Crantrave Ltd v Lloyds Bank Plc

Factual and Procedural Background

This opinion concerns an appeal against a judgment given by His Honour Judge Simpson at the Mayor's and City of London County Court on 8 March 1999. The original case involved a summary judgment granted to Company A against Company B in the sum of £20,598.93, including interest. Company A was in liquidation, and the action was brought by its Liquidator with the sanction of the Official Receiver. The winding-up order was made on 16 August 1993.

In 1993, Company A was a defendant in an action brought by two individuals. By an order dated 28 April 1993, Company A was required to pay £150,000 to these individuals. On 7 May 1993, a garnishee order nisi was secured against Company A's funds held by Company B. Around 10 May 1993, Company B paid £13,497.50 to solicitors acting for the judgment creditors. The garnishee order nisi was not made absolute, and the related proceedings were stayed.

The Liquidator claimed that Company B wrongfully and without authority debited Company A’s account by this sum and sought repayment. Company B’s sole defence was that by making the payment, it partially discharged an existing debt of Company A, meaning no loss was suffered by Company A, and thus no repayment was due.

Legal Issues Presented

1. Whether Company B was entitled to rely on the defence that payment to a third party partially discharged Company A’s debt, thereby negating any loss and claim for repayment.
2. Whether the equitable doctrine of subrogation or any equitable principle applies to allow Company B to retain the benefit of the payment made without Company A’s authorisation or ratification.
3. Whether, in the absence of authorisation or ratification by Company A, payment by Company B to a third party can discharge Company A’s debt or defeat Company A’s claim for repayment.
4. The extent to which the principles established in Liggett (Liverpool) Ltd v Barclays Bank Ltd [1928] 1 KB 48 and related authorities apply to the facts of this case.

Arguments of the Parties

Appellant's Arguments

• The claim by the Liquidator is straightforward: repayment of Company A’s funds wrongfully paid out by Company B without authorisation.
• No evidence exists that Company A authorised or ratified the payment made by Company B.
• The equitable doctrine of subrogation does not apply in the absence of authorisation or ratification.
• Company B’s assertion that no loss was suffered because a debt was discharged is unsupported by evidence.
• Company B should seek recoupment from the creditor, not defeat Company A’s claim.

Respondent's Arguments

• Company B contended that payment under the garnishee order nisi partially discharged Company A’s debt to the judgment creditors.
• Company B argued that, under Liggett, it was entitled to the benefit of the payment as it discharged a legal liability of Company A.
• Company B submitted that Company A suffered no loss and thus was not entitled to repayment.
• Company B asserted a genuine belief in its entitlement to make the payment, which it contended should be a defence.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming that the facts were agreed and the dispute was purely legal. Company B made a payment to third-party creditors without Company A’s authorisation or ratification. Company B argued that this payment partially discharged Company A’s debt, thereby negating loss and justifying refusal to repay.

The court rejected the argument that a genuine but unreasonable belief by Company B could create an equitable defence. It explained that under Liggett, the equitable doctrine allowing recovery by a payer without authority requires evidence that the payment discharged a legal liability of the customer.

Applying Re Cleadon Trust Ltd, the court held that mere benefit to Company A from the payment does not create an equitable right for Company B without authorisation or ratification. The court emphasized that in English law, debts cannot be discharged by a third party without debtor’s authorisation or ratification.

The court further reasoned that allowing banks to pay creditors without customer authority would place banks in the position of debt collectors, undermining customer rights and potentially causing injustice in insolvency scenarios.

Given the absence of evidence of authorisation, ratification, or discharge of debt, the court concluded that Company B must repay the sum wrongfully debited and seek recoupment from the creditor if possible.

Holding and Implications

The appeal was ALLOWED. The court held that Company B had no defence to the claim for repayment of the sum wrongfully paid out without authorisation or ratification by Company A. The payment to the judgment creditors did not discharge Company A’s debt in law, and no equitable principle applied to relieve Company B of liability.

The direct effect is that Company B must repay the amount to Company A’s Liquidator. No broader precedent was established beyond the application of existing equitable principles and case law to the specific facts. The court left open the question of procedural matters and the possibility for Company B to seek recoupment from the creditor.