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BANKING LAW

The relationship between banker and customer

The essential relationship between a banker and its customer is contractual, not fiduciary (Foley v Hill

(1848) 2 HL Cas. 28; Hart v Sangster [1957] 1 Ch. 329 at 337; Encyclopaedia of Banking Law, para.

C(471)).

Obligations are owed on both sides of the contractual arrangement, the fundamental obligations of

the bank being to honour its customer’s instructions and to repay on demand monies deposited in an

account.

There is not normally an implied term in the contract between bank and customer obliging the bank

to provide overdraft facilities or other finances to his customer (Suriya & Douglas v Midland Bank

[1999] 1 All E.R. 612), nor is there an implied obligation upon the bank to inform its customers of the

introduction of more advantageous forms of account (Barclays Bank v Green Unreported May 17,

1996 CA) or to give a period of notice to the customer before withholding further finances (Socomex

v Banque Bruxelles Lambert SA [1996] 1 Lloyd’s Rep. 156). Equally, there is in general no duty upon

the bank to advise its customer that particular borrowing is or may be imprudent (Williams & Glyn’s

Bank Ltd v Barnes (1980) 10 Legal Decisions Affecting Bankers 200; [1981] Com. L.R. 205; Frost v James

Finlay Bank, RG Cozens [2001] Lloyd’s Rep. Bank. 302, 310-311).

There is, however, an implied obligation upon the bank to keep its customer’s affairs confidential.

(Tournier v National and Union Bank of England [1924] 1 K.B. 461, United Pan-Europe Communications

NV v Deutsche Bank AG [2000] 2 B.C.L.C. 461; Cristofi v Barclays Bank Plc [2001] 1 W.L.R. 937; see

Warne & Elliott, Banking Litigation, 2nd edn (2005), Ch. 8; Nete & Godfrey, Bank Confidentiality, 5th

edn (2011)).

A bank notified of a freezing order does not owe a duty in tort to the party that has obtained the order

to take care to prevent the dissipation of money in the frozen account (Customs & Excise

Commissioners v Barclays Bank Plc [2006] 3 W.L.R.1). The bank may be exposed to claims by a third

party victims of its customer’s conduct, for example, where a collecting bank has received monies

transferred in breach of trust and applied those monies to repay an overdrawn account (See Agip

(Africa) Ltd v Jackson [1990] Ch. 265 (Millet J.); affirmed [1991] Ch. 547). In addition, there is a

burgeoning statutory regime imposing potential civil or criminal liability upon the bank in certain

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situations aimed at preventing criminal activities such as money laundering (Financial Services and

Markets ct 2000; Drug Trafficking Act 1994; Money Laundering Regulations 2003; Proceeds of Crime

Act 2002) and terrorism (Terrorism Acts 2000 and 2006) which requires banks to establish and

maintain strict identification, record keeps and internal reporting procedures.

Until 2009, the conduct of banking business was subject to a system of self-regulation in the form of

the Banking Codes. These were voluntary codes of practice to which all high street banks and building

societies, as well as many other financial organisations, subscribed. However, on November 1, 2009,

the Financial Services Authority introduced detailed external regulation of the conduct of business of

banks in the form of the rules set out in the Banking Code of Business Sourcebook section of the FSA

Handbook. Banks are also now subject to the Payment Services Regulations 2009 and the Lending

Code.

Accounts in credit

A bank account is a statement of the extent of indebtedness as between the bank and its customer.

Where an account is in credit, the bank is indebted to the customer; where the account is overdrawn,

the customer is indebted to the bank. Moneys deposited by the customer with his bank may be

appropriated by the bank for its own use, the deposit merely creates a chose in action, so that the

bank is liable to repay the debt owed to the customer in accordance with the agreement between the

parties (Joachimson v Swiss Bank Corp [1921] 3 K.B. 110). However, in the absence of agreement to

the contrary, the customer’s cause of action against the bank is not completed until demand is made,

at which point time begins to run for the purposes of the Limitation Act 1980 (For an example of the

relevance of the rule in Joachimson in the limitation context see National Bank of Commerce v National

Westminster Bank [1990] 2 Lloyd’s Rep. 514, applying Limpgrange Ltd v BCCS SA [1986] F.L.R. 36. See

also Deutsche Morgan Grenfell Group Plc v Inland Revenue Commissioners [2006] 3 W.L.R. 781).

Unless the demand, properly construed, also amounts to a termination of the banker-customer

contract, it does not bring that contract to an end, with the result that the customer is entitled (in the

absence of an express or implied contractual limitation) to make a further demand so that time will

begin to run from the later demand (Bank of Baroda v Mahomed [1999] Lloyd’s Rep. Bank. 14).

Overdrawn accounts

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When a customer has an overdraw account he owes a debt to the bank in the sum of the debit balance.

The basic contractual rule is that the time when payment is due to be made by the customer is a

question of construction of the contractual terms. Overdraft facilities will commonly be repayable on

demand by their express terms. However, in the absence of express agreement, the general rule is

that an overdraft is repayable on demand unless the lender impliedly agrees to the contrary (Williams

and Glyn’s Bank Ltd v Barnes (1980) 10 Legal Decisions Affecting Bankers 200; [1981] Com. L.R. 205).

Where the facility letter states that the facility is repayable on demand, but also provides that the

bank’s present intention is to make the facility available until a specified future date, the bank

nevertheless retains the right to call in the facility at will at any time (Lloyds Bank v Lampert [1999] 1

All E.R. (Comm) 161). No duty of care is owed to the customer or an interested third party when a

bank exercises its rights of withdrawal of overdraft facilities at will (Chapman v Barclays Bank [1997]

6 Bank L.R. 315). In Lloyd’s Bank Plc v Voller, ([2000] 2 All E.R. (Comm) 978; [2001] Lloyd’s Rep. Bank

67; applied in Emerald Meats (London) Ltd v AIB Group (UK) Plc [2002] EWCA Civ 460) the Court of

Appeal held that where a current account is opened by a customer with no express agreement as to

what the overdraft facility should be, then, where a customer draws a cheque which causes the

account to become overdrawn, the customer implied requests the bank to grant the customer an

overdraft upon its usual terms as to interest rates and charges.

Account charges

Banks customarily levy charges to some of their account holders. It was contended in Office of Fair

Trading v Abbey National Plc ([2010] 1 A.C. 696) that the OFT should be entitled to investigate whether

standard bank charges arising out of unauthorised overdrafts were unfair within the meaning of

reg.5(1) of the Unfair Terms in Consumer Contracts Regulations 1999. The Supreme Court held that

since such bank charges constituted part of the price or remuneration for the banking services

supplied as a whole, they did not fall to be assessed under reg.5(1) since they fell within the exception

in reg.6(2) of the Regulations.

The bank’s right of set off

A bank has the right to combine two or more accounts held by its customer without notice, and to set

one off against the other in the absence of agreement to the contrary (Halesowen, Presswork and

Assemblies Ltd v Westminster Bank Ltd [1971] 1 Q.B. 1 at 34 (reversed on different grounds: [1972]

A.C. 785)). The accounts need not be at the same branch (Garnett v McKewan (1872L.R. 8 Ex.10). The

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right of set off provides a defence, for example, to a claim of wrongful dishonour of a cheque, since a

bank may legitimately refuse to honour a cheque if the overall balance of the customer’s accounts is

insufficient to satisfy the cheque. The bank is not required to notify the customer of its intention to

exercise the right of set off, and the right is not limited to current or other similar accounts

(Halesowen, Presswork and Assemblies Ltd v Westminster Bank Ltd [1971] 1 Q.B. 1 at 9). However,

set off is excluded where, for example, one account is a current account repayable on demand and

the other is a term loan account not repayable on demand (Bradford Old Bank Ltd v Sutcliffe [1918] 2

K.B. 833). Nor is there a right of set-off where the accounts are not held in the same right, such as

where one of the accounts is a trust account. (Re Gross Ex p. Kingston (1871) 6 Ch. App. 632).

Unauthorised payments

Breach of mandate

Where a customer gives instructions for the transfer of monies (whether by drawing a cheque or

otherwise) it is necessary to distinguish between the paying bank (which honours the payment

instruction) and the collecting bank (which receives the payment and credits its customer’s account).

Sometimes the collecting bank and the paying bank may be one and the same, for example where the

payee of a cheque maintains his account at the same bank as the drawer (See generally Encyclopedia

of Banking Law, para. D(202)).

The primary duty of the paying bank is to honour its customer’s instructions and make the payment

in accordance with the mandate (Joachimson v Swiss Bank Corporation [1921] 3 K.B. 110). The

payment instruction can take a number of forms, including a cheque, an order to pay by direct debit,

a standing order, or (increasingly) an electronic funds transfer instruction (See generally, Paget’s Law

of Banking, 13th edn (2007), Ch. 17) (e.g. transfers effected by online banking, or withdrawals via an

ATM). In all such cases, however, the fundamental principle is the same: where a bank makes a

payment in the absence of authority from its customer, it has no right indemnity against its customer,

and hence no entitlement to debit the customer’s account with the amount of the payment (Paget’s

Law of Banking, 13th edn (2007), para. 19.2).

However, a bank is only obliged to honour a cheque or other payment order if there are sufficient

funds in the customer’s account to meet the cheque or order, or if the bank has agreed to provide the

customer with overdraft facilities to meet the cheque or order. In drawing a cheque or otherwise

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requesting a payment against inadequate funds, a customer impliedly requests the bank to grant an

overdraft (or an increased overdraft facility, as the case may be). The bank then has an option whether

or not to accede to that request and hence honour the cheque or payment order (Verjee v CICB Bank

and Trust Co (Channel Islands) Ltd [2001] Lloyd’s Rep. Bank. 279 at 282). If the bank elects to honour

the cheque, bringing the account into overdraft, it does so (in the absence of an agreement to the

contrary) upon its standard terms as to interest and charges (Lloyds Bank Plc v Voller [2000] 2 All E.R.

(Comm) 978; [2001] Lloyd’s Rep Bank. 67).

Where the payment instructions received by the bank are ambiguous, the bank must at least adopt a

reasonable interpretation of its instructions, although the prudent course is for the bank to seek

clarification from its customer (European Asian Bank AG v Punjab & Sind Bank (No. 2) [1983] 1 W.L.R.

642 at 656; Patel v Standard Chartered Bank [2001] Lloyd’s Rep. Bank 229 at 234; cf, Midland Bank Ltd

v Seymour [1955] 2 Lloyd’s Rep. 147 at 153 (approved by the Court of Appeal in Credit Agricole

Indosuez v Muslim Commercial Bank Ltd [2001] 1 Lloyd’s Rep. 275)). If it fails to do so, the bank may

find that it has acted in the absence of, or contrary, to its instructions (as properly interpreted), and

hence face a claim for breach of mandate (See generally, Brindle & Cox, Law of Banking Payments, 3rd

edn (Sweet & Maxwell, 2004), paras 3-070, 3-080).

A sum standing to the credit of a joint account is a debt owed by the bank to the account holders

jointly. Where the mandate in respect of the joint account requires that the paying bank will only

make payments out of the account on the joint signatures of both of the account holders, there is a

separate agreement between the bank and each of the account holders that the bank will not honour

drawings unless both account holders have signed them. In an action for breach of mandate where

the bank has wrongfully honoured an instruction by a single account holder it is not necessary to join

all the account holders as parties to the proceedings (Caitlin v Cyprus Finance Corp (London) Ltd [1983]

Q.B. 759). The innocent joint account holder must be able to establish that the funds wrongfully

transferred out of the account were his property. Where such facts cannot be provide, the innocent

holder is entitled only to recover a moiety of the amounts paid out (Twibell v London Suburban Bank

[1869] W.N. 127; see also Arden v Bank of New South Wales [1956] V.L.R. 569). Where a bank is found

liable in these circumstances it may be able to claim contribution from the recipient of the funds

wrongfully paid out for moneys had and received and/or for breach of warranty of authority.

FRAUD, MISTAKE AND DISHONOUR

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Payments where the bank is on notice of fraud

Where a bank is on notice that an agent acting on behalf of a customer is misusing his authority in

order to misappropriate his principal’s money, the bank faces two conflicting obligations. On the one

hand, a bank is under a duty to its customer to honour payment instructions given in accordance with

the customer’s mandate, whilst on the other hand there is an implied duty in the contract between

bank and customer that the bank will exercise reasonable care in executing its customer’s orders

(Barclays Bank Plc v Quincecare Ltd [1992] 3 All E.R. 363 (judgment delivered on February 24, 1988).

Lipkin Gorman v Karpnale Ltd [1989] 1 W.L.R.1340; reversed [1991] 2 A.C. 548 (however, there was

no appeal of the Court of Appeal’s findings as to the duties of the paying bank). See also Royal Products

Ltd v Midland Bank Ltd [1981] 2 Lloyds Rep. 194 at 198). Hence, a bank may incur liability in honouring

its customer’s cheques even if such cheques are drawn in accordance with the mandate.

The balance between these conflicting duties was considered in Barclays Bank Plc v Quincecare and

Lipkin Gorman v Karpnale Ltd. In Quincecare, Steyn J. held that the fair balance was that a banker

must refrain from executing an order if and for so long as he is put on inquiry in the sense that he has

reasonable grounds (although not necessarily proof) for believing that the order is an attempt to

misappropriate the funds of the company. In Lipkin Gorman, May L/J. Stated as follows (at 1356E).

“For my part I would hesitate to lay down any detailed rules in this context. In the simple case of a current account in credit the basic obligation on the banker is to pay his customer’s cheques in accordance with his mandate. Having in mind the vast number of cheques which are presented for payment every day in this country, whether over a bank counter or through the clearing, it is in my opinion only when the circumstances are such that any reasonable cashier would hesitate to pay a cheque at once and refer it to his or her superior, and when any reasonable superior would hesitate to authorise payment without enquiry, that a cheque should not be paid immediately upon presentation and such enquiry made. Further, it would I think be in rare circumstances and only when any reasonable bank manager would do the same, that a manager should instruct his staff to refer all or some of its customer’s cheques to him before they are paid.”

The standard of care was formulated by Parker L.J. as follows (at 1376A-1376G; cf. Verjee v CICB Bank

and Trust Co (Channel Islands) Ltd [2001] Lloyd’s Rep. Bank. 279); the bank is unlikely to be put on

notice of the possibility of fraud where the signatory to the account is the account-holder himself).

“The question must be whether if a reasonable and honest banker knew of the relevant facts he would have considered that there was a serious or real possibility albeit not amounting to a probability that his customer might be being defrauded.”

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In Patel v Standard Chartered Bank, [2001] Lloyd’s Rep. Bank 229; applied in Cooper v National

Westminster Bank Plc [2009] EWHC 3035 (QB)) Toulson J. found that a customer did not owe the bank

an implied contractual duty to report fraud of which the customer does not know, but which a putative

reasonable person, possessing the same information as the customer, would have discovered.

Payment against a forged signature

A cheque or other bill of exchange being a forged signature is a nullity. If a paying bank purports to

honour such an instrument, it is not entitled to debit its customer’s account. Section 24 of the Bills of

Exchange Act 1882 provides:

“Subject to the provisions of this Act, where a signature on a bill is forged or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorised signature is wholly inoperative, and no right to retain the bill or given a discharge therefore or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority. Provided that nothing in this section shall affect he ratification of an unauthorised signature not amounting to a forgery”.

Defences

The principal defences available to a paying bank which has had a cheque or analogous instrument

other than in accordance with is mandate are as follows (See generally Encyclopaedia of Banking Law,

paras D(209-233)):

(1) The loss was caused by the customer’s breach of its duty to the bank to refrain from drawing

the cheque in such a manner as to facilitate fraud or forgery (commonly referred to as the

“Macmillan duty”) (London Joint Stock Bank v Macmillan [1918] A.C. 777).

(2) The customer is estopped from asserting the forgery by reason of the breach of its duty to the

bank in failing to inform the bank of any forgery on the account as soon as the customer

became aware of it (commonly referred to as the “Greenwood duty”) (Greenwood v Martins

Bank Ltd [1933] A.C. 51. For the scope of this doctrine, see Price Meats Ltd v Barclays Bank

Plc [2000] 2 All E.R. (Comm) 346; Patel v Standard Chartered Bank [2001] Lloyd’s Rep. Bank

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229 (constructive knowledge on the part of the customer is not sufficient to found an

estoppel).

(3) The customer is estopped from asserting the forgery by reason of an express representation

that the cheque or payment order was genuine (Brown v Westminster Bank [1964] 2 Lloyd’s

Rep. 187.

(4) The bank is in any event entitled to be indemnified since the payment discharged a debt owed

by the customer to the beneficiary of the payment (the “Liggett defence”) (B Liggett

(Liverpool) Ltd v Barclays Bank Ltd [1928] 1 K.B. 48; but note that this principle has been

limited in its application by the Court of Appeal in Re Cleadon Trust Ltd [1939] 1 Ch. 286. And

more recently in Crantrave Ltd (In Liquidation) v Lloyds Bank Plc [2000] Q.B. 917).

(5) The payment was ratified or adopted (Encyclopedia of Banking Law, para. D(2333); London

Intercontinental Trust Ltd v Barclays Bank Ltd [1980] 1 Lloyd’s Rep. 241) (although this defence

is not available where the bank pays a cheque bearing a forged signature). Bills of Exchange

Act 1882 s.24).

There is, however, no general defence of contributory negligence available to the paying bank. In Tai

Hing Cotton Mill Ltd v Liu Cong Hing Bank Ltd ([1985] 3 W.L.R. 317); considered in Patel v Standard

Chartered Bank ([2001] Lloyd’s Rep. Bank. 229) it was argued that the relationship of banker and

customer gives rise to a duty owed by the customer to the bank to exercise such precautions as a

reasonable customer in his position would take to prevent forged cheques being presented to the

bank, or at the very least to check his monthly statements so as to be able to notify the bank of any

items which were not, or indeed not have been, authorised by him. However, this argument was

rejected by the Privy Council, which held that the implied obligations upon the customer were limited

to the Macmillan and Greenwood duties referred to above.

A refusal to make a payment may be justified under money laundering or related legislation. To

succeed in this defence, the bank will need to be able to discharge the burden of showing that it had

reasonable suspicion (Shah v HSBC Private Bank (UK) Ltd [2010] 3 All E.R. 477).

Wrongful dishonour

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A failure by the bank to honour the payment order where there are sufficient funds (or agreed

overdraft facilities) to do so may result in the bank incurring liability to the customer (i) for breach of

contract, and (ii) for defamation.

Before the Court of Appeal decision in Kpohraror v Woolwich Building Society, ([1996] 4 All E.R. 119),

the law drew a clear distinction between a “trader” and a “non-trader”. A customer who is a “trader”

is entitled to recover substantial general damages without proof of special damage (Wilson v United

Counties Bank [1920] A.C. 102). A “non-trader” would have to establish a loss of a particular

transaction, and moreover it would have to be shown that the bank had sufficient knowledge of that

transaction to be liable (under ordinary principles of remoteness) (Gibbons v Westminster Bank [1039]

2 K.B. 882; Rae v Yorkshire Bank PLC [1998] F.L.R.I). However, in Kpohraror, Evans L.J. observed that

in modern social conditions it was not only tradesmen for whom the dishonour of a cheque might be

obviously injurious. He said ([1996] 4 All E.R. 119 at 124A-124C):

“The credit rating of an individual is as important for their personal transactions, including mortgages, hire-purchases and banking facilities, as it is for those who are engaged in trade, and it is notorious that central registers are now kept. I would have no hesitation in holding that what is in effect a presumption of some damage arises in every case, in so far as this is a presumption of fact” (It has been suggested that this passage is obiter dicta, so that the original trader/non-trader distinction remains part of the law: see Encyclopedia of Banking Law, para. C(455)).

The possibility of a claim for defamation arises out of the reasons for dishonour written by the bank

on the cheque. The Bankers’ Clearing House Rules (General Clearing) provide that a full reason for

dishonour must be written on the reverse of a cheque presented through General Clearing (although

this is not a rule of law). The words used, if unjustified, may be defamatory: for example, “not

sufficient”, (Davidson v Barclays Bank Ltd [1940] 1 All E.R. 316) “refer to drawer”, (Jayson v Midland

Bank Ltd [1968] 1 Lloyd’s Rep. 409) “present gain” (Baker v Australian and New Zealand Bank Ltd

[1958] N.Z.L.R. 907) or “account closed” (Russell v Bank of America National Trust and Savings

Association Unreported 1977).

Mistaken Payments

From time to time, a bank may make a payment out of an account by mistake, for example by

honouring the same instruction twice, by overlooking a countermand, or by mistakenly honouring the

instructions of one of two account holders under a joint account which requires the signatures of both.

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Where the bank makes such a payment, then unless there is subsequent ratification from the

customer, it does so without the mandate of the customer. In these circumstances it must look to the

payee for recovery, and the legal basis is restitution for mistake. Following Kleinwort Benson v Lincoln

City Council, ([1998] 3 W.L.R. 1095) it is no longer necessary to establish that the bank’s mistake was

one of fact rather than law.

The principles of restitution for mistake were summarised in Barclays Bank Ltd v WJ Simms, Son &

Cooke (Southern) Ltd ([1980] Q.B. 677 at 695, per Robert Goff J.

(1) If a person pays money to another under a mistake which causes him to make the payment,

he is prima facie entitled to recover it.

(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.

However, the bank has no restitutionary right against the payee on the basis that it held the mistaken

belief that there were sufficient funds or facilities to meet the cheque or transfer, since in those

circumstances the payment is within the mandate and the banks can have recourse to its customer.

([1980] Q.B. 677 at 700).

A recipient of mistaken payment has a defence in so far as he has changed his position in paying away

all or part of the payment in circumstances where it would be inequitable to require him to make

restitution. (Barclays Bank Ltd v WJ Simms, Son & Cooke (Southern) Ltd [1980] Q.B. 677 at 695; Lipkin

Gorman (A Firm) v Karpnale Ltd [1991] 2 A.C. 548 at 579-580; Philip Collins Ltd v Davis [2000] 3 All E.R.

808; Scottish Equitable Plc v Derby [2001] 3 All E.R. 818). It is not necessary for the recipient to have

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changed its position in reliance upon the validity of the payment, although there must be a causative

link between the change of position and the receipt of the mistaken payment (Lipkin Gorman (A Firm)

v Karpnale Ltd [1991] 2 A.C. 548 at 579-580; Philip Collins Ltd v Davis [2000] 3 All E.R. 808; Scottish

Equitable Plc v Derby [2001] 3 All E.R. 818 at 827). A defendant who has changed his position in

anticipation of the future receipt of payment can equally rely on the defence of change of position.

(Dextra Bank and Trust Co Ltd v Bank of Jamaica [2002] 1 All E.R. (Comm) 193 PC; followed by the

Court of Appeal in Commerzbank v Gareth Price-Jones [2003] EWCA Civ 1663. See also Niru Battery

Manufacturing Co v Milestone Trading Ltd (No.1) [2004] 2 W.L.R. 1415 at [160].

Estoppel is also an established defence to a claim for restitution (Avon CC v Howlett [1983] 1 W.L.R.

605). The essential elements of the estoppel are as follows: (a) a representation of fact by the payer

leading the payee reasonably to believe that he was entitled to treat the money as his own; (b)

detrimental reliance upon the representation by the payee (usually equating to the change of

position); and (c) the payment must not have been primarily caused by the fault of the payee. (Goff

& Jones, The Law of Restitution, 7th edn (2007), paras 40-22 to 40-24). Although a representation by

conduct may in some circumstances be sufficient, the mistaken payment itself is not a representation

which can give rise to an estoppel; there must normally be some further indication of the payee’s

supposed title to the payment. (Transvaal & Delagoa Bay Investment Co v Atkinson [1994] 1 All E.R.

579). According to the orthodox approach, estoppel operates as a complete defence to a

restitutionary claim (Avon CC v Howlett [1983] 1 W.L.R. 605), however, there has been an increasing

tendency on the part of the courts to avoid the severity of that result. In National Westminster Bank

Plc v Somer, ([2001] Lloyd’s Rep. Bank. 263) the Court of Appeal took the view that whilst the general

rule remained that the estoppel defence did not operate pro tanto, there was a recognised exception,

namely that the estoppel should not operate in full where it would be clearly inequitable or

unconscionable for the defendant to retain a balance of the mistaken payment in his hands. Clark L.J.

noted the tension between the rule and the exception, and recognised that in practice it would very

often be unconscionable for a recipient to retain the whole of the sums paid to him. The alternative

approach, applied by the Court of Appeal in Scottish Equitable PLC v Derby ([2001] 3 All E.R. 818) is to

allow a defence of change of position to “pre-empt” the defence of estoppel, again so as to achieve a

pro tanto result.

The bank as a constructive trustee

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A bank may become liable as a constructive trustee if either (i) it knowingly receives and becomes

chargeable with trust property (“knowing receipt”), or (ii) it dishonestly assists in a breach of trust

(“dishonest assistance”). (Royal Brunei Airlines v Tan [1995] 2 A.C. 378).