Bathija v Lloyds TSB Bank Plc

A bank is not in breach of contract by refusing a payment which would exceed an agreed overdraft limit, absent an agreement or other obligation to permit the excess. A bank may nevertheless be liable for failing to execute an authorised payment by the required date. For consequential loss arising from special circumstances, knowledge of those circumstances alone is insufficient. The circumstances must have been communicated so that the bank accepted, or is taken to have accepted, the risk of liability for the resulting loss. Loss caused by an intervening decision or misunderstanding may break the chain of causation. In any event, losses are too remote where the bank could not reasonably foresee the particular consequence or had not assumed responsibility for it.

Global Travel Agency Ltd operated a travel agency and used an overdraft facility with Lloyds TSB Bank plc. Global was required to make a monthly payment to IATA. Lloyds dishonoured the January 2011 direct debit because payment would have exceeded the overdraft limit, but later failed to execute a CHAPS payment to IATA by 19 January 2011. IATA’s resulting default procedure prevented Global from issuing tickets, and Global entered creditors’ voluntary liquidation.

The liquidator assigned Global’s claims to Mr Bathija. He claimed damages for breach of contract and negligence. Lloyds counterclaimed under a personal guarantee and mortgage. The principal issues were whether Lloyds had breached its obligations, whether the breach caused the liquidation, whether the loss was too remote, and the value of Global.

1. Direct debit. Lloyds was entitled to dishonour the 17 January 2011 direct debit. Payment would have increased the overdraft substantially beyond the agreed £150,000 limit, and there was no agreement requiring Lloyds to permit that excess. The alleged assurances by the relationship manager were rejected.
2. CHAPS payment. Lloyds was in breach of contract by failing to make the authorised CHAPS payment on 19 January 2011. The proper inference was that the necessary authority had been obtained before 3 p.m. and that the bank nevertheless failed to execute the instruction that day.
3. Causation and remoteness. The default after 21 January could have resulted from the earlier dishonour or IATA’s interpretation of its rules, rather than the late CHAPS payment. In any event, the claim for the liquidation losses failed on remoteness. Lloyds knew that late payment could lead to default, but also knew that a default caused by bank error would be withdrawn. It had not accepted the risk of liability for a permanent default and the liquidation was not reasonably foreseeable in the relevant sense. The reasoning reflected the approach in Mulvenna v RBS [2003] EWCA Civ 1112.
4. Loss. Global had no trading value and its realisable net assets were assessed at nil. The damages for the CHAPS breach were therefore nil. The claim for consequential loss failed.
5. Counterclaim. Mr Bathija was liable under the guarantee for sums due by Global, subject to set-off for the overcharged interest. Lloyds was entitled to an interim payment of £150,000. The possession claim was left for further submissions because possible issues arose under the Administration of Justice Act 1970 and as to the proper court and pleading.