Ibrahim v British American Bank Ltd
| Jurisdiction | Cayman Islands |
| Judge | (Harre, C.J.) |
| Judgment Date | 31 May 1995 |
| Date | 31 May 1995 |
| Court | Grand Court (Cayman Islands) |
(Harre, C.J.)
I. Croxford, Q.C. and G. Giglioli for the plaintiff;
P. Lamontagne, Q.C. and P. Boni for the defendant.
(1) Cleadon Trust Ltd., In re, [1939] Ch. 286; [1938] 4 All E.R. 518, distinguished.
(2) DHN Food Distributors Ltd. v. Tower Hamlets London Borough Council, [1976] 1 W.L.R. 852; [1976] 3 All E.R. 462, considered.
(3) Esso Petroleum Co. Ltd. v. Mardon, [1976] Q.B. 801; [1976] 2 All E.R. 5.
(4) Liggett (B.) (Liverpool) Ltd. v. Barclays Bank Ltd., [1928] 1 K.B. 48; [1927] All E.R. Rep. 451, distinguished.
(5) Royal Bank of Canada v. LVG Auctions Ltd., [1985] LRC (Comm) 95, distinguished.
(6) Shapera v. Toronto-Dominion Bank, [1971] 1 W.W.R. 442; (1971), 17 D.L.R. (3d) 122.
(7) Underwood (A.L.) Ltd. v. Bank of Liverpool, [1924] 1 K.B. 775; [1924] All E.R. Rep. 230, distinguished.
(8) Wadsworth v. Lydall, [1981] 1 W.L.R. 598; [1981] 2 All E.R. 401, followed.
Banking-banker and customer-bank”s duty of care-breach of duty of care if bank contravenes customer”s mandate and pays out money on basis of inadequate instructions without sufficient enquiry-customer entitled to recover lost interest and penalty exacted for early surrender
Banking-banker and customer-bank”s duty of confidentiality––bank breaches duty of confidentiality if provides third party with information facilitating improper transfer of funds from customer”s account
Banking-banker and customer-bank discharging customer”s liability to third party-person paying debt of another without authority obtains equity in respect of payment-doctrine inapplicable to bank if third party obtains funds from customer”s account by fraud and subsequently retains funds in settlement with him-bank liable to customer for sum retained by third party if customer acted reasonably
The plaintiff brought an action against the defendant bank alleging breach of contract and negligence.
The plaintiff opened accounts with the defendant bank, having been introduced by an acquaintance, Brougher. He placed the funds from those accounts on deposit for fixed terms. The mandate in respect of these accounts authorized the bank only to honour signed withdrawal orders. Whenever the plaintiff gave instructions to the bank by fax he also spoke to a bank officer and did not give instructions as to withdrawal that way. On two occasions Brougher sent instructions to the bank by fax using the plaintiff”s company writing-paper and forging his signature, requiring it to transfer a substantial sum of money from the plaintiff”s deposits to her, which it did. The bank sought unsuccessfully to verify the instructions by telephone and also gave Brougher confidential information relating to the plaintiff”s account which enabled her to carry out the second transfer.
The plaintiff, through his company Quantum, instructed lawyers to recover the funds and the plaintiff and Brougher reached a settlement whereby she retained some of the funds as settlement of an assault claim against the plaintiff and of claims against Quantum for fees owed to her. The remainder was returned to the plaintiff, who brought an action against the bank claiming compensation in respect of the various heads of loss resulting from the bank”s breach of duty.
He submitted that (a) the bank had, by contravening his mandate and giving Brougher confidential information which enabled her to carry out
the improper transfers, breached its duty to the plaintiff to take reasonable care and its duty of confidentiality; (b) he was entitled to recover his legal expenses sustained in recovering the money from Brougher; and (c) he was entitled to an account of the penalty sustained on surrendering the deposits before maturity and of the interest which would otherwise have accrued to them had they not been surrendered.
In reply, the defendant submitted that (a) it should not be liable to the plaintiff for the money retained by Brougher since the equitable doctrine that a person who paid the debt of another without authority is entitled to an equity in respect of the payment applied; and (b) in any case, it was not liable to reimburse the plaintiff for his legal expenses since they had been paid by Quantum and not the plaintiff.
Held, giving judgment for the plaintiff:
(1) The bank owed the plaintiff a duty to take reasonable care and to act in accordance with his mandate. Since it had made insufficient enquiries, paid out money on the basis of inadequate instructions and contravened the plaintiff”s mandate by allowing withdrawals by fax, it had breached that duty. The bank had also breached its duty of confidentiality by giving Brougher information which enabled her to make one of the transfers (page 431, lines 9–31).
(2) The doctrine under which a person who paid the debt of another without authority was granted an equity in respect of the payment did not apply here. This was the very different case of the fraudulent appropriation of funds from the bank, with the fraudster managing to retain some of the funds as part of a settlement reached with the account holder in respect of a disputed claim. The plaintiff had acted reasonably in reaching such a settlement with Brougher and had done so to mitigate his loss. It followed that the plaintiff was entitled to recover the money wrongly paid away, less the amount recovered from Brougher under the settlement (page 432, lines 25–38).
(3) The fact that Quantum, rather than the plaintiff, had paid the legal expenses incurred did not relieve the defendant of its liability to him, since the plaintiff had instructed lawyers to recover his money and prima facie was responsible for paying their fees. It followed that the defendant was liable to the plaintiff in respect of his legal expenses (page 433, lines 31–37). (4) The plaintiff was also entitled to an account of the penalty which had been exacted on the purported surrender of the deposits before maturity and of the interest which would otherwise have accrued had they not been wrongfully paid away. It was clear that a plaintiff was entitled to recover interest charges incurred after having to borrow as a consequence of a breach of contract and that situation was...
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