England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BRISTOL DISTRICT REGISTRY
MERCANTILE COURT

		Claim No. 6BS40544
		18 March 2009

Introduction

1. The claim in this action is to recover a sum of £42,300 which was sent by CHAPS transfer from the claimant's account at Lloyds TSB to the first defendant's account at Abbey National on 8^th March 2006. The claimant says that, through an error made by his secretary in completing the CHAPS transfer form, the money was sent to the wrong person at the wrong bank. The money (save for a very small amount) has gone from the first defendant's account. The last of it was withdrawn on 15^th March 2006, and was handed over by the first defendant to a third party on 28^th March.
2. Both defendants contend that it would be inequitable to require them to make restitution. Abbey National's pleaded case did not admit that a mistake was made (although this stance changed in the course of the trial). Abbey puts the claimant to proof that the payment was not made for good consideration. If it was a mistaken payment, Abbey argues that its role in the transaction was one of ministerial receipt. It was powerless to return the funds without the consent of the first defendant, Kelly Churcher. Alternatively Abbey National relies upon a defence of change of position. Miss Churcher says that she was an innocent recipient of the money who was hoodwinked by a Mr James Sharkey into paying the money to him. Like Abbey National, she relies upon a defence of change of position.

Background

3. The claimant, Stephen Jones, is a car dealer trading under the name of The Chelsea Car Company from office premises in Battersea. At the time of the CHAPS transfer to Miss Churcher he employed two people, a mechanic, and a secretary, Miss Annabel Loveday.
4. Mr Jones sells new and used cars. A large proportion of his new car sales are imported Volkswagen models sourced from VW dealers in the UK and on the continent. He deals principally if not exclusively in Golf GT-TDI models, and since the cars have already been ordered from the manufacturer the range of extras is limited and so is the range of colours. Most of them are either black or silver.
5. From about 1999 until 2005 Mr Jones obtained most of his supplies from a VW franchisee in the Netherlands. The Dutch dealer lost his franchise in 2005 but before that happened had introduced Mr Jones to an Irish gentleman called Andrew Warnock, who was based in County Wicklow. Mr Warnock appeared to have contacts with other dealers through whom he could secure supplies of VW Golfs. Mr Jones began doing business with Mr Warnock. Between April 2003 and early 2005, he acquired around 80 new VW Golf cars through Mr Warnock from various dealers in the UK or Ireland.
6. The procedure was informal. Cars were usually supplied from the continent in transporter loads. A car transporter carries 8 vehicles. Mr Jones would not necessarily be the purchaser of all the vehicles on a single transporter. Mr Jones would be invoiced by the UK dealer for the cost of the cars: but on occasion he would pay the dealer before the invoice arrived. Payment was usually made by bank transfer using the CHAPS system. The cars were then delivered to the premises of The Chelsea Car Company in Battersea where Mr Jones' mechanic would do the pre-delivery checks.
7. Mr Sharkey came on the scene early in 2005. Mr Warnock put Mr Jones in touch with him and gave Mr Jones to understand that he and Mr Sharkey had worked together in the motor business. Mr Sharkey told Mr Jones that he lived in Dublin: but Mr Jones never had an address for Mr Sharkey. He only ever had a mobile phone number and a fax number (which was the same as the fax number for Mr Warnock). In fact Mr Jones' evidence is that he only met Mr Sharkey 3 or 4 times in the course of their association. Nevertheless it was a promising and fruitful association, until the events giving rise to the present action.
8. Mr Jones began acquiring his cars through Mr Sharkey rather than through Mr Warnock. Mr Sharkey's source of supply was a VW dealer in Dublin. However the invoicing was done through a company called Murway Automotive Sales & Leasing Ltd based in Walsall. Murway was introduced to Mr Jones by Mr Sharkey as being the company to which the Dublin dealer had agreed to supply new VW cars at import prices. It is fairly plain from its address that Murway's premises in Walsall were no more than an office. Mr Jones never visited Murway. His only direct contact with that company was with someone called Tamara, for whom he had a mobile phone number. He dealt with Mr Sharkey, who appeared to be acting as Murway's agent.
9. The import price of a new VW Golf GT-TDI in 2005 and early 2006 was about £14,300 inclusive of VAT. This was a significant discount on the showroom price of an authorised UK dealer. Mr Sharkey told Mr Jones in 2005 that he could supply through Murway as many as 100 cars. Mr Jones did not commit The Chelsea Car Company to so large a number: but he placed a number of orders with Murway which were successfully delivered. Cars were usually ordered for specific customers. Mr Jones took a deposit from the customer and then told Mr Sharkey what car he wanted to order. Murway required payment before delivery. An invoice would be sent by Murway to The Chelsea Car Company giving the car chassis number, the basic price and VAT. Payment was made by CHAPS transfer from the account of The Chelsea Car Company at Lloyd's TSB to Murway's bank account. Payment was usually made after, but sometimes before, the invoice from Murway was received. Murway had an arrangement with a firm called Harron Transport to collect the cars from Dublin and deliver them on a car transporter to Battersea.
10. It was Mr Sharkey who gave Mr Jones details of the bank account to which payment to Murway should be made. Until October 2005 it was an account with Barclays. Then it was switched to an account with NatWest. Payments addressed to Murway were made to both accounts without a problem and the cars were duly delivered. Then, in February 2006, Mr Sharkey told Mr Jones that Murway was experiencing banking difficulties and he provided Mr Jones with details of a different bank account. From the moment that change was made, the cars stopped coming.
11. Mr Jones placed several orders for single vehicles in February 2006. The first order, which was for a VW Golf 2.0 TDI Sportsline car, related to a vehicle which, by chance, had already arrived at Battersea as part of an earlier consignment. The cost was £14,300. When the order was relayed to Mr Sharkey, he sent a text message to Mr Jones asking for payment to be made to an account number 94270991 at Abbey National, The Bridge, Walsall in the name of K. Churcher. This was Miss Churcher's personal bank account, details of which Mr Sharkey had obtained in circumstances I will mention presently. Mr Jones had not yet received an invoice from Murway, but he already had the car: so he made the payment to the Abbey National account by CHAPS transfer on 21^st February. Later he concocted a dummy invoice from Murway to reflect this transaction. It was done in order to satisfy HMRC, who, in October 2006, interviewed Mr Jones in the course of investigating the VAT transactions of The Chelsea Car Company. Mr Jones was subjected to a good deal of cross-examination about the VAT implications of his business, some of it no doubt prompted by the discovery of dummy invoices or "office copy" invoices in his files. I need not concern myself with this aspect of the matter for two reasons. The first is that there is no evidence that Mr Jones or The Chelsea Car Company ever suffered any penalties from HMRC for VAT irregularities. The second is that in general I found Mr Jones to be a truthful witness and nothing untoward in the record-keeping of his business has a direct bearing on the circumstances in which he came to make the erroneous payment which is the subject matter of these proceedings. In any case a genuine invoice from Murway in respect of this particular vehicle was received sometime after 21^st February, although in common with all Murway's other invoices it contained no instructions for payment and therefore gave no clue where the money had gone.
12. Within days of this order, Mr Jones told Mr Sharkey that he wanted another 5 VW Golfs from Murway. Mr Sharkey replied that, owing to continuing banking difficulties being experienced by Murway, payment for the cars should be made to an account number 06165821 with the Bank of Scotland in the name of Lophius Trading Ltd. Mr Jones assumed that Lophius was in some way connected with Murway. He did not query the instruction and made the payment by CHAPS on 24^th February. The sum paid was £70,500. This was another instance of payment being made before an invoice was received from Murway. Given the unusual payment instructions, one can see with the benefit of hindsight that this should have made Mr Jones cautious about parting with his money without knowing more about Lophius - especially since on this occasion the cars were not yet in his possession: but Mr Jones was not suspicious and was content to make the payment. The sum paid was £1,000 less than the eventually invoiced price of £71,500 inclusive of VAT because Mr Jones agreed to pay £1,000 to Harron Transport for the vehicles to be delivered. Mr Jones' evidence was that he had recently agreed to start paying Harron Transport direct because he was told that Harron Transport had fallen out with Mr Sharkey. Perhaps this too should have rung alarm bells: but it did not.
13. Delivery was normally quite quick. When, after a few days, the cars had not arrived, Mr Jones spoke to Mr Sharkey who explained that the reason for the delay was that 8 cars were required in order to fill a car transporter. He persuaded Mr Jones to buy another 3 VW Golfs to make up the load. Mr Jones had enough customer orders to justify ordering the 3 cars and so he agreed. The cost, which Mr Sharkey must have told him, was £42,300 inclusive of VAT. This was £600 less than the full price of £14,300 each - the difference once again being attributable to transport costs of £200 per vehicle.
14. Mr Jones could not remember whether Mr Sharkey expressly asked for the payment for the 3 additional vehicles to go to Lophius. He was anxious to get delivery and so he assumed that the payment instruction remained the same as for the other 5 cars on the transporter. He believes he made it clear to Mr Sharkey that he would pay Lophius. Certainly that was his intention.
15. Payment for the 3 additional cars was a matter of urgency. Mr Jones was away from the office in Battersea when the deal over the 3 cars was struck. His evidence is that he telephoned either his mechanic or Miss Loveday on 6^th or 7^th March to give instructions for a payment of £42,300 to be made by CHAPS. There is no record of a phone call from Mr Jones' mobile phone to the Battersea office on 7^th March but the call could have been made the previous afternoon. The mobile phone record for 6^th March was not in evidence. At all events Miss Loveday remembered that Mr Jones rang in to say she should prepare a CHAPS payment to be made on 7^th March 2006 for £42,300 and, crucially, that the payment (like the previous one) was to go to Lophius. I accept her evidence on this point.
16. It is at this juncture that the error occurred. A CHAPS transfer is authorised by the paying party completing a form which requests the bank to make the transfer. The form contains boxes for the name of the receiving bank, sort code and account number and the name of the receiving beneficiary. It also contains a box for insertion of a payment reference e.g. "5 x GOLF DIESEL" as in the case of the payment made to Lophius on 24^th February. The form must be signed and dated by the person authorising the payment. If the form is received by the bank by 3 pm on a working day, the transfer will normally be made the same day.
17. Miss Loveday prepared a CHAPS transfer form for payment of a sum of £42,300. Since Mr Jones was out of the office, and she was not an authorised signatory for The Chelsea Car Company, she had to resort to subterfuge to get his signature on the form. She went to the previous forms on the file and looked for one with a signature bearing a similar date. She found a CHAPS form signed by Mr Jones on 7^th February 2006 on which (as was his custom) he had added the date immediately under his signature as "7/2/06". She photocopied the form, cut out the signature and date, and pasted it onto the new form. She then altered the second digit representing the month from a "2" to a "3". It was a risky and inadvisable thing to do: but it had the desired effect of producing a plausible imitation of a contemporaneous signature of Mr Jones on the CHAPS form which Miss Loveday faxed to the bank before 3 pm on 7^th March. All would or might have been well if she had correctly completed the beneficiary's details: but she did not. In error she did not take the beneficiary details from what should have been the immediately preceding CHAPS form in her CHAPS file i.e. the form for the transfer to Lophius on 24^th February. She took the beneficiary details from the CHAPS form for the transfer on 21^st February which were the details for Miss Churcher's account. In consequence the £42,300 was sent to Miss Churcher's account on the afternoon of 7^th March, not to the account of Lophius.
18. Mr Jones realised that a mistake had been made when Mr Sharkey phoned him the next day to complain that no payment for the 3 cars had been received. He checked his firm's CHAPS records and saw that the money had been sent to Miss Churcher rather than to Lophius. Mr Jones immediately set about trying to rectify the mistake. His efforts to do so and the efforts of his bank, Lloyds TSB, between 8^th and 20^th March 2006 are of central importance to the claim against Abbey National. For that reason I must set out the chronology in a little detail.
19. 8^th March was a Wednesday. Mr Jones made two phone calls late in the afternoon that day. One was to the Corporate CHAPS Department of Lloyds TSB in Andover, where he spoke to Julie Hendry. The other was to the Walsall branch of Abbey National where Miss Churcher's account was held. There he spoke to an Assistant Manager, Joanne Wolverson. I think the call to Miss Hendry must have been made first because Miss Hendry took various steps before 5 pm that day to pursue the matter, whilst phone records show that Mr Jones' call to Abbey was not made until just before 5 pm. Mr Jones' conversation with Miss Wolverson lasted for nearly 45 minutes but gave him little comfort. Miss Wolverson told him that reversing the payment could only be done through the proper banking channels. Meanwhile Miss Hendry at Lloyds TSB had been trying those channels. She rang the CHAPS Central Control Unit of Lloyds TSB who told her that she would need to send a SWIFT message to Abbey National recalling the funds.
20. SWIFT stands for "Society for Worldwide Interbank Financial Telecommunication". It is a cooperative which runs a secure network for the transmission of messages between banking organisations using a system of confidential passcodes. Miss Hendry drafted a SWIFT message to Abbey National shortly before 5 pm on 8^th March in the following terms:

"CANCELLATION REQUEST

ON 7 MARCH 2006 WE SENT A PAYMENT OF GBP42300.00 TO SORT CODE 09-xx-xx IN FAVOUR OF K CHURCHER'S BENE (?Bank) ACCOUNT NUMBER xxxx FROM OUR SORT CODE 30-xx-xx. PLEASE BE ADVISED THAT FUNDS HAVE BEEN SENT IN ERROR AS THE DETAILS QUOTED WERE INVALID. PLEASE ARRANGE TO RETURN FUNDS SO THAT THE CORRECT PAYMENT CAN BE RE-SENT. PLEASE QUOTE OUR CHAPS REF. IN FIELD 20 ON ALL CORRESPONDENCE. CHAPS CENTRAL CONTROL."

Miss Hendry also managed to contact Abbey National by phone, who told her to ring the Abbey National Global Team. By the time she tried their number it was after 5 pm and they had gone home.

21. Although most UK banks are members of SWIFT, not all are members of CHAPS. CHAPS ("Clearing House Automated Payments System") is the secure clearing system for domestic inter-bank transmissions of funds. Like SWIFT it uses a system of confidential passcodes. Lloyds TSB was a settlement member of CHAPS but Abbey National was not. Banks who are not settlement members of CHAPS have to send and receive CHAPS transfers through the medium of another bank which is a settlement member. Abbey National used Citibank for this purpose under an agreement which Abbey had made with Citibank in August 1994. Any SWIFT message relating to a CHAPS transfer to a bank which is not a settlement member of CHAPS has to be routed through that bank's settlement member counterpart. So Miss Hendry's first SWIFT message on 8^th March had to be sent to Citibank for onward transmission to Abbey National. It did not reach Citibank until about 1018 hours on 9^th March. It then had to undergo verification procedures and was not ready for dispatch to Abbey National until 1449 hours the same day. However, for reasons which were unexplained at the trial and can only be known to Citibank, the message did not reach Abbey National either on 9^th March or the day after. Instead, Abbey National received a SWIFT message from Citibank at 0202 hours on 10^th March as follows:

"MONEY TRANSFER INVESTIGATIONS

WITH REGARD TO OUR CREDIT TO YOUR ACCOUNT UNDER REFERENCE 3606686146 FOR THE BELOW PAYMENT ORDER, KINDLY PROVIDE US WITH DEBIT AUTHORITY QUOTING OUR REFERENCE CIT5297- 09MAR06 AS THE REMITTING BANK IS RECALLING THE FUNDS. 203063833xxxx 32A060307GBP42300 50KCHELSEA CAR COMPANY 52ALOYDGB21145 57D//SC0xxx ABBEY NATIONAL PLC BANK ACCOUNT 59/94270991 K CHURCHER 70MURWAY X3 GTTDI MURWAY X3 GTTDI ABBEY NATIONAL WITH BEST REGARDS, REGARDS, CITIBANK GLOBAL INVESTIGATIONS"

22. In the meantime, shortly after midday on 9^th March, Miss Hendry had got through to someone at the Abbey National phone number she had been given the day before. She spoke to Rehana Begum, who was in fact a member of the Abbey National Global Processing Team. However the phone number which Miss Hendry rang was one sometimes given out by Abbey National to its customers. It was not a confidential line for interbank communications. Miss Hendry explained the details of the mistaken payment, that the money had been paid to Miss Churcher's account by mistake and that Lloyds TSB wanted the money back. She asked whether Abbey National had received her SWIFT message of the previous day, which Miss Begum was not able to confirm. All Miss Begum could do was promise to log the matter with Abbey' investigations unit and she gave Miss Hendry a case reference number (ABY28090306).
23. On Monday 13^th March, Citibank sent a further SWIFT message to Abbey National asking for the payment into Miss Churcher's account to be cancelled. The message stated:

"KINDLY CANCEL THE ABOVE MT103 PAYMENT ORDER AS PER THE REMITTING BANK RECALL REQUEST AND ARRANGE TO PROVIDE US WITH TESTED DEBIT AUTHORITY MESSAGE TO THE ATTENTION OF OUR FILE REFERENCE AVOIDING POSSIBLE DUPLICATIONS REGARDS CITIBANK GLOBAL INVESTIGATIONS."

24. However nothing was said to Lloyds TSB. In view of the silence Miss Hendry sent another SWIFT message to Abbey National via Citibank on 16^th March. This time her message was passed on by Citibank to Abbey verbatim. It read as follows:

"THIS IS THE SECOND REQUEST THAT HAS BEEN SENT THROUGH, THE FIRST WAS SENT ON THE 9^th MARCH 2006. PLEASE COULD YOU DEAL WITH THIS URGENTLY AS THE BENEFICIARY SHOULD NOT HAVE BEEN SENT THIS MONEY. OUR CUSTOMER WOULD GREATLY APPRECIATE IT IF YOU REIMBURSE THE MONEY BACK TO THEIR ACCOUNT AS SOON AS POSSIBLE. MANY THANKS. JULIE HENDRY. CORPORATE CHAPS ANDOVER."

25. There was still no response to this second SWIFT message, so on the following Monday (20^th March) Miss Hendry sent a third message, again via Citibank. It said:

"WITH REGARDS TO QUERY NO. ABY28390306. OUR CUSTOMER IS VERY CONCERNED THAT THE MONEY THAT HAS BEEN SENT BY MISTAKE TO K. CHURCHER, WILL BE DRAWN AGAINST. IS THERE ANY WAY TO STOP THIS FROM HAPPENING. OUR CUSTOMER REALISES THAT YOU CANNOT STOP THE WHOLE ACCOUNT, BUT NEEDS SOME FORM OF REASSURANCE THAT THIS MONEY WILL NOT BE USED BY YOUR CUSTOMER. MANY THANKS JULIE HENDRY."

26. Miss Hendry chased that message by ringing the Abbey National Global Team and speaking to someone called Veronica. She confirmed to Miss Hendry that as soon as the Abbey National investigations team had received her SWIFT messages they would have sent a debit authority request to Miss Churcher seeking her permission to repay the money to Lloyds TSB. But this was not in fact what had happened. No request for a debit authority was sent to Miss Churcher until 22^nd March, and it appears only to have been sent after a Relationship Manager at Lloyds TSB had phoned Rehana Begum on the morning of 22^nd March asking for a reply and had then faxed to her copies of Miss Hendry's SWIFT messages.
27. The request for debit authority was sent in the form of a standard letter from Abbey National's Group Payments Department to Miss Churcher at her home address in Walsall. I shall come back to the contents of that letter. However, by the time it was sent it was too late. Most of the money had gone.
28. Before recounting what happened to the money, it is necessary to backtrack a little to Miss Churcher's evidence as to how she first met Mr Sharkey and revealed the details of her bank account to him. Miss Churcher first met Miss Sharkey in her local pub in Walsall early in January 2006. At the time she was engaged to be married to her partner the following May. She chatted briefly to Mr Sharkey on the first occasion and met him again a few days later when they played a few games of pool. All he said was that he was from Ireland. They met once more towards the end of January before, on the fourth occasion, he mentioned for the first time that he was wanting to buy a car and asked if he could put some money through Miss Churcher's bank account. It is not obvious why Mr Sharkey would need to use a bank account unless the sum involved was large. However Miss Churcher thought he was talking about a few hundred pounds to buy a second-hand vehicle. At first she was reluctant to assist, but a day or so later when she met him again in the pub he was more persistent, and she relented. She gave him her bank account details. It was by now the third week of February.
29. On 21^st February Miss Churcher went to get some cash from the ATM and checked her account balance. It showed that a sum of £14,300 had been transferred into her account. Her evidence is that later that day she received a call on her mobile phone from Mr Sharkey, who told her that he wanted the money in cash. She contacted the bank and the bank told her it would take time to arrange for so large an amount to be made available in cash, so Mr Sharkey settled for only £6,000 in cash and asked for £8,000 to be provided in the form of a banker's draft made payable to "L.R. Silvers". He explained that this was the name of the business which was supplying the car to him. When Miss Churcher passed these requests to the bank the counter clerk queried why she wanted so much as £6,000 in cash. She said it was because she was getting married later in the year. The planned marriage was true: but had nothing to do with the money. Miss Churcher met Mr Sharkey again at the pub on 27^th February and handed over the cash and the draft. Nothing was said about the balance of £300. When she tried ringing Mr Sharkey a few days later about what to do with it, he did not answer his mobile phone: so Miss Churcher kept the money and treated it as payment for her help.
30. She next heard from Mr Sharkey following the discovery that a further sum of £42,300 had been transferred into her account. Miss Churcher made the discovery on 7^th March when she checked her account balance to see whether her Child Benefit had been paid. She was shocked by what she found. Before the transfer, the credit balance on the account had been only £9.94.
31. Miss Churcher immediately went home and rang the Abbey National Customer Service number to query the credit. I accept her evidence that she asked Abbey where the money had come from and also asked whether the bank could return it. She was told that the bank would have to check who sent the money. Abbey said that it could not simply send the money back: she would have to arrange to have the money returned to whoever sent it. Abbey phoned her back the next day to say that the money had come from The Chelsea Car Company: but gave no contact details.
32. In the meantime Mr Jones was anxious to get hold of the 5 cars for which he had already paid Lophius, and the additional 3 cars which had been the subject of the mistaken payment. On 9^th March he used the company's overdraft facility with Lloyd TSB to finance a second payment of £42,300, this time to the Lophius account to which the sum of £70,500 had been paid on 24^th February. At first blush this appears as a precipitate and rash move: but it is explained by the fact that in his line of business Mr Jones was used to making payments on trust and often with no or only a minimum of paperwork.
33. Either later the same day or on the following day (10^th March) Mr Jones made contact with Mr Sharkey by phone and explained what had happened to the first payment of £42,300 and how he had just replaced it with a second payment. He asked Mr Sharkey to get in touch with Miss Churcher and get her to send the first payment back. Mr Sharkey replied that he would try to contact Miss Churcher and get the money back somehow.
34. Mr Sharkey did indeed contact Miss Churcher: but not in order to persuade her to repay The Chelsea Car Company. He rang her on Sunday, 12^th March and began by saying that she had money in her bank account which he wanted. She was cross with him because she thought he had deliberately used her account a second time without permission. I accept Miss Churcher's evidence that Mr Sharkey told her that the money was needed for another car transaction and that it had been paid into her account by mistake. He asked for the money back, starting with an immediate £500 in cash.
35. The maximum Miss Churcher could withdraw in cash using her bank card was £300. She took out this sum on Monday 13^th March and gave it to Mr Sharkey in the car park at the pub. According to Miss Churcher Mr Sharkey then asked for the rest of the money and became quite insistent about it. Miss Churcher was worried about the questions she would be asked by the bank if she sought to withdraw such a large sum in cash. She suggested that some be withdrawn in cash and some by banker's drafts in varying amounts. Mr Sharkey asked for £500 in cash, £17,800 in the form of a bankers' draft payable to "Paul Brazier" and £2,850 in another bankers' draft payable to "BCA". Miss Churcher organised these withdrawals at the Birmingham branch of Abbey National rather than in Walsall and handed over the drafts and the money to Mr Sharkey at the pub on 15^th March. Whilst at the bank in Birmingham, Miss Churcher also transferred £20,000 of the rest of the money out of her Abbey National account into another account which she held with the Bank of Scotland in Inverness. This meant that by close of business on 15^th March a sum of £41,450.00 (actually £41,492.95 inclusive of bank charges) out of the £42,300 had left Abbey National, and the credit balance in Miss Churcher's account had been reduced to £884.64.
36. Miss Churcher paid most of the £20,000 over to Mr Sharkey after the transfer had cleared into her Bank of Scotland account. First, at his request, she arranged by telephone with Bank of Scotland for £18,000 to be made available in cash at a branch of the Halifax in Walsall. On or about 22^nd March, she withdrew the money and handed it over to him in the pub. Not more than a week later she handed him another £1,000 after he had telephoned to say that he needed it.
37. Meanwhile Mr Jones had gone abroad on a pre-booked holiday to Miami. He left the UK on 12^th March, concerned that the 8 VW Golfs for which he had paid Lophius had not arrived. He returned to the UK on 18^th March and still there were no vehicles, so he rang Mr Sharkey. Mr Sharkey agreed to see him and Mr Jones flew to Dublin for a meeting. The two had lunch together near Dublin airport. According to Mr Jones, who I have no reason to disbelieve, Mr Sharkey told him that he could do nothing about the money paid in error to Miss Churcher because he did not know what had become of it. Mr Sharkey went on to say that he would do his best to ensure that the 8 cars were delivered but that if for any reason they could not be delivered, he would use his best endeavours to get the money paid to Lophius returned. The cars never materialised and nor did the money.
38. When Mr Jones next tried ringing Mr Sharkey for an update, Mr Sharkey failed to answer, and Mr Jones lost contact with him.
39. Mr Jones turned his attention to Miss Churcher. He got his solicitors to write to her c/o Abbey National's Clearing Centre. The letter demanded return of the £42,300 by 14^th April or proceedings would be issued. Following receipt of the letter, Miss Churcher somehow found Mr Jones' telephone number and rang him. She explained that all of the money had gone to Mr Sharkey (this was not quite correct: by my calculation she retained about £1,850). Mr Jones said he would get back to her: but there were no further communications between the two of them until these proceedings were issued.
40. None of the money has been recovered. Mr Jones is heavily out of pocket. He has lost the £42,300 paid in error into Miss Churcher's bank account, and has also lost a total of £112,800 paid to Lophius. In October 2006 Murway was investigated, along with Mr Jones, for alleged evasion of payment of VAT. Mr Jones appears to have been exonerated. No charges were brought against him or penalties imposed by HMRC. There was no evidence of the outcome of the investigation into Murway. Murway subsequently went into liquidation on 4^th July 2007, and Mr Jones' information is that Lophius has been dissolved.

The law

41. Modern statements of the principles governing claims to recover money paid under a mistake begin with the judgment of Robert Goff J in Barclays Bank v W.J. Sims [1980] QB 677. In that case Robert Goff J summarised the relevant principles (at 695C-D) in the following propositions (for which he cited by way of footnotes a formidable line of authority):

"(1) If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact, (2) His claim may however fail if (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; or (c) the payee has changed his position in good faith, or is deemed in law to have done so."

42. In Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349. Lord Hope of Craighead (at 407H) held that a claim for restitution of money paid under a mistake raises 3 questions, aside from any defences which might depend on the particular circumstances, (1) was there a mistake? (2) did the mistake cause the payment? (3) did the payee have a right to receive the sum which was paid to him? Only if the first two questions are answered in the affirmative and the third question in the negative, is it necessary to consider the defence of change of position.
43. Lord Goff had earlier reconsidered this defence in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 (at 577H-583A). There are two passages in his speech which have potential relevance to the present case. The first is where he held that it was "... plain that the defence [of change of position] is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution ....". The second is where he described the essential characteristics of the defence of change of position in these terms:

"At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions."

44. The Court of Appeal revisited the Lipkin Gorman case in Niru Battery Manufacturing Co. v Milestone Trading Ltd [2004] QB 985. Clarke LJ (with whom Sedley LJ and Dame Elizabeth Butler-Sloss P agreed) emphasised that the test was not whether the defendant had been dishonest; rather, "... the essential question is whether it would be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake of fact to deny restitution to the payer" (para. 149). Clarke LJ later said (at paras. 153-154):

"The principle identified in the Lipkin Gorman case seems to me to involve a balance between the interests of the payer and those of the payee and, in such a case, the balance of justice seems to me to fall on the side of the payer. If the payee who knows the facts which entitle the payer to repayment does not repay, perhaps, as here, because no proper advice is taken, justice requires that it repay the money. In my opinion, that approach is consistent with that in the Lipkin Gorman case ... It is an approach which seems to me to be consistent with the approach of this court to cases of knowing receipt in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437.

45. The issue in the Niru Battery case was whether a bank (Credit Agricole Indosuez) had acted in good faith by paying away, on the instructions of its customer, funds remitted to it under a letter of credit covering the sale of a quantity of lead, when the bank knew that the payer was unaware that the bank had already disposed of the warrants which represented title to the goods so that delivery under the sale was no longer possible. The trial judge (Moore-Bick J) made a number of observations about the limits of good faith in the context of a change of position defence. Clarke LJ agreed with him (at para. 164), and they are worth repeating here:

"I do not think that it is desirable to attempt to define the limits of good faith; it is a broad concept, the definition of which, in so far as it is capable of definition at all, will have to be worked out through the cases. In my view it is capable of embracing a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty as well as dishonesty itself. The factors which will determine whether it is inequitable to allow the claimant to obtain restitution in a case of mistaken payment will vary from cases to case, but where the payee has voluntarily parted with the money much is likely to depend on the circumstances in which he did so and the extent of his knowledge about how the payment came to be made. Where he knows that the payment he has received was made by mistake, the position is quite straightforward: he must return it. This applies as much to a banker who receives a payment for the account of his customer as to any other person ... Greater difficulty may arise, however, in cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure. In such cases good faith may well dictate that an inquiry be made of the payer. The nature and extent of the inquiry called for will, of course, depend on the circumstances of the case, but I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake will often be found to have acted in good faith if he pays the money away without first making inquiries of the person from whom he received it."

46. The principle which I derive from the Niru Battery case is that where the payee has sufficient knowledge of how the payment came to be made as to cause a reasonable person to doubt whether it was an intended payment, but does not have actual knowledge that it was a payment made under a mistake, good faith requires that he should at least make some inquiry into the circumstances before disposing of the money.

Was the payment made under a mistake?

47. It is not in dispute that the £42,300 was a mistaken payment. Mr Simpson, counsel for Abbey National, expressly conceded in the course of the claimant's evidence that there had been a mistake made by Miss Loveday, and that the mistake had caused the payment to be made to Miss Churcher. The only defence advanced by Mr Griffiths on behalf of Mr Churcher was a defence of change of position.

Was the payment made for good consideration?

48. Abbey's primary contention was that the payment was made for good consideration because (1) it was intended to be payment for 3 cars to be supplied by Murway, (2) Mr Sharkey was Murway's agent, and (3) Mr Sharkey was authorised to, and gave, a good receipt for the money. Payment to an agent who has authority to accept payment is as good as payment to the principal (Portman BS v Hamlyn Taylor Neck [1998] 4 All ER 202 at 207d-j). If Murway was contractually entitled to be paid the money, the claimant cannot assert that there was unjust enrichment if it is paid (proposition 2(b) of Robert Goff J in the Simms case and Kleinwort Benson at 408B).
49. Whilst Abbey can substantiate the first of these propositions, I think its argument fails on the other two. The admitted mistake was in making the payment to Miss Churcher rather than to Lophius. On the CHAPS Form for the payment of £70,500 made to Lophius on 24^th February Miss Loveday had written in the box entitled "Receiving (beneficiary) customer name": "Lophius Trading Limited (Murway)". The payment on 7 March was meant to be a duplicate of the payment on 24^th February, save as to the amount. It is clear that the claimant meant the money to go to Lophius as nominee of Murway to receive payment.
50. However, I do not think that Mr Sharkey had Murway's authority to receive payment. In support of Abbey's contrary argument Mr Simpson relied on the following matters. First, the claimant accepted in cross-examination that it was reasonable to infer that Mr Sharkey was Murway's agent. He did not disown the letter which his solicitors sent to Abbey's solicitors in November 2007 in which they said: "when our client has purchased vehicles from Murway, he has done so by satisfying a Murway invoice and his dealings have been with their agent, James Sharkey". Second, the claimant had complied with payment instructions given by Mr Sharkey for all the vehicles purchased from Murway up to and including the purchase which resulted in the payment of £14,300 to Miss Churcher in February 2006. All of these payments had been for vehicles actually delivered. Third, the inescapable conclusion, if the £42,300 did not reach Murway, would be that it was stolen by, or with the connivance of, Mr Sharkey. The Court ought not to make a finding of fraudulent conduct on the part of Mr Sharkey when it has not seen him give evidence and where there is a plausible explanation not involving dishonesty on his part.
51. I do not find any of these points persuasive. There is a distinction to be drawn between Mr Sharkey having, or being assumed to have, authority to represent Murway in entering into agreements for the sale of vehicles on Murway's behalf, and Mr Sharkey being authorised to receive a payment due to Murway and to give a good discharge of any debt due to Murway. Reliance was placed on the decision of Thompson v Bell (1854) 10 Exch. 10. But there is no evidence that Mr Sharkey was a director of Murway or that he held any managerial position with the company which would have carried with it an implied or usual authority to accept money on the company's behalf. In fact the evidential basis of Mr Sharkey's actual authority is thin. The claimant inferred that Mr Sharkey was Murway's agent from the way in which he behaved. There is no evidence that he had actual authority to do anything on Murway's behalf. The case for ostensible authority is almost equally as weak. It was Mr Sharkey who represented himself as Murway's spokesman. He did so only to the claimant. Miss Churcher's evidence was that he never mentioned Murway to her and Murway never contacted her to ask her to accept money on its behalf. The only physical embodiment of Murway was the lady called Tamara, whom the claimant never met but to whom he spoke on 4 or 5 occasions on the phone. Mr Simpson invited the inference that she had held out Mr Sharkey as being Murway's representative. It is possible that she did, but there is no direct evidence to that effect.
52. It is also far from clear that Murway received any of the money paid to Lophius or to Miss Churcher (on the first or second occasion) or accepted the payments as discharging the claimant's liability to pay for the vehicles in question. All that is known is that £8,000 out of the £14,300 paid to Miss Churcher in February 2006 was handed over in the form of a banker's draft payable to L.R. Silvers, that £17,500 out of the second payment to Miss Churcher in March was handed over in the form of a banker's draft payable to Paul Brazier and a sum of £2,850 from the same payment in a draft payable to BCA. There is no evidence that Murway owed money to any of these entities. They could as well have been companies to whom Mr Sharkey was indebted.
53. The fact that the 3 cars for which the sum of £42,300 was mistakenly paid to Miss Churcher, and the further sum of £42,300 was paid to Lophius, were not delivered, is a substantial additional impediment to the argument that these payments discharged a debt due to Murway for which Mr Sharkey could give a good receipt. This is why Mr Simpson concentrated on the first payment to Miss Churcher in February. On that occasion the vehicle was already in the claimant's possession. The sum of £14,300 was remitted to Miss Churcher's account on the instructions of Mr Sharkey, in purported payment for it. Mr Simpson pointed out that Murway did not press the claimant for any further payment in respect of that vehicle, nor have Murway's liquidators. In his submission that proves that Murway and Murway's liquidators have treated the payment to Miss Churcher as good payment for that vehicle. I am unable to draw that conclusion. There are at least four other explanations. One is that the vehicle in question had already been paid for by another intended purchaser. The other is that Murway's records are incomplete and the liquidators are unaware that there has been no payment for that vehicle. A third explanation is that Murway did in fact owe £6,000 to L.R. Silvers and that Mr Sharkey paid the balance of the money over to Murway, yet did not give Murway the benefit of any of the second payment to Miss Churcher of £42,300. The fourth explanation is that the liquidators are aware that one vehicle was not paid for but are also aware that Mr Jones paid for a total of 8 other vehicles which were not delivered, and so would have a claim against the company in the liquidation far greater than any claim of the company against him.
54. However, this much can be said about the second payment of £42,300 into Miss Churcher's account: (1) Mr Sharkey did not request the payment to be made in that way; (2) Murway gave no consideration for it; and (3) Mr Sharkey did not purport to give the claimant a good discharge for a debt to Murway in that amount. I accept Mr Jones' account of his conversation with Mr Sharkey at Dublin airport on the last occasion they met. Mr Sharkey's statement that he did not know where the money paid to Miss Churcher had gone was untruthful and inconsistent with any suggestion that he was treating that payment as a good receipt by Murway. The fact that Mr Sharkey agreed to meet Mr Jones at all could be construed as a sign of his innocence but his subsequent disappearance and disclaimer of all knowledge of where the money had gone point to his having acted dishonestly.
55. Mr Simpson went so far as to submit that there was no evidence that Mr Sharkey had acted fraudulently and, even if there was, the Court could not make a finding of fraud against a third party whose version of events had not been heard in evidence. He cited for that proposition the decision of the Court of Appeal in Mohammed Jafari-Fini v Skillglass Ltd [2007] EWCA Civ 261. As I read it, the Jafari-Fini case is not support for a rule against making a finding of dishonest conduct by a person whose evidence has not been heard. Rather, it is an illustration of the caution with which the Court proceeds if it has not seen and heard evidence from all concerned. It also serves as a reminder that although the civil standard of proof applies to an allegation of dishonest conduct in a civil trial, the threshold is proportionately higher where dishonesty is alleged. In my judgment there are only four possible explanations for what happened in this case. The first is that Mr Sharkey was dishonest in appropriating to himself the money for the additional 3 vehicles that was properly due to Murway. The second is that Mr Sharkey and Murway were both dishonest in that, although Mr Sharkey dealt with the money in accordance with Murway's instructions, he was aware that Murway had no intention of delivering the vehicles. The third is a variant of the second in that Mr Sharkey was not dishonest because he dealt with the money in good faith in accordance with Murway's instructions, but was unaware that Murway did not intend to deliver the vehicles. The fourth and last explanation is that neither Mr Sharkey nor Murway was dishonest. Mr Sharkey dealt with the money in good faith in accordance with Murway's instructions: but Murway later found itself unable to supply the 5 vehicles although it had fully intended to do so. The conclusion I have reached is that the first or second explanation is most likely to represent the truth of the matter. I have arrived at that conclusion notwithstanding the caveats exemplified by the Jafari-Fini case. If Mr Sharkey had been honest, he would have contacted Miss Churcher and persuaded her (if she needed persuading) that the money had to be returned. He did not do so. On the contrary, the evidence of Miss Churcher was that Mr Sharkey put pressure on her to pay the money to him. In the circumstances, I reject the contention that in receiving the money Mr Sharkey was able to, or did, give Mr Jones a good discharge for a debt to Murway in a sum of £42,300.

Did the first defendant change her position in good faith?

56. The extent of Miss Churcher's knowledge of the circumstances of the payment and whether she parted with the money voluntarily are the key issues.
57. Miss Churcher was the first to recognise in her oral evidence that, with hindsight, she had been unwise ever to have allowed Mr Sharkey to use her bank account on the basis of so slender an acquaintance. Quite literally, he was a man she had met in the pub on only a few occasions. When the second, much larger sum, arrived in her account on 7^th March without prior warning, she was admittedly shocked, and angry. It is significant that her first reaction was to ring Abbey's Customer Services helpline to ask whether the bank could return the money. When that did not work, and all the bank could tell her was that the money had come from The Chelsea Car Company, she said she tried (unsuccessfully) to find the company's details through directory inquiries and in Autotrader magazine. She did nothing else until Mr Sharkey contacted her. She then began handing over the money to him. It is worth recapping the sequence of the handover. She took a sum of £300 out of an ATM and gave it to Mr Sharkey on Monday, 13^th March. She arranged for drafts of £17,800 payable to Paul Brazier and £2,850 payable to BCA and gave them to Mr Sharkey, together with a further £500 in cash, on Wednesday, 15^th March. She transferred £20,000 to her Bank of Scotland account in Inverness and organised for £18,000 of that money to be available in cash at a branch of the Halifax in Walsall which she gave to Mr Sharkey on or about Wednesday 22^nd March. Within a week of that transaction (i.e. by 29^th March at latest) she had withdrawn another £1,000 of that money and had handed that sum to Mr Sharkey as well.
58. Miss Churcher's evidence was that the first of Abbey National's letters containing a debit authority (the one dated 22^nd March) did not reach her until about the time that the second such letter arrived, which was around 5^th April. I shall assume in her favour that she is right about that, although it is strange that a letter posted on or about 22^nd March should arrive 2 weeks later. It makes very little difference because it is doubtful whether the first letter would have reached her before the £18,000 was handed over, even though it should have reached her before she parted company with the last £1,000. It also makes little difference because I am satisfied that Miss Churcher knew enough, without having to read the bank's letters, to realise that the second payment into her account might have been a mistake and that the money might not be money to which Mr Sharkey was entitled.
59. All the circumstances were suspicious and Miss Churcher's conduct demonstrates that she was aware of that fact. First, the money arrived without explanation. On the first occasion Mr Sharkey's explanation (that the money was to be used to buy a car of his own) had been just about plausible. There was no obvious reason why a further sum of £42,300 should need to be routed through Miss Churcher's account. Indeed, her reaction at the outset was that the payment was a mistake and the money ought to be returned. Yet she made no very serious attempt to track down The Chelsea Car Company. The company had a listed telephone number in Battersea (0207 738 0594). It is surprising that Miss Churcher's limited inquiries did not discover it. The company probably had a website. A website address (www.chelseacar.co.uk) was printed at the foot of the company's stationery. The claimant was not asked to confirm whether the website existed at the time: but it would be strange for it to be printed on the stationery if it did not. Miss Churcher never saw any stationery of The Chelsea Car Company: but conducting a web search for a business is a commonplace process. Miss Churcher did not have access to the internet herself: but her mother had a computer with internet access and she was accustomed to using it. She could easily have conducted an internet search for The Chelsea Car Company or could have asked her mother to do so: but she did not. In fact she told no one in her family that the second payment had been received. Significantly, she did not tell her partner and ask him what she should do. I think it more likely than not that if she had done so, he would have told her to go back to the bank and ask for help in sending the money back. He would have realised that something irregular had occurred and that she would be wise not to get involved. I suspect that the reason why Miss Churcher did not tell anyone in her family about the payment is that it would have necessitated her explaining the first payment as well, and she already felt embarrassed about having assisted Mr Sharkey the first time round.
60. Having decided to keep quiet about the money, Miss Churcher had no one to turn to for assistance when Mr Sharkey got in touch with her about it. The subterfuge to which she resorted in order to comply with his demands for payment (transferring some of the money to an account in Inverness so as to avoid more awkward questions at her local Abbey National branch) shows that she knew that what she was doing was suspect. Even to someone used to having substantial sums of money in their account (and Miss Churcher was not), the handing over of £18,000 in cash would be unusual. It would be even more unusual for such a transaction to happen in a pub, rather than at business premises, and for the reason for the payment to be obscure and the recipient to be someone known to the payer only slightly. Miss Churcher's evidence was that Mr Sharkey said that the second payment was also for a car. But she never asked why Mr Sharkey needed the money for a second car, after he had supposedly bought a car with the proceeds of the first payment. Nor did she query why the money had come from The Chelsea Car Company rather than was being paid to The Chelsea Car Company. To all intents and purposes, the second payment was left unexplained.
61. A testament to Miss Churcher's unease at having complied with Mr Sharkey's requests to pay him the money is that she did not reply to either of the bank's letters requesting a debit authority, even in respect of the residue of the money still in her account. Until these proceedings were issued she did not acknowledge liability to return the sum of £1,000 remaining in her Bank of Scotland Inverness account either.
62. Mr Griffiths, who represented Miss Churcher and argued as forcefully as he could every point which could fairly be made on her behalf, pointed out that Miss Churcher was under pressure from Mr Sharkey to hand over the money and that Mr Sharkey had only demanded the money because Mr Jones had unwittingly alerted him to the fact that the funds had been paid to Miss Churcher by mistake. The second of these points is an irony but not of itself a defence. Whether a claimant who has paid money under a mistake is entitled to succeed in a restitutionary claim to get the money back does not depend on weighing the relative carelessness of the payee and the recipient (see opinion of Privy Council in Dextra Bank & Trust Co. Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193 at paras 40-46 which endorsed the view expressed by Parke B in Kelly v Solari (1841) 9 M & W 54 at p,. 59 that a claimant who has paid money under mistake may recover "however careless [he] may have been in omitting to use due diligence"). In any case, when Mr Jones confided in Mr Sharkey that the money had gone astray, he had no reason to suspect that Mr Sharkey would approach Miss Churcher and try to get the money paid to himself rather than repaid to The Chelsea Car Company.
63. It is a defence if the recipient of money paid under a mistake is not a free agent when he or she disposes of it. Miss Churcher gave evidence, which was not challenged, that Mr Sharkey's tone became threatening when there was a delay in paying him the balance of the money whilst funds transferred to the account in Inverness were cleared. She saw him in the street one day and, according to her, he came over and said something to the effect that she shouldn't mess him around and that he knew where she lived. She said the incident frightened her and made her tearful. At the time Miss Churcher was 29 years old. She had two small children in her care, one a daughter born to her and her partner in September 2005, and the other her partner's daughter from a previous relationship, who was aged 4½. She was concerned for the safety of the little girls after this encounter with Mr Sharkey.
64. This is important evidence: but I do not think it is sufficient to found a defence to the claim. No doubt Mr Sharkey became progressively insistent about getting the money, in case Miss Churcher was to have second thoughts. However, the encounter she described took place well after she had resolved to pay the money to him, and after she had already handed over £21,450 and had explained how the balance of £20,000 was being transferred to Inverness in order to make it easier for her to withdraw and pay to him. Those were voluntary steps, not taken under pressure or in fear of retribution. Mr Sharkey's threatening behaviour was caused by the delay in paying the balance, which must have led him to think that she might be having second thoughts about releasing it. At best it might found an argument that Miss Churcher should not be held liable for parting with the last two payments of £18,000 and £1,000. But there is no suggestion in the evidence that Miss Churcher was ever having second thoughts about paying this money to Mr Sharkey. She sold the pass at a much earlier point in time, when she decided not to tell her partner about the receipt of the money, made no serious attempt to trace The Chelsea Car Company, opted not to go back to the bank for help and failed to tell Mr Sharkey when he contacted her that the money had already been repaid or was in the process of being repaid by the bank. Given the curious circumstances of the first payment, and the unexpected and unexplained nature of the second, I find that Miss Churcher was sharp enough to appreciate that these were sensible steps which she could and should have taken to protect her position.
65. It is admitted that Miss Churcher has no defence to the claimant's claim for £1,830 (the difference between the mistaken payment of £42,300 and the sums paid to Mr Sharkey is actually £1,850). As to the rest, I reject the defence of change of position because Miss Churcher parted with the money when she believed that it should never have been paid to her in the first place and when she knew that the circumstances in which it had arrived in her account were suspicious, and yet she made no or no adequate inquiry and made no concerted effort to return it.

Does the second defendant have a defence of "ministerial receipt"?

66. Abbey National's defence of ministerial receipt is that, under CHAPS Rules, money received by a receiving bank represents cleared funds immediately upon receipt. If that is right, the money was not held by Citibank as agent for Abbey, or by Abbey as agent for Miss Churcher, for any identifiable period of time. Miss Churcher was entitled to immediate use of the funds and that entitlement constituted a chose in action accruing to her the moment the funds were received from Lloyds TSB.
67. Ministerial receipt is a different defence to change of position. It is available only where a collecting bank has received funds as agent for the customer and has paid away the funds to the customer. Once the collecting bank has dealt with the funds in such a way that the credit to the customer is irreversible, the bank is entitled to plead a defence of ministerial receipt to any restitutionary claim by the payer to get the funds back. The defence complements the defence of change of position which may additionally be available to the collecting bank depending on the circumstances.
68. One of the more frequently quoted judicial expositions of the concept of ministerial receipt is to be found in the judgment of Millert LJ in Portman BS v Hamlyn Taylor Neck [1998] 4 All ER 202 at 207e-j. The facts in the Portman case provide no useful analogy to those of the present case. The building society was claiming to recover the amount of a mortgage advance from solicitors which it had paid under the misapprehension that the property was intended for residential use rather than business use, as a guest house. The society relied on the rule that an agent has no defence where he has paid away money to his principal with actual or constructive of the mistake which means that his principal is not entitled to it. Millett LJ had the following to say about that argument:

"The general rule is that money paid (eg by mistake) to an agent who has accounted to his principal without notice of the claim cannot be recovered from the agent but only from the principal. The society submits that the agent's defence in such a case is a particular species of the change of position defence and does not avail the agent who has notice, actual or constructive, of the mistake which founds the plaintiffs claim.

I myself do not regard the agent's defence in such a case as a particular instance of the change of position defence, nor is it generally so regarded. At common law the agent recipient is regarded as a mere conduit for the money, which is treated as paid to the principal, not to the agent. The doctrine is therefore not so much a defence as a means of identifying the proper party to be sued. It does not, for example, avail the agent of an undisclosed principal; though today such an agent would be able to rely on a change of position defence.

The true rule is that where the plaintiff has paid money under (for example) a mistake to the agent of a third party, he may sue the principal whether or not the agent has accounted to him, for in contemplation of law the payment is made to the principal and not to his agent. If the agent still retains the money, however, the plaintiff may elect to sue either the principal or the agent, and the agent remains liable if he pays the money over to his principal after notice of the claim. If he wishes to protect himself, he should interplead. But once the agent has paid the money to his principal or to his order without notice of the claim, the plaintiff must sue the principal."

69. The defence of ministerial receipt is also considered in Bowstead and Reynolds on Agency (18^th ed., Article 111 at para. 9-104), in Goff & Jones, The Law of Restitution (6^th ed. at paras. 40-014 to 40-018) and in such banking law textbooks as Brindle & Cox, Law of Bank Payments (3^rd ed. at paras. 7-209 to 7-210) and Ellinger's Modern Law of Banking, (4^th ed. at pp. 494-499). The critical point is the point at which the crediting of funds to the customer's account can no longer be reversed. It has long been accepted that the crediting of a customer's account with the amount of a cheque is provisional only, and liable to be reversed if the cheque is dishonoured on presentation (see Buller v Harrison (1777) 2 Cowp. 565 and Bavins & Sims v London and South Western Bank Ltd [1900] 1 QB 270). There is authority to suggest that this proposition holds good unless and until the collecting bank permits the customer to draw upon the funds (so held in Gowers v Lloyds and National Provincial Foreign Bank Ltd [1938] 1 All ER 766). If there is an existing overdraft when the funds are credited, there are two decisions which suggest that the payment into the account may be treated as a payment by the bank to the customer and a repayment by the customer to the bank to the extent of the discharged indebtedness, so the bank can assert that it allowed the customer to draw upon the funds to the extent the overdraft was cancelled (see Continental Caoutchouc and Gutta Percha Co. v Kleinwort, Sons & Co. (1904) 97 LT 263, and Standard Bank London Ltd v Canara Bank unrep. 22/5/08, Moore-Bick J. at para. 91). However, if the collecting bank pays cash for the cheque or grants an overdraft facility on the strength of it, it is acting as a discounting bank and is entitled to receive reimbursement from the proceeds of the cheque as a principal. In these circumstances, the defence of ministerial receipt is not available.
70. Abbey National's argument rests on the proposition that funds which have been credited by a collecting bank to a customer's account as cleared funds cannot be recalled. They are to be treated as having been paid away in the same way as funds withdrawn by the customer. In such cases it is Abbey's contention that the customer is the only proper defendant to a claim for restitution of the money. None of the reported cases appears to have focused on whether it matters that the funds represented by the mistaken payment have been cleared. Clearance involves the receipt of the money by the collecting bank through the cheque clearance system. Where the payment is by cheque, it is common banking practice only to permit a customer to draw against funds which have been cleared, even if the account has been credited immediately on receipt of the cheque. The credit is a paper credit until the proceeds of the cheque have been received by the collecting bank. It is self evident that a paper credit can be reversed if the money does not materialise on presentation of the cheque to the drawer's bank. No defence of ministerial receipt arises at that stage because there has, as yet, been no receipt. The question is: in what circumstances can the payment be reversed after the collecting bank has received the money?
71. One might have thought that the answer could be found in the contract between the bank and the customer. But the terms and conditions of Miss Churcher's account with Abbey National are not clear on this point. They say nothing about the circumstances, if any, in which the bank might claim to be entitled to reverse a credit of cleared funds. They give guidance that clearance of cheques normally took 3 working days, and contain a warning (clause 2.2) that: "Cheques can be returned unpaid by the bank of the individual who wrote the cheque after this time, even where funds have been made available". This implies (as does clause 2.1b)) that it was Abbey's practice to permit customers to draw on the amount of uncleared cheques. This does not assist to resolve the status of cleared funds credited to an account, which have not yet been drawn upon.
72. The cases to which I have referred seem to suggest that, even after clearance (i.e. receipt by the collecting bank of the proceeds of a cheque), a credit made to a customer's account is liable to be reversed if and insofar as the funds have not been drawn upon (see Brindle & Cox at para. 7-210) or at least so long as the customer cannot invoke an estoppel by reason of a change of position (e.g. where he has used the credit balance as security). This view presupposes that the collecting bank is a reservoir of funds which it holds as agent for its customers to the extent each customer's account is in credit, and that it only ceases to hold the money in that capacity when the customer utilises the funds for his own purposes. Thus, if a mistaken payment is credited to an account already in credit, and the customer then makes drawings on the account and pays in further credits, the mistaken payment is to be regarded as paid away only to the extent that, by the rule of "first in first out" (the rule in Clayton's Case), the drawings have depleted the mistaken payment (see the analysis in Ellinger at pp. 497-498 which the authors believe is supported by the decisions in Holland v Russell (1861) 30 LJ (NS) QB 308 and Admiralty Commissioners n National Provincial and Union Bank of England (1922) 127 LT 452).
73. There is, however, a contrary argument which is expressed by the authors of Ellinger in the following passage (at pp. 498-499):

"... on a strict analysis of the relationship of banker and customer, there is room for a forceful argument in an entirely different direction. The cases discussed up to now presuppose that the funds standing to the credit of the customer's account are held by the bank on his behalf. Theoretically this is inaccurate. It is indeed true that any amounts drawn by the customer are paid out by the bank as his agent. But until the customer makes a demand, the funds standing to his credit are commingled with the bank's other funds and hence are its own money. The customer's only asset is a debt, or chose in action, due to him from the bank. On this basis it is arguable that a collecting bank ceases to hold any funds as the customer's agent from the moment at which these are credited to his account, and not from the time at which the customer withdraws them. The money may therefore be regarded as paid over by the bank when the amount becomes available to the customer on clearance. If this argument, which is untested, were to be accepted, the bank would be placed in a more certain position. The bank would not be at risk of being liable to its customer if restitution is made to the claimant, and of being held liable to the claimant if it pays the money received to, or to the direction of, the customer. Moreover, the defence would operate whether the customer's account was already in credit or overdrawn. Security of receipt would be paramount."

74. Mr Simpson, for Abbey National, relied heavily on this passage, and emphasised that payments received through CHAPS, as opposed to by cheque, were available to the customer as cleared funds immediately i.e. on the day of payment.
75. I accept that the CHAPS Rules in force between Citibank and CHAPS Clearing Company Limited at the time of the mistaken payment to Miss Churcher establish that the payment represented cleared funds in the hands of Citibank by close of business on 7^th March 2006. This emerges from Rule 2.2.3 (whereby each member agrees to give "same day value" to all Payments denominated in sterling), from Rule 3.2.1 (whereby a Payment Message entered into CHAPS is stated not to be capable of being revoked by the sending Member) and from Rule 4.1.1 (which provides that a clearing for all sterling payments is to take place each CHAPS Sterling Business Day). The CHAPS Agreement between Abbey National and Citibank, dated 4^th August 1994, was only one of a series of agreements and arrangements between the two banks which enabled Abbey to have access to the CHAPS system. I have not seen all of the agreements and arrangements. In particular I have not seen details of the arrangements that were put in place for funds received through CHAPS by Citibank for Abbey National customers to be remitted to Abbey National. I shall assume, for present purposes, that they provided that Abbey should receive the money from Citibank on the same business day, or that there should be a daily settlement of accounts between Citibank and Abbey National in respect of all CHAPS transactions. If that is right, Abbey National received the payment from Citibank as cleared funds on the same day that Citibank received the money.
76. If the untested argument in Ellinger is right, no collecting bank receiving money by CHAPS transfer could ever be named as defendant to a restitutionary claim unless there were grounds for supposing that it knew or had reason to suspect, before the transfer was received, that the payment was being made in error. It is Abbey National's case that it was powerless to return the money as agent of Miss Churcher because the money was in Abbey National's hands only fleetingly and was credited to Miss Churcher before the paying bank asked for it to be paid back.
77. Whilst the untested argument has the attraction of certainty, and obviates the need to examine the history of drawings on an account after a mistaken payment has been credited, I am not persuaded that it is right. If money received by a collecting bank is to be treated as having lost its identity when commingled with the bank's other funds, so that it becomes the bank's money, the bank has control of it and can repay it to the remitting bank if it thinks fit. The bank may be held liable in debt to the customer: but in theory if not always in practice, the bank could interplead rather than repay the money or permit the customer to draw upon it. I find this analysis difficult to reconcile with the assumption which I understand to underpin the defence of ministerial receipt, namely, that the money has been transferred in an irrevocable fashion from the agent (the collecting bank) to the principal (the customer) and is therefore the customer's money. For these reasons I do not accept that Ellinger's alternative theory as to the legal status of the money in the hands of the collecting bank leads to the conclusion that the money should be regarded as the customer's money as soon as the funds have cleared. I therefore reject the submission that Abbey has a defence of ministerial receipt on this alternative basis.
78. The defence, if it avails Abbey National, must rest on the fact that Miss Churcher had drawn on the money before the bank had notice that it was being reclaimed. Miss Churcher's account was £9.94 in credit when the sum of £42,300 was added to her balance on 7^th March. She withdrew a sum of £10 on Saturday, 11^th March (on which there was a fee charged of £1.75). Technically her first drawing on the funds was a sum of £1.81 on 11^th March. Her next withdrawal was £300 on Monday, 13^th March, which was paid to Mr Sharkey. There is an issue, which I shall address under the heading of Abbey National's defence of change of position, as to precisely when Abbey had notice that the money had been paid to Miss Churcher in error. The claimant says that it was on receipt by Citibank of the SWIFT message from Lloyds TSB on 8^th March; at which point none of the money had been drawn upon. Abbey's case is that it did not know until receipt from Citibank of Lloyd's TSB's SWIFT message of 16^th March, by which time £41,492.95 of the £42,300 had been used up. This is the scope of the defence of ministerial receipt. In my judgment the defence fails at the point at which Abbey National could be said not to have acted in good faith in allowing the money to be drawn down by Miss Churcher. On the facts of the present case I do not believe that it adds anything to the defence of change of position.

Did the second defendant change its position in good faith?

79. As Clarke LJ pointed out in the Niru Battery case, "good faith" in the present context covers a range of conduct from outright dishonesty to lawful behaviour which may amount to sharp practice or which may be no more than a step which ought not to have been taken, at least without inquiry, having regard to the bank's state of knowledge of the mistake which prompted the payment to be made. It must be made quite clear that no question of dishonesty or sharp practice arises here. The claimant's case against Abbey National is quite simply that it knew that the paying bank was saying that the payment had been made by mistake before Miss Churcher had spent any of it and therefore should have made inquiries which would have resulted in the money being returned.
80. Abbey disputes that it had knowledge of the mistake until almost all of the money had gone. Even if that is not accepted, Abbey contends that the only way in which the funds could have been repaid was if Miss Churcher had provided the bank with a debit authority authorising their return, or Abbey had been willing to act in breach of its customer mandate by returning the funds without Miss Churcher's consent under protection of an indemnity from the remitting bank (Lloyds TSB). In my view both aspects of the matter: knowledge of the circumstances of the payment and what, in practical terms, could have been done to ensure that the money was returned, are of relevance in assessing whether Abbey National changed its position in good faith: so also is the timeline. It all depends on what the bank knew and when, and what it could have done about it.
81. A bank cannot be criticised for allowing a customer to draw upon funds if it has not yet been notified that the funds are being recalled. How the bank is notified and whether it is given a reason why the money is being recalled may make a difference to the action it takes. There may be several reasons for requesting a payment to be reversed. The 3 most obvious are: (i) that it was procured by fraud, (ii) that it was made by mistake, or (iii) that the paying party has had second thoughts about making the payment. Where fraud is alleged it is clearly important that swift action should be taken. Where it is said that the payment was a mistake (either as to the amount or as to the destination), it may be less likely that the payee will misappropriate the money, but a mistaken credit can be a great temptation.
82. The twist in the present case is the fact that Citibank chose to paraphrase the SWIFT message it received from Lloyds TSB on 8^th March when passing the message on to Abbey National. This meant that Abbey did not learn through the CHAPS system of the reason why the money was being recalled until 16^th March. Mr Ascroft stressed however that Abbey was told much earlier than 16^th March that the payment had been made in error. Abbey was told three times: first, when Miss Churcher rang the Customer Services helpline on 7^th March to ask if the money could be sent back; second, when Mr Jones spoke to Joanne Wolverson at the Walsall branch of Abbey on 8 March, and, third, when Julie Hendry spoke to Rehana Begum of Abbey's Global Team, shortly after midday on 9 March.
83. The view I take is that the first two of these telephone conversations did not give Abbey sufficient notification that the payment was being recalled and why it was being recalled as to have placed Abbey on inquiry or to have required Abbey to take action. That does not mean that Abbey's response on both occasions is entirely free from criticism. Since it is Abbey's case that it could only have arranged for the money to be returned under cover of a debit authority signed by Miss Churcher, it is unfortunate that when she telephoned and made it clear that the money was not meant to have been credited to her account, the Customer Services representative did not immediately offer to post her a debit authority form for signature. It is more understandable that Miss Wolverson did not think it appropriate to write to Miss Churcher following the call from Mr Jones. He was not Abbey's customer and he could well have been spinning a yarn. On the other hand, if a record had been made of Miss Churcher's call, Miss Wolverson might have been able to put two and two together. She would then have realised that there probably had been a mistake which needed to be rectified. If Miss Churcher had received a debit authority form on the weekend of 11^th/12^th March or on Monday 13^th March she would at least have known how to return the funds before any of the money had been handed over to Mr Sharkey.
84. The telephone conversation between Miss Hendry and Miss Begum falls into a different category because it took place between bank employees who worked in the department responsible for processing CHAPS transfers at their respective banks, and it was recorded. Abbey's objection is that the call was not made on a secure line so that there was no ready means of verifying Miss Hendry's identity. However Miss Hendry gave Miss Begum her telephone number at Lloyds TSB and Miss Begum could have verified Miss Hendry's status by ringing the number back. Miss Begum also promised to report the call with Abbey's investigations unit and gave Miss Hendry a case reference number. The

result was that sometime on 9^th March a computer log entitled "REC-Recalls" was opened in Abbey's Group Payments department in which the box headed "Payment details" stated the following: "Payment sent to us in error please return funds to Lloyds as they would like to recall this payment". In the circumstances I do not think that Abbey can dismiss the information provided by Miss Hendry to Miss Begum as having been communicated through the wrong channels.

85. Miss Hendry also had the good sense to confirm the recall request by the SWIFT message sent around 5 pm on 8^th March. This made it clear that Lloyds TSB was saying that the payment had been made in error. There is no dispute that this written request was sent through the right channel. It was not the fault of the claimant, or of the remitting bank, that Citibank took more than 24 hours to pass the message on to Abbey or that Citibank did not pass it on verbatim. The question, therefore, is whether Citibank was the agent of Abbey National for the purpose of sending and receiving SWIFT messages relating to CHAPS transfers so that the receipt of Miss Hendry's message by Citibank was receipt by Abbey National. It was accepted by Mr Simpson that Citibank was Abbey's agent for the purpose of making and receiving CHAPS payments: but he disputed that this extended to the sending and receipt of messages. He submitted that the obligation in that regard was confined to what was said in clause 5 of the CHAPS Agreement between Citibank and Abbey National. Clause 5 of that Agreement (dated 6^th August 1994) provided:

"5. Receipt of Messages

On the receipt by Citibank of any message through CHAPS in relation to any Transaction given in accordance with the Electronic Banking Agreement Citibank will notify Abbey by electronic means or otherwise of such message."

86. I do not think that clause 5 is inconsistent with Citibank having become the agent of Abbey National for the sending and receipt of SWIFT messages, any more than clause 2(i) which provided that Citibank should "facilitate the effecting of Transactions through CHAPS on behalf of Abbey" was inconsistent with Citibank being Abbey's agent for the receipt and despatch of funds. Moreover it was Abbey's evidence that it only took notice of SWIFT messages about CHAPS payments if they were routed through Citibank. It would not pay attention to a SWIFT message sent direct to it by the remitting bank. If that was the practice, it reinforces the critical role of Citibank in acting as a conduit for SWIFT messages relating to CHAPS transfers. For all these reasons I am satisfied that Citibank was Abbey's agent not only for the purposes of transmitting funds through the CHAPS system and but also for the purpose of receiving SWIFT messages in respect of such transfers.
87. Mr Simpson submitted that even if that was correct, the knowledge required to support an argument that the bank did not act in good faith when it allowed Miss Churcher to draw upon the mistaken credit was actual knowledge rather than imputed knowledge. Knowledge acquired through an agent is imputed knowledge akin to constructive notice. Constructive notice is not enough to defeat a defence of change of position. Mr Simpson referred in this context to paragraph 230 of the judgment of Judge Chambers QC in Papamichael v National Westminster Bank plc [2003] 1 Lloyd's Rep. 34, where the judge emphasised that the knowledge required for the imposition of a constructive trust is actual knowledge rather than constructive notice. Mr Simpson argued that the requirement was no different if the defendant to a restitutionary claim was to be deprived of a defence of change of position.
88. In the Papamichael case, Judge Chambers found NatWest liable in restitution and for knowing assistance in a breach of trust. He held that the bank had had actual knowledge of facts which established that it had not acted in good faith in permitting a sum in drachmas paid to it by Mrs Papamichael to be converted into US dollars and had not acted with the requisite degree of honesty in allowing Mrs Papamichael's husband to make use of the dollars. He observed (in para. 230) that actual knowledge was required to found a liability for breach of trust because, as he put it:

"... equity strikes a balance between the weight of the obligation that conscience may impose and the circumstances which may legitimately call for the imposition of that burden. The severity of the obligations placed on the trustee must be matched by a corresponding knowledge of the circumstances that impose the trust".

Judge Chambers was less categoric when considering the degree of knowledge required in order to defeat a defence of change of position. He quoted from paragraphs 134 to 138 of the speech of Lord Goff in Lipkin Gorman and drew the following conclusion (in para. 209):

"It seems to me that it is implicit in the above analysis that the payee should have actual notice of the matters that go to his good faith: the negligently unopened letter is not enough. I am not sure that this is necessarily the case. Equity, if not good faith, might suppose that we should read our correspondence and the discussion of the position of a purchaser for value by Sir Robert Megarry V-C in In re Montagu's Settlement Trusts [1987] 1 Ch 264 [at 272H-273B and 27A-278E] is supportive of the view that constructive notice of a mistake is enough to defeat the defence of change of position. However, for present purposes, I am content to proceed upon the basis of a requirement of actual knowledge where good faith is concerned."

89. In my judgment there can be no universal answer to the question whether actual knowledge or imputed knowledge is required in order to defeat a defence of change of position. The broad test adopted in the Niru Battery case is whether the circumstances demonstrate that it would be inequitable to allow the claimant to obtain restitution or conversely that the defendant did not act in good faith in allowing the money to be paid away. I can conceive that there may be instances where imputed knowledge of certain facts would suffice on its own to establish a lack of good faith: but that is not the present case. In the present case Abbey had appointed Citibank to act as its agent in effecting CHAPS transfers and (as I have found) in sending and receiving SWIFT messages relating to such transfers. Citibank, as Abbey's agent, had actual knowledge on Wednesday, 8^th March that the money was being recalled and of the reason for the recall. Abbey had actual knowledge that the money was being recalled (but not the reason for the recall) when it read Citibank's SWIFT message at the opening of business on Friday, 10^th March. In addition, Abbey had been told by Miss Hendry on Thursday, 9^th March that the payment was a mistake. I therefore have no difficulty in finding that, no later than the beginning of normal business hours on Friday, 10^th March, Abbey National had actual knowledge that the remitting bank was asking for the money back because the payment had been made in error.
90. Whether it made any difference to Abbey to know that the money was being recalled because the payment had been made in error depends on what Abbey could or should have done once it was armed with that information. The evidence of Abbey's procedures in such cases was given by Jason Roberts, Operations Manager in the CHAPS and Foreign Payment Team. He was the person in charge of those who dealt with Lloyds TSB after the recall request was made. Given the risk of misappropriation that can arise when an erroneous payment is made, one would expect all banks to have robust systems in place for rectifying such errors with an appropriate degree of urgency. The evidence of Mr Roberts, and of what in fact happened in the present case, was not reassuring in this respect.
91. According to Mr Roberts, it is the practice of Abbey National to draw a distinction between cases where fraud is alleged (recall for suspected fraud) and other cases (standard recall). The former receives higher priority and may lead Abbey, as collecting bank, temporarily to freeze the account into which the money has been paid, whether or not an indemnity is provided by the remitting bank, although an indemnity is usually required. In all cases of standard recall, the practice is always to require a signed debit authority from the customer before sending the money back. Absent fraud, the view taken by Abbey is that any attempt to freeze or ring-fence cleared funds which have been credited to a customer's account is a breach of mandate and cannot be done without the customer's consent. I understood Miss Hendry to say that this was the approach of Lloyds TSB also.
92. The first thing to observe about Abbey National's procedures is that they do not appear to be contained in a written document. If there is one, it was not produced in evidence. Second, the dividing line between cases of suspected fraud and standard recall is not clear-cut. Plainly a remitting bank is expected to act responsibly and not to suggest that fraud may be involved without reasonable grounds for suspecting that is the case. But there may be many instances where the remitting bank is not confident of alleging fraud but where the risk of misappropriation or loss of the misdirected funds may be very great. According to Mr Roberts, Abbey accords high priority to these cases as well, although priority does not extend to taking unilateral action to preserve the funds pending inquiry, unless Abbey's Legal Department was to sanction such a move. Even in such a case, an indemnity from the remitting bank is almost invariably required.
93. Abbey National divides cases of standard recall into 4 categories. They are: 1. Payment sent in error, 2. Duplicated payment, 3. Overpayment, 4. Other - Remitter request. The last category covers all circumstances not included in the first three categories and would include a case of "second thoughts" i.e. where the payer originally intended to make the payment but has changed his mind. Miss Hendry said that Lloyds TSB does not follow the same categorisation. In my view this was a category 1 case: but when Abbey eventually wrote to Miss Churcher on 22^nd March requesting her to sign a debit authority the letter placed the recall request in category 4. Furthermore, the log shows that no action was taken to process the recall until 22^nd March. This was 13 days after the original recall request. Mr Roberts' evidence was that Abbey operated a 5 working day internal service level agreement for standard recalls, meaning that Abbey aimed to be in a position to process a recall request within 5 working days of first being notified. So the target date for action in the present case was Thursday, 16^th March. It took almost twice as long for Abbey to make a move on this occasion.
94. The fact however remains that by 16 March most of the money had left Miss Churcher's account. So unless the policy itself was inappropriate, Abbey's failure to operate it correctly is irrelevant. The question is whether Abbey National acted with good faith in allowing the money to be withdrawn from Miss Churcher's account before 16^th March. In answering that question I think it is important to have in mind the legal relationship between the bank and its customer. If the only step the bank could have taken to prevent the withdrawal of the money was one which was bound to place it in breach of its contract with the customer, it may be more difficult to conclude that by failing to take that step the bank acted without the requisite good faith. It was asserted by Mr Roberts that any attempt to preserve the funds without Miss Churcher's consent would have involved a breach of mandate. Whilst I can see that that could be the case, there is no provision in Abbey's current account terms and conditions which expressly states that the bank will not reverse a credit after funds have been cleared, and no other document was produced to substantiate the "mandate".
95. I take the phrase "breach of mandate" to be no more than shorthand for saying that if a bank refuses to allow a customer to draw upon some or all of a credit balance in his current account, the bank may be liable in a claim by the customer for payment of the debt which the credit balance represents. If that is right, the bank must consider the likelihood of any such claim succeeding in circumstances where the remitting bank is saying that the money was paid to the customer by mistake and should never have been sent to the account in the first place. For example, in this case Miss Churcher would have stood no prospect of success if she had sued Abbey National for the sum of £42,300. Of course it will not always be a straightforward matter to verify whether an alleged mistake in payment was genuinely a mistake. But if the remitting bank says there has been a mistake, that should be enough to place the collecting bank on inquiry. Depending on the level of detail given by the remitting bank or yielded by further inquiry, it may be enough for the collecting bank to take action to freeze the money. Cases of duplication of payment fall into the same category. Overpayment raises different issues and I accept that "Remitter request" may merit less drastic action being taken.
96. Mr Roberts said that Abbey National would require an indemnity from the remitting bank before freezing the money. I can understand why the collecting bank might want that comfort: but a worrying feature of Mr Roberts' evidence was that there appears to be no convention or protocol between banks for requesting or volunteering an indemnity. Lloyds TSB did not proffer one in the present case: but nor was it asked for one. If preserving the funds is a step which ought to be considered in cases of mistaken payment, banks should not be coy about proffering or asking for an indemnity and remitting banks should be used to asking the payer for a counter-indemnity if and when he reports a mistake. However nothing I have said should be interpreted as meaning that I consider an indemnity from the remitting bank to be a prerequisite for any step taken by a collecting bank to safeguard money transferred in error to the wrong account.
97. I come back to the facts of the present case. At the opening of business on Thursday, 9^th March Abbey National knew that Lloyds TSB wanted to recall the payment of £42,300 to Miss Churcher's account and knew that Lloyds TSB was saying that there had been a mistake in setting up the payment and that the money should not have gone to that account. Abbey National took no action to process the recall until Wednesday, 22^nd March. In the meantime, between 13^th March and 15^th March, Miss Churcher was allowed to withdraw almost all of the money from her account. I need go no further than to hold that, as of 9^th March, Abbey was on inquiry that Miss Churcher was not entitled to the money and that in those circumstances Abbey cannot be heard to argue that it changed its position in good faith by paying away the money to Miss Churcher in the following week. The claim to recover the money as money paid under a mistake of fact succeeds against Abbey National for that reason. I would add, however, that the facts of this case demonstrate that the system in place at Abbey National in 2006 for dealing with recall requests in cases of mistaken payment was inadequate. Steps could and should have been taken to ring-fence the money pending further inquiries and an attempt should have been made to contact Miss Churcher within at most 3 working days.

Breach of trust

98. The claim against Abbey National was also advanced as a claim for breach of trust, although little argument was devoted to this alternative way of putting the case. The trust, if there was one, would have been a constructive trust. The liability of Abbey would seem to me to have been liability as an accessory (knowing assistance) rather than liability as a principal (knowing receipt) because the money was received by Abbey as agent for Miss Churcher and not as principal. Judge Chambers QC considered at some length in the Papamichael case (at pp. 369-377), the principles on which a bank might be liable for breach of trust on either basis. I can deal with the point more shortly. It is now accepted by Abbey that the payment was made by mistake. Abbey knew that the remitting bank was saying that it was a mistaken payment no later than opening of business on Thursday, 9^th March. At that point the proceeds of the allegedly mistaken payment had been received by Abbey National. They had not been withdrawn by Miss Churcher and were sufficiently identifiable as to be capable of being trust property. The issue is whether Abbey's knowledge of the mistake was such as to attract liability for assisting in a breach of trust.
99. As Judge Chambers observed in Papamichael (para. 230), there is an equivalence between the knowledge of the circumstances and the severity of the obligations that are placed on a trustee. Liability as an accessory to a breach of trust requires a dishonest state of mind i.e. "consciousness that one is transgressing ordinary standards of honest behaviour" (Lord Hoffmann in Twinsectra Ltd v Yardlev [2002] 2 AC 164 at para. 20) or an appreciation that what one was doing "was dishonest by the standards of honest and reasonable men" (Lord Hutton in the same case at para. 35). The test is not simply whether the state of the defendant's knowledge of the mistake makes it unconscionable for him to be allowed to keep the money. A negligent disregard of the circumstances is not enough. Nor is a failure to make inquiry where the circumstances may call for inquiry (see Millett J in Agip (Africa) Ltd v Jackson [1990] 1 Ch 265 at p. 295 quoted in para, 251 of the judgment in the Papamichael case). It follows that the degree of knowledge which may defeat a collecting bank's defence of change of position is not as great as that required to impose on the bank an accessory liability for breach of trust. Whilst I consider that the information provided by Lloyds TSB was enough to place Abbey National on notice that it should not allow the money to be paid away by Miss Churcher without making further inquiry, I am not prepared to hold that it was enough to make Abbey liable as an accessory to breach of a constructive trust. I therefore reject the trust argument.

Conclusion

100. The claims against the first and second defendants to recover the sum of £42,300 as money paid under a mistake of fact succeed: but the claim for breach of trust against the second defendant is dismissed.
101. The claimant seeks compound interest in accordance with the decision of the House of Lords in Sempra Metals Ltd v Inland Revenue Commissioners [2008] 1 AC 561. I heard no argument on that point, and in particular no argument as to how any compound interest should be calculated. I will hear counsel on the claim for interest when the order arising out of this judgment is settled.