The Royal Courts of Justice
The Strand
LONDON WC2A
18th October 2002
B e f o r e:
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- and -
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MISS LAURA JOHN (instructed by Customs
& Excise) appeared on behalf of the Claimant.
MR M COOK (instructed by DLA Solicitors) appeared on behalf of the Defendant.
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1. The Commissioners of Customs and Excise were under a statutory obligation to repay to Car Disposals Limited ("CDL"), some £46,000 of overpaid VAT. On 15th October 1998 CDL wrote to Customs and Excise as follows:
Further to my letter of 1st October, could I please ask that when you have agreed the figures for our claim that the cheque be paid direct to our solicitors, Mr R Stockdale, for them to bank into their client account. The reason I make this request is that we are experiencing difficulties with our bank.
When we received our last cheque from you we agreed to pay Inland Revenue an amount which was due. We did this, and even though we were under our agreed overdraft facility the bank would not honour the cheque.
In spite of this, by mistake, the Customs and Excise, on 23rd December 1998, paid the relevant net sum of £44,454.53 into CDL's account with the defendant bank, which, on 30th December 1998, duly credited CDL's account with the money, thereby reducing CDL's existing overdraft.
On discovering this, CDL, by their solicitors' letter dated 7th January 1999, complained to the Customs and Excise who, in the course of time, on 26th February 1999, paid CDL a second time by transfer to their solicitors as originally asked. Meanwhile, the Customs and Excise asked the bank to repay the sum paid to them by mistake. This action follows the bank's refusal to do so.
2. There is no issue that as Robert Goff J said in Barclays Bank v. WJ Simms & Cook [1981] QB 677 at 695:
If a person pays money to another under a mistake of fact which causes him to make payment, he is prima facie entitled to recover it.
3. The judgment set out certain circumstances, however, where such claim may fail, and the bank relies on the circumstance set out in paragraph 2(b) of which the relevant words of the judgment are:
The payment is made for good consideration, in particular if the money is paid to discharge and does discharge a debt owed to the principal [in this case CDL] on whose behalf he [the bank] is authorised to receive payment by the payer.
4. Mr Quest, for the Customs and Excise, denies that the payment in a manner contrary to CDL's instructions did discharge their debt to CDL, thus they made the second payment to CDL's solicitors.
5. Mr Wilson, for the bank, says that the bank were authorised to receive payment on behalf of CDL and, therefore, the payment did discharge the debt, and all the conditions which provide an exception to the prima facie rule, that the payer is entitled to recover money paid out by mistake are satisfied.
6. The mistake alleged in the Particulars of Claim is that "the claimants in error overlooked CDL's letter of instruction, dated 15th October 1998, and acted under a mistaken belief or assumption that CDL had authorised the defendant to accept payment of the VAT refund from the claimants".
If Mr Wilson is right that the defendant was authorised to accept payment, then the mistake alleged was not made, but he accepts that at the least the Customs and Excise were mistaken in believing that they had been authorised to make payment to the bank and counsel are, therefore, agreed that the issue to be determined by the court is as to the authority of the bank and its consequent effects of the discharge of the claimant's debt to CDL.
7. In TSB (Scotland) v. Welwyn & Hatfield District Council [1993] 2 Bank LR 267, Hobhouse J made a distinction between what he called the ministerial or physical act of delivery of money and payment of a debt. The case concerns a preliminary issue between Welwyn and Brent, as third party, which the judge defined at page 271 as:
What suffices to discharge the liability of the recipient of money paid in under an ultra vires contract to make restitution to the payer of the money.
8. Brent had paid the capital sum so obtained into Welwyn's bank account. The judge held that:
What Brent had to show for the purpose of their defence is the same as that necessary to provide a defence to a claim in debt.
Counsel are agreed that the Customs and Excise statutory duty to repay overpaid VAT is to be treated as a contractual debt. Accordingly, the judgment is precisely in point as to whether the present claimants would, after their payment to the bank, have had a defence to a claim by CDL for the payment which, in fact, they did make to CDL's solicitors.
9. The judge explained at page 271:
To discharge a debt there must have been an accepted payment of that debt, not a mere receipt by the creditor of the sum of money.
The late Dr Francis Mann at page 75 of The Legal Aspect of Money, says:
No creditor is under any legal duty to accept any payment, and no debtor can force any payment of any kind upon his creditor without the latter's consent, express or implied, precedent or subsequent. All the debtor can do is make an unconditional tender of the relevant sum to the creditor. If the creditor accepts the sum the liability of the debtor is appropriately discharged or reduced. If the creditor refuses to accept the tender, the debtor may, providing that he remains ready and willing to pay the relevant sum and pays it into court if action is brought against him, raise a defence of tender to the creditor's claim in respect of the debt. The unaccepted tender, therefore, does not discharge the debt, but it provides the debtor with a protection in respect of costs and against any award of interest.
Brent do not rely on any defence of tender in this case since they have on a subsequent occasion declined to pay the relevant sum and when sued instead of paying the sum into court have disputed their liability altogether. The defence of Brent is a defence of payment before action brought ...
The physical or ministerial aspect of payment involves the delivery of money by one person to another. Where the two persons meet face to face and the debtor seeks to hand to the creditor legal tender, the physical act of delivery, in the absence of some misrepresentation or mistake, will not be achieved without the concurrence of the debtor. Where the relevant contract or the terms of the debt require payment to be made in a particular way as, for example, by payment into an identified account at a particular branch of a named bank, the payment will be effected by payment into that account. Prior authority has been given to discharge the debt or other obligation in that way. The debtor has authorised the bank, or other relevant person, to receive and accept the money on his behalf. No further act of concurrence or assent is required from the debtor. The creditor discharges his obligation by making the contractual payment in the contractually stipulated way.
10. In the particular circumstances of that case the judge held that there had been no prior authority for Brent to discharge its liability by payment into Welwyn's bank account, but held that by keeping the money for three weeks and making use of it to earn interest Welwyn had accepted the payment. It does, therefore, in my judgment, constitute authority for the proposition that unsolicited payment to a creditor's bank account will not constitute payment of a debt unless accepted as such. It is no part of the bank's case in this present case that there was any acceptance by CDL.
11. Mr Wilson suggests that the TSB case could be distinguished on the basis that it was the particular dealings between Brent and Welwyn which made specific authorisation necessary, but realistically accepting the impossibility of such distinction, he invited me to say that the case proceeded on an unwarranted concession, recorded at the bottom of page 272 as follows:
Brent accept that they have to show something more than that the money was paid into an account which was solely under the control of Welwyn to prove an effective payment which would satisfy the criteria for a common-law defence of payment.
The passages which I have already cited from the judgment of Hobhouse J show that this was not a matter of concession; it was part of the reasoning of the judge which Brent felt bound to accept.
12. Mr Wilson submits that such acceptance is inconsistent with the accepted definition of the scope of a bank's relationship with its customer which Atkin LJ gave in Joachimson v. Swiss Bank Corporation [1921] 3 KB 110 at 127, when he said:
I think there is only one contract made between the bank and its customer. The terms of that contract involve obligations on both sides and require careful statement. They appear upon consideration to include the following provisions. The bank undertakes to receive money and collect bills for its customers' account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them.
I do not need to read any more of the definition. Mr Wilson says that that undertaking to receive money and collect bills means that the customer must be taken to have authorised a bank so to do. I accept that, but once the distinction between receiving money and collecting bills or collecting bills (the ministerial act) is distinguished from acceptance of payment it can be seen that this dictum is not inconsistent with the requirement to show something more in the form of prior authorisation to prove an effective payment.
13. Mr Wilson referred me to a decision of Kerr J in Munn v. Barclays Bank [1977] QB 790, but it is not, I think, of assistance because there had been a direction by the creditor to pay into the particular bank account in that case.
14. In Royal Products Limited v. Midland Bank [1981] 2 Ll LR 194, Webster J is recorded as having held that a bank was impliedly authorised by its customer to accept a credit "by virtue of the fact that the customer had a current account with it", but this was said in the context of an instruction to one bank, of which the plaintiff was a customer, to transfer funds to another bank, of which it was also a customer. It was, as the judge said at 198:
A banking operation of the kind which is often carried out internally, that is to say within the same bank or between two branches of the same bank, which at least from the point of view of the customer is no different in nature or quality when, as in the present case, it is carried out between different banks.
15. In my judgment, the judge's analysis of the position in that case cannot justify the conclusion that a bank is impliedly authorised to accept a credit from a third party as payment to its customer, albeit it is its function and duty to accept delivery of funds to have such effect in law as may be determined between the parties. I conclude, therefore, that there is no general rule which enables Mr Wilson to say that the defendant is, merely by virtue of holding a current account for CDL, authorised to receive payment from the Customs and Excise on CDL's behalf so as to discharge their debt to CDL. No specific authorisation is suggested.
16. There is, however, another point which has given me more anxiety. CDL's explanation to the Customs and Excise as to why they did not want payment to be made to the bank was not complete. The bank may have granted overdraft facilities, but they were secured by a mortgage debenture, dated 27th May 1993, under which CDL charged with repayment of all monies due to the bank under clause 2.4, "by way of specific charge all the debts and other debts now and from time to time due or owing to the company". That, of course, included the Customs and Excise's debt for overpaid VAT. By clause 5 of the debenture, it was provided:
With reference to the book debts and other debts specifically charged, the company shall pay into the company's account with the bank all monies which it may receive in respect of such debts.
I do not read further for the moment although it may be important for the purpose of construing the provision to note that the clause goes on to prohibit CDL from charging or assigning those debts in favour of any other person without the bank's consent, and to provide for the execution of a legal assignment if called upon to do so by the bank.
17. By transferring funds to the bank for the purpose of discharging their debt to CDL, the Customs and Excise paid "monies" to the credit of the company's account. Unless, however, the bank had specific authorisation to accept them, CDL did not receive them. Mr Quest submits, firstly, that the payment was not "monies" and that clause 5 of the debenture for that reason had no effect. In the context I cannot accept this. But, secondly, he says that CDL did not receive the monies. Reluctantly I must accept this. In my judgment, the transfer operated as a tender by the Customs and Excise of the sum due to CDL.
18. On 7th January 1999, CDL's solicitors complained of the Customs and Excise failure to comply with the instructions as to payment contained originally in the letter dated 15th October, and demanded payment to themselves. In my judgment, they must thereby be construed as having refused the tender. Such refusal, at least for the purpose of empowering CDL to deal with the monies due from the Customs and Excise other than by payment into CDL's accounts with the bank, will almost certainly involve a breach of CDL's covenant under the debenture. The bank could, as I think, have protected itself, by requiring the assignment of the debt to itself and then itself accepting the tender. It appears, however, from the evidence agreed by the parties for the purposes of this case, that the bank merely notified CDL that they would not release the funds which have been used to reduce CDL's overdraft.
19. In such circumstances the Customs and Excise apparently, or at least implicitly, accepted CDL's refusal of their tender, and on 26th February 1999 made a second payment to discharge their debt. It was not until 5th March 1999 that the bank wrote to the Customs and Excise referring to the terms of their security as prohibiting the diversion of any payment. By that time the remedy which had been, as I think, available to the bank by reason of their debenture was no longer available to safeguard the proceeds of the VAT refund.
20. I, therefore, conclude that the provisions of the debenture do not assist the bank in resisting the Customs and Excise claim. Their payment did not discharge their debt to CDL, and CDL cannot be taken as having authorised the bank to receive payment. I, therefore, give judgment to the claimant for £44,454,53 as asked.