Senex Holdings Ltd v National Westminster Bank Plc

A bank may rely on an instruction given by a company’s directing mind even where the instruction does not strictly comply with the account mandate, provided the individual had actual authority as between himself and the company. A breach of duty owed to the company’s creditors does not, without more, negate that authority. The bank’s position is also protected where it has no notice of the breach and the other joint account holder does not challenge the transaction. The court applied the principle that a bank accepting a non-compliant instruction assumes the risk that the signatory lacked authority, but not the separate risk that an authorised signatory was acting in breach of duty to third parties.

Senex Holdings Limited claimed a declaration that National Westminster Bank plc was indebted to it for £1 million held in a joint account established under a planning agreement. The account was originally held in the joint names of Senex and the London Borough of Wandsworth. The bank later substituted Senate Capital Limited for Senex after receiving an instruction from Mr Simpson and a corresponding instruction from the local authority. The £1 million was subsequently paid to Senate Capital.

Senex, by then in liquidation, argued that Mr Simpson lacked authority to instruct the change because the company was arguably insolvent and he was acting in breach of duty to its creditors. The bank applied for summary judgment under CPR 24.2(a)(i). The central issue was whether an arguable breach of duty to creditors prevented Mr Simpson from having actual authority to give the instruction on behalf of Senex.

1. Application granted. The claimant’s claim had no real prospect of success, and summary judgment was entered for the bank.
2. A bank acting on an instruction that does not comply with the applicable mandate assumes the risk that the person giving it lacked authority from the customer. That principle does not require the bank to assume the separate risk that an authorised person was acting in breach of duty to third parties. The court applied London Intercontinental Trust Ltd v Barclays Bank Ltd [1980] 1 Lloyd’s Rep 214, where a bank was entitled to act on a cheque signed by one person despite a mandate requiring two signatures because that person had actual authority.
3. It was arguable that Mr Simpson had breached duties owed to Senex’s creditors by instructing the transfer of the account when Senex may have been insolvent. However, that did not mean that he lacked actual authority quoad Senex for the purpose of determining whether the bank could rely on his instruction.
4. Mr Simpson was Senex’s directing mind and will, its effective owner through Senate Capital, and a director when the instruction was given and throughout the relevant period. As between Mr Simpson and Senex, he was authorised to give the instruction. The bank had no actual or constructive notice of any breach of duty to creditors, and the local authority did not challenge the change of account name.
5. In those circumstances, the bank was entitled to rely on the instruction even though it did not comply strictly with the joint mandate. The reasoning was consistent with the distinction identified in Winkworth v Edward Baron Development Co Ltd [1987] BCLC 193 between duties owed to creditors and the authority of a company’s agent.