitlement. The transfers to the defendants were made in breach of fiduciary duty. Mr Kalamohan was liable for knowing receipt, and the Bank could trace the proceeds of the second draft into the residential properties acquired with them, applying Foskett v McKeown [2001] 1 AC 102.
4. A change of position defence was unavailable because the money had not been received in good faith. The defendants also could not rely on any alleged negligence by the Bank in checking whether the borrowers had invested their own money. The court applied Standard Chartered Bank v Pakistan National Shipping Co [2003] 1 AC 959.
5. Although Mrs Kalamohan was not alleged to have known the details of the fraud, Mr Kalamohan acted as her agent in the Jesuthas transaction. Under Lloyd v Grace, Smith & Co [1912] AC 716, Briess v Woolley [1954] AC 333 and Egger v Viscount Chelmsford [1965] 1 QB 248, she was vicariously liable because he acted within his actual or apparent authority. Relief was granted as claimed.