Bathija v Lloyds TSB Bank Plc

At all material times Mr Bathija was the sole shareholder and director of Global Travel Agency Ltd (“Global”). Global was incorporated on 22 December 1994 and traded as a Travel Agency with a particular specialism in the supply of flights to the general public, from premises at 104 Queensway, London, W2 3RR.

Global was a member of the International Air Transport Association ("IATA"). As part of that membership Global was a member of the BSP Link Scheme which allowed members such as Global to issue travel tickets on behalf of member airlines. Payment for those tickets would be settled once a month (17th of each month) by a direct debit payment to IATA.

Global became a customer of Lloyds TSB Bank plc (“Lloyds”) in 1994. From 2008 Global had the benefit of an overdraft facility (“the Facility”) with Lloyds. The extent of the Facility varied throughout the years, starting at £260,000. In January 2011, the applicable Facility was £150,000. The Facility was personally guaranteed by Mr. Bathija under an all moneys guarantee dated 25 January 2008 to a maximum of £300,000. Furthermore Mr Bathija’s liabilities were secured by a mortgage dated 20 May 2005 of Flat 14, Oak Tree Lodge, 49 -50 Leinster Gardens London W2 (“the Property”). Mr Bathija’s main contact at Lloyds was Mr O'Neill, the Relationship Manager. However, from about January 2010 Mr Bathija was aware that it was Mr Parker rather than Mr O'Neill who made any decision relating to Global’s overdraft facilities and who authorised payments in excess of the Facility.

Global entered into creditor’s voluntary liquidation (“CVL”) on 23 February 2011. The critical events with which this case is concerned occurred between 14 and 20 January 2011 and relate to the payment of £164,179.88 which was due to IATA on 17 January.

It is Mr Bathija’s case that there was a meeting between Mr Bathija and Mr O'Neill on 14 January 2011 at which Mr O'Neill agreed that the direct debit in favour of IATA in the sum of £164,179.88 would be honoured. Mr O'Neill accepts that there was a meeting but he denies he agreed that the Bank would agree to honour the direct debit.

On 17 January 2011 the direct debit was returned unpaid. In the result on 18 January 2011 IATA sent an email to Mr Bathija. The effect of the email was that unless payment was received in full by 19 January 2011 IATA would invoke its default procedure.

Mr Bathija held further meetings with Mr O'Neill on 18 and 19 January 2011. He alleges that Mr O'Neill agreed on 18 January 2011 that the payment would definitely be made by Lloyds on 19 January 2011. He also contends that Mr O'Neill told him on 19 January 2011 that payment had already been made. The payment to IATA was not made until 20 January 2011. As this was after IATA’s deadline the default procedure was invoked. Even though Lloyds acknowledged that the delay was due to bank error the procedure was not revoked.

As already noted, Global entered into CVL on 23 February 2011. It is Mr Bathija’s case that the liquidation of Global was the reasonably foreseeable consequence of the failure by Lloyds to pay the £164,179.88 by 19 January 2011. Global has accordingly suffered loss. The liquidator of Global has assigned its right of action to Mr Bathija. Accordingly Mr Bathija claims those losses against Lloyds.

Lloyds denies that it is liable to Mr Bathija. It contends that it was entitled to dishonour the direct debit for £164,179.88 on 17 January 2011 as there were insufficient funds in the account. Mr O'Neill accepts that there were meetings between himself and Mr Bathija on 14, 18 and 19 January 2011. He denies that he agreed on 14 January 2011 that the amount due to IATA would be paid. He has no clear recollection of what was said on 18 or 19 January 2011. As already noted payment was in fact made on 20 January 2011.

If and in so far as liability is established there are further issues as to causation, foreseeability and the extent of the loss (if any) suffered by Global as a result of the breach.

There is a Counterclaim by Lloyds under which it seeks monies due under the guarantee and possession of the property.

Between 1979 and 1989 Mr Bathija operated a travel agency called Bathija Travel in London. Bathija Travel had been started by his father in 1973. In 1989 Mr Bathija moved to Bombay and operated Global Travel Agency Bombay.

In 1994 Mr Bathija moved back to the UK. On 22 December 1994 Global was incorporated with an issued capital of £85,000 all of which is held by Mr Bathija. Mr Bathija is the sole director. His wife is the secretary.

Global faced financial difficulties from about 2007 or 2008. These were caused by bad debts of about £100,000 caused by the liquidation of a Nigerian Company with which Global was trading and the general financial recession.

For present purposes it is sufficient to note that between 2006 and 2009 overall turnover (including a Bureau de Change) increased from £2.3 million to £2.9 million with a gross profit margin of between 9.5% and 10.5%. The overall pre-tax profit was modest – between £10,000 and £12,000 even after allowing a very modest remuneration for Mr Bathija.

The business operated initially from premises at 104 Queensway, London W2 3RR.. In 2010 Mr Bathija took steps to reduce his expenses. These included a move from Queensway to Bayswater where the rent was lower and a reduction of the numbers of staff. It also involved cessation of the Bureau de Change which had not been particularly profitable.

There are no audited accounts for the 13 month period up to January 2011. However draft accounts show turnover for the travel business of £2.3 million, a gross profit margin of only 3.84% and an overall pre-tax loss of £27,837.

There is no doubt that Mr Bathija invested significant sums into the business. In evidence he estimated that the sums could have amounted to £500,000. These sums included a loan of £250,000 from Cheltenham & Gloucester, a further loan of £129,000 from a family trust and a further loan from his sister of $10,000 made on 18 January 2014. Although the first two of these loans are mentioned as notes in the 2009 accounts, Mr Bathija and his family are not shown as creditors in the Statement of Affairs.

Global was, like many other travel agents, a member of the Civil Aviation Authority (CAA), International Air Transport Association (IATA) and Association of British Travel Agents (ABTA).

Global’s most important membership was with IATA. IATA is the trade association for the world’s airlines and represents 240 airlines or 84% of total air traffic. IATA provided all ticketing facilities to Global which allowed Global to book seats for its customers on airlines which operate through IATA. IATA would effectively provide Global (and many other travel agents) with credit facilities which allowed the travel agent to book flights for its customers. On the 17^th day of each month Global would need to pay to IATA the total revenue generated from airline ticket sales in the preceding month. It was important that the payments to IATA each month were made on time and in full because if payment was missed IATA had the right to withdraw access to the ticketing facilities.

I have helpfully been referred to the IATA rules. It is not necessary to refer to them in detail because there is little dispute as to their effect. In summary:

Under Section 1.7.2.1(a) and (b) if full payment is not received by the remittance date, IATA will send a Notice of Irregularity to the agent and demand immediate payment. This type of notice counts as two instances of irregularity.

Under Section 1.7.2.1(b) if payment is not made on demand the agent will be declared in Default.

Under Section 1.7.5.2 if there are four instances of irregularity during any 12 consecutive months, Default Action will be taken against the agent.

Under section 1.7.2.1(d) if non-payment of monies owed to IATA is due to a bona fide bank error or by extraneous factors, the irregularities will be rescinded.

Under section 1.7.2.1(e) if after default action has been taken it is discovered that the payment was not made because of a bona fide error, IATA will withdraw the Default and irregularities and notify all members.

Under Section 1.10 where an Agent is declared in default IATA will advise all Members i.e. airlines, that the agent is in default, will discontinue credit, withdraw all Traffic Documents supplied and revoke any authorisation to the agent to issue its own Transportation Orders drawn on Members i.e. book tickets. In addition it will demand an immediate account and remittance of all amounts due by the Agent whether or not the due date for payment has arrived. In addition under section 2.3 the Agency Administrator is required to require the Agent to provide a bank guarantee equivalent to sales at risk.

Under Section 2.5 the Agent has the right to seek a review of the Agency Administrator’s action by the Travel Agency Commissioner. He also has the right to apply for an interlocutory order staying the termination. However before such order is made the Travel Commissioner must require the Agent to provide a bank guarantee and ensure that all amounts that would be due under section 1.10 are settled at the time the order takes effect.

Although it was not suggested that Mr O'Neill was aware of the precise terms of the IATA agreement he readily agreed that he was aware of the general nature of the contract. Thus, he was aware that if payment was not made on the due date the Agent would be in default and that this would result in the Agent not being able to sell tickets. He was also aware that if the default was the fault of bank error the irregularities or default would be rescinded. Thus, he was aware of the importance of a letter or certificate from the bank admitting to error.

Mr Bathija and Global had been customers of the Paddington branch of Lloyds since February 1995. Mr Bathija’s principal point of contact with Lloyds was with Mr O'Neill. Mr O'Neill had limited authority to make decisions on the granting of credit on behalf of Lloyds. In evidence he said he thought the limit was approximately £50,000 in respect of secured loans. Mr O'Neill’s line manager at the Paddington branch was Mr Kenward. Mr Kenward’s authority was significantly higher – approximately £350,000.

In addition Lloyds had a system whereby if it had concerns over an account and/or the account was showing signs of stress it placed the account under the control of a Customer Support Manager who was not necessarily based at the customer’s branch. Internally this was referred to by Lloyds as “Special Support”. If an account was placed under such control all relevant lending decisions had to be made by the Customer Support Manager and the authority of other officials at the bank was removed. In Global’s case the Customer Support Manager was Mr Parker who was not based at the Paddington branch.

Lloyds used an internal computer programme to assist in the assessment of risk. The programme took into account a number of factors to assess the risk. These included the credit and debit turnover and the extent to which any overdraft limit was exceeded. The programme rated the risk between A and J. According to Mr O'Neill Ratings A – C were regarded as low risk, D – F were medium risk, G was on the cusp of high risk, and H – J were regarded as high risk.

There were no problems with the account up to 2008. It was rated as low risk and it is not necessary to refer to that period any further.

In January 2008 Lloyds and Global agreed to an overdraft facility of £260,000. It is not necessary to refer to the terms of the Facility in any detail. It is to be noted that it was repayable on demand but that the initial intention was that the Facility should be available for 2 months.

Whilst an overdraft facility remained in place until the date of the liquidation in February 2011 the extent of the Facility varied between £125,000 and £260,000. As will appear in more detail later in this judgment for the period between July 2010 and January 2011 it remained at £150,000.

As noted in the Introduction the overdraft was secured by a personal guarantee from Mr Bathija limited to £300,000 and a mortgage on the property. It is not necessary to refer to the terms of the guarantee or the mortgage in any detail. Nothing turns on their precise terms.

As noted above, Global was liable to pay IATA on the 17^th of each month. As this represented all of the ticket sales for the previous month the sums payable to IATA were substantial. As a result Global exceeded its overdraft limit regularly on those days. Despite this (and subject to the matters referred to later in this judgment) the direct debit in favour of IATA was in fact honoured.

Between September 2009 and December 2009 the internal risk assessment assessed Global at G. In January 2010 Global was assessed at “I” with the result that in January 2010 Mr Parker was appointed as Customer Support Manager. From that time, as Mr Bathija knew, Mr Parker was the only person on behalf of Lloyds with the authority to make decisions about the account. The assessment deteriorated to J in February 2010, gradually improved to G between June and August 2010 but deteriorated further to H in September 2010.

In his witness statement Mr O'Neill extracted from the bank statements the balances on the dates when the IATA payment was made. The figures are reproduced in the table below.

Thus, it can be seen that on practically every occasion between January 2010 and January 2011 payment of the moneys due to IATA caused the overdraft limit to be exceeded. It is not suggested that any form of estoppel arose as a result of this. It is Lloyds’ case that the decision to honour the payment to IATA was an individual decision taken on a month by month basis by Mr Parker often after discussion with Mr O'Neill.

Global’s bank account shows that at the beginning of 19^th April 2010 there was an overdraft of £150,635.84. The amount due to IATA was £80,207.81. The effect of honouring the direct debit would have been to take the debit balance to approximately £230,000 (Footnote: ¹). As a result the direct debit was dishonoured.

In fact however Mr Bathija had paid a sum of £20,000 into a different (private account) with the bank and this sum had not been taken into account when Mr Parker took the decision not to honour the direct debit.

It is not clear how the situation came to light. However the £20,000 was transferred into Global’s account and Mr Parker authorised payment of the sums due to IATA. Payment was made one day late on 20 April 2010. The balance on 20^th April after that payment was £208,225.62 approximately £23,000 over the then overdraft limit.

At Mr Bathija’s request on 20 April 2010 Mr O'Neill wrote him a letter which said:

It is not necessary for me to analyse whether this was in fact an error on the part of Lloyds. This would depend on the precise nature of the conversation between Mr Bathija and Mr O'Neill in relation to the moneys that were to be paid into the account.

The purpose of the letter was to persuade IATA that the late payment was not an irregularity as it was due to genuine bank error.

In August 2010 the overdraft limit was £150,000. Mr Bathija was seeking an increase to £185,000. On 24 August 2010 Mr O'Neill sent an email in which he said that Mr Parker was prepared to consider increasing the overdraft to £185,000 for the next 3 months. However he needed information about debtors and creditors. The email however stated:

In evidence Mr Bathija accepted that he was well aware that Mr Parker was making the decisions and that he (Mr Parker) was taking a strict view in relation to the overdraft limit.

In early August 2011 Mr Bathija raised with Mr O'Neill the overdraft interest that he had been paying for the last two years. Mr O'Neill agreed to look into this and arrange a refund of any interest due to Global. Mr Bathija reminded Mr O'Neill or his assistant Carly Brooks of this in emails dated 6/8/2010, 11/8/2010, 20/8/2010, 25/8/2010, 1/10/2010, 14/10/2010, 15/10/2010 and 6/12/2010.

There was little written response from Mr O'Neill. He left a voice mail message on 14 October 2010 and in email dated 15/10/2010 he said he would get to the bottom of the interest issue as soon as possible.

In evidence Mr Bathija said that Mr O'Neill agreed that Global could exceed its overdraft limit because of the interest which had been overpaid. Mr O'Neill denied that there was any such agreement. He pointed out that he had no authority to make any agreement. However he said that he made his own calculation of the overpaid interest. He thought it was approximately £15,000. He accepted that he said that he would make sure that Mr Parker was aware of the sum and that it would be taken into account when deciding whether to honour any requests for payment.

I prefer the evidence of Mr O'Neill on this point. There is in fact no great difference between the two versions. Mr O'Neill was a palpably honest witness. I accept that he would not have made an agreement when he knew he had no authority to do so.

As a result of the analysis by the experts it is now agreed that the sum due to Global in respect of overpaid interest is £18,068. A refund of £1,241.17 was in fact made on 11 November 2010. There is a dispute as to whether any further repayments have been made but it has been agreed that this dispute can be referred to the Master if the parties cannot resolve it amicably.

At the beginning of 19 October 2010 the extent of Global’s overdraft was £62,134.47. The amount due to IATA was £120,616.95. After taking into account other sums paid in and out on that day the effect of making payment would have been to take the overdraft to £180,897.42 against the limit of £150,000. Thus the direct debit was dishonoured by Lloyds.

Substantial further sums were paid in on 20 October 2010 with the result that Lloyds paid IATA on that day. The effect of the payment was to take the overdraft to £165,476.12.

According to Mr Bathija, Mr Parker authorised the payment because of the overcharged interest owed. Mr O'Neill said that the payment on 20 October was authorised by Mr Parker. As already noted he also said that would have made Mr Parker aware of the sums he thought were due to Global in respect of unpaid interest.

Following payment following a request from Mr Bathija Mr O'Neill wrote a letter to Mr Bathija which included:

Mr Bathija duly forwarded this letter to IATA.

It is by no means clear what error Lloyds made in returning the direct debit. As already noted the effect of payment would have meant that the limit was exceeded by £30,000 significantly more than the sum believed to represent the overcharged interest and the sum now agreed to be the overcharged interest. It may be that Mr O'Neill was willing to write the letter simply to help Mr Bathija.

On 28 October 2010 Mr Bathija signed the final Facility letter with Lloyds. The letter made it clear that the overdraft limit was £150,000. It also stated that the overdraft was repayable on demand but that there was an intention to make the Facility available until 27 December 2010.

It is also clear that there were discussions between Mr Bathija and Mr O'Neill/Mr Parker in relation to a possible increase of the Facility back to £185,000. Mr Parker was reluctant to authorise such an increase until he had received cash flow and profit forecasts. The nature of the discussions can be seen from a series of emails exchanged between Mr Bathija and Mr O'Neill which may be summarised:

On 17 November 2010 Mr Bathija asserted that Mr Parker had agreed to authorise £185,000 until the end of November and asked that the overdraft limit be amended so as to avoid the payment of penalty interest. On 18 November 2010 he repeated the request making the point that he had issued cheques up to the limit of £185,000. Mr O'Neill replied by making the point that the limit was still £150,000 but

The IATA payment for November 2010 was £121,653.24. It was duly paid. The overdraft balance after payment was £184,720.13.

On 24 November 2010 Mr Bathija wrote a letter of complaint to Lloyds. In it he complained about the excessive and incorrect interest charges, about the returning of cheques and about Lloyds’s staff not acting on temporary agreements for excess. He went on to point to the difficulties the business had experienced and ended by expressing the hope the relationship could continue.

On 26 November 2010 Mr Bathija forwarded to Mr O'Neill cash flow and profit and loss forecasts that had been prepared by Global’s accountant Mr Mukar for the 3 years ending December 2012.

Mr Parker considered the figures and replied to Mr O'Neill on 30 November 2010. In summary he declined to support an increase overdraft to £185,000. He asked Mr O'Neill to convey this to Mr and Mrs Bathija promptly and to advise them that Lloyds would look to continue the Facility for a further 3 months at renewal but would wish to discuss a further reduction in due course. They were to be advised that after January 2011 there would be no excesses over the £150,000 for any reason and in particular the IATA payment would be returned if necessary. Mr O'Neill was invited to prepare a letter to Mr Bathija to follow up all the points from the phone call.

Mr Parker gave 5 reasons for refusing to extend the overdraft:

Global would be loss making for 12/18 months before returning to profit in 2012. It was unclear how this would be financed.

Global had no additional capital or access to funding to inject into the Company.

He was uncertain as to the robustness of the cash flow projections. In particular it did not account for the IATA spike.

The cash flow forecasts show a number of months where sums in excess of the requested £185,000 would be required. April and May 2011 showed a requirement of £222,491 and £243,032.

He was very cautious about Global’s ability to increase its sales by over 30% particularly with a significant proportion in a new market where they will need to take business from existing suppliers.

It is common ground that Mr O'Neill did not send a letter to Mr Bathija following receipt of Mr Parker’s email. In evidence Mr Bathija said that he was never told that his request for increased overdraft facilities had been rejected and that he was kept in the dark. Whilst Mr O'Neill could not remember the precise conversation when he spoke to Mr Bathija he said that it was inconceivable that he did not tell Mr Bathija of Mr Parker’s decision.

I have no hesitation in preferring the evidence of Mr O'Neill to Mr Bathija on this point. First, Mr O'Neill was a conspicuously honest and helpful witness. In a number of ways he was prepared to make admissions and concessions that were not helpful to Lloyds’ case. He was quite prepared to say that he did not have a precise recollection of events. Mr Bathija had been pressing for an increased facility since the beginning of November. He had (at considerable expense) prepared detailed figures in support of his application. He was entitled to a decision. If (as he says) he was not told of the decision I would have expected a large number of emails asking the result of his application. There are none.

I am accordingly quite satisfied that Mr O'Neill did inform Mr Bathija of Mr Parker’s decision and the reasons.

On 6 December 2010 Mr Bathija wrote a letter to Mr O'Neill and Mr Parker. The letter is identical to the letter already emailed on 24^th November 2010.

The IATA payment of £134,151.25 was honoured on presentation on 17 December 2010. At close of business on that day the overdraft balance was £175,403.46.

The payment was authorised by Mr Parker. In evidence Mr O'Neill described what he called a game of brinkmanship which often occurred during the day that the IATA direct debit was due to be honoured. He described how there would be regular checks on the funds being paid into the account and that Mr Bathija would sit in the bank for long periods waiting to see if he (Mr O'Neill) could get authority from Mr Parker.

There is an internal file note dated 21 December 2010 indicating that Mr Parker had agreed that the Facility of £150,000 was renewed until 1 April 2011.

Mr and Mrs Bathija held a joint account with the State Bank of India. At the end of December the funds in that bank were relatively modest some 11,73,053.24 rupees (£16,492). However payments were made into the account on 3 and 5 January 2011 which brought the balance up to 43,99,318.24 rupees (£61,848.98). In evidence Mr Bathija said that the money could only be withdrawn by making a visit to India and that it would take two to three weeks to withdraw the money.

On 13 January 2011 following discussions with Mr O'Neill Mr Bathija sent to Mr O'Neill further documents showing a comparison between Global’s receipts in January 2010 and 2011 and for years ending December 31 2009 and 2010. As Mr O'Neill said in evidence these were designed to demonstrate the increase in turnover and thus to persuade Mr Parker to support the business.

On 14 January 2011 there was a meeting between Mr Bathija and Mr O'Neill. There is a conflict of evidence as to what was said at the meeting. Mr Bathija said that he wanted the meeting so that he could explain the cash flow in person to Mr O'Neill. He said that at the meeting Mr O'Neill confirmed that Lloyds would honour the direct debit to Mr O'Neill due on 17 January 2011. He also said that he told Mr O'Neill that he would be receiving money from his sister.

Mr O'Neill denied that he gave any such confirmation. He gave a number of reasons for this. He had no authority to make the payment. As far as he could recollect he did not speak to Mr Parker on 14 January 2011. There would have been no point in speaking to him then. The decision as to whether to honour the direct debit would not be made until 17 January when Lloyds knew the precise state of the account.

I unhesitatingly prefer the evidence of Mr O'Neill on this point. Apart from the reasons given by Mr O'Neill the alleged agreement was not mentioned in a number of important documents including the pleadings, the complaint to the Ombudsman made on 7 February 2011, the letters to the bank dated 26 July 2011 and 20 February 2012.

I am quite satisfied that there was no agreement by Lloyds on 14 January 2011 to honour the January direct debit to IATA.

At the commencement of 17 January 2011 Global’s bank account was £87,527.62. The amount due to IATA was £164,179.88. It is clear from the bank statements that a large number of payments were made into the account on that day including a payment of $10,000 (£6,158.61) from Mr Bathija’s sister. If the IATA direct debit had been honoured the overdraft at the end of the day would have been £202,636.41. It was accordingly dishonoured bringing the overdraft back to £38,456.53.

As a result of the dishonour at 11.35 on 18 January 2011 IATA sent to Mr Bathija an email giving notice of irregularity and demanding immediate payment of £164,179.88 by close of business on 19 January 2011.

At 2.34 p.m a second email was sent by IATA which declared Global to be in default as a result of the accumulation of irregularities in October 2010 and January 2011. Mr Bathija challenged this action on the ground that the October late payment was due to Bank error. At 2.03 p.m on 19 January 2011 IATA accepted that this was the position and withdrew the notice of default.

Meanwhile it is common ground that there was a meeting between Mr Bathija and Mr O'Neill on 18 January 2011. According to Mr Bathija he took with him the notice of irregularity he had received from IATA. Mr O'Neill did not remember this but accepted that Mr Bathija may have done. He also accepted that Mr Bathija stressed the importance of paying IATA by close of business on 19 January 2011.

It is common ground that during the meeting Mr O'Neill wrote out a hand written request to Lloyds to CHAPS £164,179.88 to IATA. Mr Bathija signed the request on behalf of Global.

Mr Bathija said that Mr O'Neill promised him that payment would be made by 19 January 2011. Mr O'Neill had no detailed recollection of what was said but thought it unlikely that any such promise was given in that he had not by then got the authority of Mr Parker to make the payment.

No payment was made on 18 January 2011. At close of business on 18 January 2011 Global’s overdraft stood at £27,819.35.

It is not in dispute that Mr Parker authorised the payment of the IATA payment but it is not clear when that authorisation was given. Mr Bathija was not present when it was given and thus cannot help. Mr O'Neill has no clear recollection of the events of the 19 January 2011. Mr Parker was not called to give evidence.

It is also not in dispute that Mr Bathija attended Lloyds on 19 January 2011 but it is not clear when he attended or how long the meeting lasted.

There are two emails sent apparently by Mr Bathija to IATA timed at 2.08 p.m and 3.09 p.m requesting bank details because of some confusion. [It is by no means clear what the confusion was as IATA’s bank details are contained in a number of documents and did not change.] These suggest that Mr Bathija was not at the bank by 3.09 p.m. Mr Bathija suggested that the second email might have been sent by an employee from his computer.

There is also a Customer Copy of a Printed CHAPS Transfer prepared by Mr Salim on behalf of Lloyds which was printed at 3.15 p.m and countersigned by Mr Bathija. This suggests he was at the bank by that time.

Mr O'Neill countersigned the Printed CHAPS Transfer and gave the Customer copy to Mr Bathija. Mr Bathija believed that that payment had been duly made. If he had read the document he would have seen that it was in fact no more than a further authority to Lloyds to make the payment to IATA. It was not a guarantee of payment.

According to Mr O'Neill it was not possible to guarantee a CHAPS payment would be made the same day if the request came after 3 p.m. In any event he processed the Bank copy of the Transfer. That involved obtaining a Code authenticator and authorising the payment. Mr O'Neill has no detailed recollection of what happened. He believes he may have contacted the CHAPS department (the phone number is written on the top of the Bank copy) and was told it could not be processed that night. He accordingly wrote on it:

No payment was made on 19 January 2011. The balance of the overdraft at close of business on 19 January 2011 was £6,151.34. At 5.03 p.m Mr Bathija sent to IATA what he described as a scan of the remittance.

Payment was duly made first thing on 20 January 2011.

At 10.47 on 20 January 2011 IATA sent Mr Bathija a Notice of Default based on the failure to pay by close of business on 19 January 2011. The letter drew attention to the consequences of default including those summarised in section 2.2 above.

Mr Bathija sought to challenge the default and spoke to Mr Secache at IATA. At 1.48 p.m Mr Secache sent him an email confirming that payment was credited on 20 January and thus was 24 hours late. Thus IATA had no alternative to confirm default. He drew attention to the time on the CHAPS Transfer (3.15 p.m) and pointed out that some banks have a deadline of 1 p.m. The email continued:

Mr Bathija approached Mr O'Neill who was willing to write a letter in the following terms:

When he gave evidence Mr O'Neill accepted that this was a fair reflection of what happened on the day.

Mr Bathija immediately forwarded the letter to IATA who acknowledged receipt at 3.24 p.m.

At 11.39 on 21 January IATA acknowledged receipt of the letter but the email continued:

In response to a further request from Mr Bathija Mr O'Neill wrote a letter in the following terms:

Thus, as Mr Stacey pointed out, at this time IATA appeared to have accepted that the failure to pay on 19 January was due to bank error but was now concentrating on the reason for the failure to pay on 17 January. As can be seen from the response Mr O'Neill was not in a position to confirm a bank error in returning the payment on 17 January or that there were sufficient funds in the account. As can be seen there were not sufficient funds on that day.

Between 24 and 27 January 2011 Mr Bathija pressed IATA for a response making the point repeatedly that he needed to start issuing tickets for customers travelling soon.

At 2.59 p.m IATA informed Mr Bathija that the default status of Global stood because the letter from the bank did not meet the regulations concerning genuine bank error.

Mr Stacey submitted with some force that IATA appeared to have misconstrued the regulations. The failure to pay on 17 January amounted to an irregularity and did not of itself justify default. The default was only justified by the failure to pay by close of business on 19 January. That failure was explained by genuine bank error and thus the default should have been withdrawn and an irregularity recorded against Global.

Mr Bathija complained that this was his first irregularity and that the default procedure was not warranted but IATA maintained their stance. Mr Bathija was informed that the January sales (£112,734.54) were due together with costs of £16,910. He could apply for reinstatement when that was paid.

Global was in no position to pay the sums due to IATA. Its overdraft was at or around the £150,000 limit and it was prevented from selling tickets as a result of the default.

On 9 February 2011 Mr Bathija consulted insolvency practitioners. On 23 February 2011 resolutions were passed for a CVL.

The Statement of Affairs was signed by Mr Bathija on 23 February 2011. It contains a statement that he believed the facts in it to be true. It stated that there were no assets and liabilities of £411,764.82. A number of points can be made about the Statement of Affairs.

First the statement that there are no assets is to my mind highly relevant to the valuation of the alleged loss suffered by Global. As will appear below I have very considerable concerns about a statement in the accounts in relation to the debtors said to be in excess of £700,000. It is, in fact, common ground that no realisations at all were made by the liquidators.

Second there are a number of apparent errors in the liabilities. First a mistake has been made in relation to Alpha Holidays. The amount due was 94,748 rupees (about £1,287) and not £94,748. Second no account has been taken of the debts owed to Mr Bathija, his sister, the family trust and the Cheltenham and Gloucester Building Society.

Global’s claim is for breach of contract and/or negligence. The pleaded particulars are contained in paragraph 14 of the Particulars of Claim:

wrongfully charged interest that exceeded that which they were contractually entitled;

wrongfully applied bank charges;

wrongfully reduced the overdraft facility without discussing it;

caused cheques to be dishonoured despite there being sufficient funds in the account;

dishonoured standing orders despite their being sufficient funds in the account;

dishonoured direct debits despite their being sufficient funds in the account;

The first two allegations are admitted by Lloyds. Indeed Mr O'Neill admitted this from about November 2010. It is now agreed that the extent of the overpayment was £18,068 some £3,000 more than Mr O'Neill’s preliminary estimate. Mr Bathija was pressing for repayment from at least August 2010. There was in my view plainly a breach of contract by Lloyds in failing to repay that sum earlier. It is not however now suggested that the failure to repay that sum earlier caused any consequential loss.

The third allegation was not pursued at trial. It is, however, plain from the documents that the facilities were repayable on demand and that Lloyds were perfectly entitled to lend Global whatever sums they chose. In any event the overdraft facilities were agreed by Mr Bathija on behalf of Global.

There are a small number of incidents where Lloyds returned cheques and/or did not pay standing orders which ought to have been paid. In each case Lloyds acknowledged the error and wrote to the customer concerned. It is again not suggested that Global suffered any loss as a result.

The real claim against Lloyds relates to the failure to honour the direct debit in favour of IATA. The direct debit was dishonoured in April 2010, October 2010 and January 2011. Lloyds sent letters admitting a bank error in relation to the April 2010 and October 2010 dishonour. Whilst I have some reservations as to whether Lloyds were right to admit that there was an error I do not need to make any findings about this because IATA accepted that there was a bank error with the result that there was no loss to Global.

Thus the real issue relates to direct debit dishonoured on 17 January 2011. For reasons I have given I reject the evidence of Mr Bathija that there was any agreement by Mr O'Neill to honour the IATA direct debit whilst the interest issue was unresolved; I also reject the evidence that Mr O'Neill agreed on 14 January 2011 that he would honour the direct debit. As noted above if the direct debit had been honoured the overdraft would have been £202,636.41. After taking into account the amount of overpaid interest, that sum is substantially in excess of the overdraft limit of £150,000. Accordingly Lloyds were not in breach of contract in dishonouring the direct debit on 17 January 2011.

The matter does not end there. Although it is not pleaded Global allege that Lloyds was in breach of contract by failing to ensure that the payment which was actually made to IATA on 20 January 2011 was not made on 19 January 2011. This was a matter that was fully investigated at the trial; Mr Stacey on behalf of Lloyds was not taken by surprise and was able to deal with it. In those circumstances even though it was not pleaded it is appropriate for me to deal with it.

I confess I have not found it easy to determine whether Lloyds was in breach of contract. Mr Bathija was an unreliable witness and I did not feel I could attach any weight to his oral evidence on this point. Mr O'Neill was a palpably honest witness but he had no detailed recollection of the events of 18 and 19 January 2011. I am accordingly left to do my best from inferences to be drawn from the documents.

A number of factors seem to me to be of importance:

The request signed by Mr Bathija on 18 January 2011 was sufficient authority for Lloyds to make the payment without any further attendance by Mr Bathija. Thus his attendance on 19 January 2011 was unnecessary. It was not necessary for Lloyds to wait for his attendance on 19 January 2011 before making the payment.

It seems likely that Mr Bathija’s attendance at Lloyds on 19 January 2011 was at about 3 p.m. That is consistent with the time of 3.15 p.m on the CHAPS Transfer. I accept that at that time it was not possible to guarantee a CHAPS payment would take place on that day.

It seems likely that sometime after 3.15 p.m Mr O'Neill attempted without success to contact the CHAPS department at Lloyds in an attempt to make the payment that day. He was not successful and directed that it be made first thing on 20 January 2011.

There is no evidence as to when Mr Parker’s authority was obtained. If it was obtained before 3 p.m on 19 January 2011 there is no reason why the payment should not have been made on 19 January 2011. Mr O'Neill was well aware of the urgency and the need to make the payment by 19 January 2011.

On 20 January 2011 Mr O'Neill wrote a letter of apology in which he acknowledged confirming that the payment would be made by close of business on 19 January 2011 and that Mr Bathija had attended the branch in good time to ensure that payment went through on 19 January 2011.

In a letter from Lloyds to Mr Bathija dated 5 September 2011 in response to a complaint by Mr Bathija to the Financial Ombudsman Lloyds admitted that the CHAPS payment to IATA was made one day late.

Whilst one possible inference that could be drawn is that Mr Parker’s authority was not obtained until after 3 p.m such an inference is inconsistent with the clear terms of the letter of apology. In those circumstances I have come to the conclusion that the proper inference is that Mr Parker’s authority was in fact obtained significantly before 3 p.m on 19 January 2011. In those circumstances Lloyds were in breach of contract in not honouring the instruction to pay on that date. It may be that Lloyds overlooked the CHAPS request signed on 18 January 2011 or there may have been some other reason why payment was not made. I am, however, satisfied that the letter sent on 20 January 2011 was a fair reflection of events and that Lloyds was in breach of contract.

Questions of causation and remoteness are notoriously difficult. On behalf of Mr Bathija Mr Woolf submitted that Lloyds’ failure to pay IATA on 19 January 2011 caused the default procedure by IATA. The default procedure prevented Global from issuing tickets which meant it was impossible to trade. As a result Global became cash flow insolvent and Mr Bathija had no option but to consult an insolvency practitioner. This led to Global’s liquidation. Thus it is said that the liquidation was caused by the one day delay in making the payment on 19 January 2011. It is also said that Mr O'Neill was well aware of the importance of the payment and that the failure to pay might lead to default by IATA. Mr O'Neill was also aware that one consequence of the default procedure was that Global would not be able to issue tickets. Thus the liquidation of Global was a reasonably foreseeable consequence of the breach and thus was not too remote as a matter of law.

Mr Stacey, on behalf of Lloyds, challenges much of this reasoning. He accepts that the failure to pay IATA on 19 January 2011 was one of the triggers for the default procedure (the other trigger was the dishonour of the direct debit on 17 January 2011). However as the failure was acknowledged in the letter of 20 January to be by way of genuine bank error the default should have been withdrawn on 21 January when that letter was acknowledged. The default after 21 January was caused as a result of the dishonour of the 17 January direct debit (for which Lloyds was not in breach of contract) and/or the misinterpretation by IATA of their rules. It was not caused by Lloyds’ breach of contract.

Mr Stacey does not accept that the default had the consequences suggested by Mr Bathija. He suggests that there were steps that Mr Bathija might have taken to have mitigated the position. He could have used the £60,000 in the State Bank of India to have attempted a compromise with IATA to enable him to issue tickets again. He could have sought to challenge the decision of IATA in the Courts or even instructed a solicitor to write to IATA in an attempt to persuade it that its interpretation was wrong.

Mr Stacey also submits that the liquidation of Global was inevitable within a short period of time. He points to the inability of Global to trade within the £150,000 overdraft at the times of the IATA spike. He submits that it is inherently unlikely that Global would have been able to pay the IATA payment due on 17 February 2011.

He points to the fact that the overdraft was repayable on demand (although he acknowledges the stated intention to allow it to remain at the level of £150,000 until April 2011). For the purpose of the assessment of damages it has to be assumed that Lloyds will not go beyond its strict legal obligations.

Mr Stacey referred me to a number of authorities the most significant of which were Lavarack v Woods of Colchester Limited [1967] 1QB 278 and Mulvenna v RBS [2003] EWCA Civ 1112.

Mulvenna is a case with some similarity to the present in that it was a claim for consequential losses following a failure by a bank to make the correct refund in relation to overpaid interest. However there were differences since the allegation also involved the Bank agreeing additional facilities which would have allowed the Claimant to make a substantial profit on a development scheme.

The judgments contain a lengthy discussion on the extent of the principle in Laverack v Woods. In the light of my views on the issue of remoteness it is not necessary to set this out. In paragraphs 24 – 26 of his judgment Waller LJ dealt with the remoteness issue.

I prefer to approach what is in reality the same point by reference to the cases on remoteness. Normally a failure to pay money gives rise to no damages other than a possible obligation to pay interest for late payment. It may however be possible for some more extensive liability to be imposed. If that liability is to be imposed it must be by virtue of special circumstances being drawn to the attention of the payer of the money. But simply drawing the attention of the payer of the money to special circumstances, does not necessarily impose a liability on the payer to be responsible for damages flowing from the special circumstances to which attention has been drawn. The editors of McGregor consider this problem in paragraphs 272-274. They draw attention to the fact that there was a time when it was thought that if the special circumstances drawn to the attention of a party were to give rise to a claim in damages there had to be a term of contract dealing with those circumstances. That was shown to be wrong by Lord Upjohn in Czarnikow v Koufos [1969] 1AC 350 at 421-422. The matter was however further explored by Robert Goff J as he then was in The Pegase [1981] 1 Lloyds Reports 175. In that case Robert Goff J said at page 185:-

In paragraph 274 McGregor summarised the position as follows:

It is thus an oversimplification to simply pose the question whether a loss if HMR/PMR could not be developed was within the contemplation of the parties when the refund argument was made. If TM was to succeed at the trial he would have to demonstrate that in addition to the special circumstances being drawn to the attention of the Bank, when the Bank agreed to refund, it accepted the risk, that if it did not do so it would be responsible for any loss of profits on HMR/PMR. That might just be an arguable proposition in relation to a failure to refund which had the effect of preventing TM coming back into mainstream banking. It is totally unarguable that the Bank should contemplate that a simple failure to refund would make them responsible for the risk of such losses.

To my mind there is considerable force in Mr Stacey’s argument that the default after 21 January 2011 was not caused by Lloyds’ limited breach of contract in failing to pay the £164,179.88 by 19 January 2011 (See paragraph 117 above). However assuming, contrary to that submission, that there was no break in the chain in causation I am satisfied that the claim is too remote. Whilst Mr O'Neill was aware that the failure to pay IATA by 19 January 2011 could lead to default he was also aware that if the failure was due to bank error the default would be withdrawn. Thus he was not aware that a failure to pay by 19 January 2011 as a result of bank error would lead to a permanent default. Such a result would not in my view be reasonably foreseeable. There is no evidence at all that Mr O'Neill and Mr Bathija contemplated that Lloyds was taking the risk of being liable for the consequences of a default in the event of the payment being late because of bank error.

In those circumstances it is not necessary to rule on the other arguments raised by Mr Stacey. Suffice it to say that I was unimpressed with the arguments that Global could have avoided liquidation as a result of the default. The time scale involved makes it extremely unlikely that anything effective could have been done prior to 17 February 2011 when the next IATA payment would have been due.

On the other hand I was more impressed with the argument that Global’s days were numbered. The past evidence showed that it had been unable to keep within its overdraft limit on almost all the days when the IATA payment was made. Its own cash forecasts showed a requirement of £222,491 and £243,032 in April and May 2011. Even if it had managed to make the February 2011 IATA payment without exceeding its overdraft limit I am satisfied that at the latest by April 2011 the limit would have been exceeded. Thus the effect of the breach was at best to delay the default by 3 months during which time Global would, according to its own forecasts have been making losses.

In the light of my views on remoteness of damage and on the life expectancy of Global it is not strictly necessary to consider the rival views of the experts on the value of Global. However in case I am wrong and because the experts gave evidence and were cross-examined it is right I should express my conclusions.

Expert forensic accountancy evidence on loss was provided by Ms Winspeare on behalf of Mr Bathija and Mr Hatcher on behalf of Lloyds.

In Ms Winspeare’s opinion the most appropriate method of valuing Global was to value the ongoing trade using the Capitalisation of Future Maintainable Earnings and adjust for the net assets of the business.

In order to calculate the Future Maintainable Earnings she concentrated solely on the gross profit of Global. She assumed that there would be a special purchaser of Global who was already running a similar business and could incorporate the whole of Global’s business at a cost of £10,000 p.a.

The only actual audited figures that Ms Winspeare had were for 12 months from 31 May 2008 to 31 May 2009 and for 7 months from 31 May 2009 to 31 December 2009. She annualised the 7 month figure and then gave each of the figures a weighting of 4. Ms Winspeare chose to ignore the draft accounts for 13 months ending 31 January 2011. Instead she chose to rely on the forecasts sent to Mr Parker in November 2010. She applied a weighting of 1 to the forecasts for 2010 and 2011 and a weighting of 2 to the forecast for 2012. This produced an average annual profit of £296,000. She applied a capitalisation factor of one to arrive at a figure of £296,000 for Future Maintainable Earnings.

She added to this the net assets on liquidation. She accepted the figure of £412,000 for creditors but considered (based on the accounts) that there were debtors of £750,000.

Thus she concluded that there were net assets of £340,000. Her final figure was that the value of Global was £636,000.

Mr Hatcher considered that Global had little or no trading value. He did this by considering the annual accounts for the years from June 2006 until 31 May 2009, the 7 months from 31 May 2009 to 31 December 2009 (which he annualised) and the draft accounts prepared by Global’s accountant for the 13 months to 31 January 2011. He noted that the profit before tax was modest for the level of turnover and that significant losses had been incurred for the 13 month period up to 31 January 2011. He pointed out that the level of remuneration for Mr Bathija was far below what might be expected for someone running a business of that size. If the profit was adjusted there would have been large losses over the whole of the period. Thus he felt Global had little or no trading value.

Mr Hatcher did not carry out any detailed analysis of the net assets of Global. He noted that the draft accounts for the period ending 31 January 2011 showed net assets of £70,731. He did not consider these to be overstated. He took the view that there was little or no goodwill. He was prepared to add about £16,500 in respect of overpaid interest and arrived at a figure of £85,000. He took the view that this would fall away with continued unprofitable trading.

It is to be noted that Mr Hatcher’s valuation of £70,000 and Ms Winspeare’s valuation of £340,000 were heavily dependent on the figure of £750,000 (Ms Winspeare) or £730,000 (Mr Hatcher based on the accounts) for debtors. There is absolutely no evidence of what these debtors consisted of though it was suggested that it comprised tickets bought and paid for by Global. As already noted Mr Bathija signed a statement of truth in the Statement of Affairs indicating that there were no assets. Furthermore, the liquidator did not recover any assets in the liquidation.

I accept that it is possible to value a company by applying a multiplier to its future maintainable earnings. However I consider Ms Winspeare’s approach to be flawed in a number of respects. First I do not think this to be an appropriate case to base the calculation on gross profit rather than net profit. In my view Ms Winspeare was not entitled to assume that the business could be subsumed into the purchaser’s business with costs of only £10,000. She made no attempt to justify this by identifying such a purchaser, by looking at the actual costs and expenses. I prefer Mr Hatcher’s view that the valuation should be by reference to net profit which takes into account the actual costs of the business.

Even if Ms Winspeare’s approach was acceptable I think her analysis is flawed. I cannot begin to think why she preferred the forecast accounts for 2010 over and above the draft accounts prepared by Global’s accountants. Whilst these were unaudited and plainly subject to change they were likely to be more reliable than the forecasts sent in November. They were also the most recent figures and thus deserved the highest weighting, higher, in my view than the historic figures for 2009 and the forecasts for 2011 and 2012. To my mind the forecast for 2011 is likely to more reliable than the forecasts for 2012 simply because of the difficulty of forecasting into the future. I cannot therefore justify the respective weighting for 2011 and 2012.

The reality is that Global had made extremely limited profits up to the end of 2009, made losses in 2010 and was predicted to make significant losses for the whole of 2011. Furthermore, as Mr Hatcher pointed out the moneys taken out of Global by Mr Bathija in the form of salary and dividends was extremely low. In my view Mr Hatcher was fully justified in assessing the trading value of Global at nil.

In order to justify her figure for the net assets of Global Ms Winspeare is forced to rely on the figure for debtors (£731,288) in the draft accounts. Ms Winspeare chose to increase this figure to £750,000 but nothing turns on that difference. As I understood her evidence she made no attempt to analyse the figure and the extent to which it was recoverable. During the course of the hearing I expressed concern as to the genuineness of the figure in the light of the Statement of Affairs and the liquidator’s failure to realise any assets. It was suggested that it might represent a stock of purchased tickets. I was shown some entries from the accounts where Global paid airlines direct.

I am conscious that Mr Hatcher also accepted the figure in the accounts in the sum of £731,308 but he simply took the figure from the accounts. In order to put a value on Global it is necessary to see to what extent these notional assets are realisable.

I can accept that there may have been some tickets which had been prepaid by Global. I have, however, the greatest difficulty in accepting that the value of such tickets was £750,000 or anything like that sum. If there had been such a stock of tickets the liquidator would have had to make some attempt to realise them.

In the end I am wholly unconvinced that the realisable value of unsold tickets to a purchaser exceeded or even approached the liabilities of Global. In those circumstances I would value the net assets of Global at nil.

It follows that I would have assessed the loss to Global at nil.

In conclusion I find:

Lloyds was in breach of contract in overcharging interest to the extent of £18,068. A refund of £1,241.17 was in fact made on 11 November 2010. There is a dispute as to whether any further repayments have been made but it has been agreed that this dispute can be referred to the Master if the parties cannot resolve it amicably. Any outstanding balance is to be set off against the sums otherwise due to Lloyds on the account.

Lloyds was not in breach of contract in failing to honour the direct debit on 17^th January 2014.

Lloyds was in breach of contract in paying the CHAPS Transfer to IATA one day late on 20 January 2014. The measure of damages to be awarded to Global in respect of that breach is nil because the liquidation of Global was not caused by that breach. In so far as it was so caused the loss claimed is too remote as a matter of law to be recoverable. Furthermore Global had no value on 20^th January 2014.

There is no challenge to the validity of the guarantee or of the Mortgage. In the result:

Mr Bathija is liable under the terms of the guarantee to the full extent of the sums due by Global after taking into account the set off in respect of interest. There is no agreement as to the precise sum due. In the absence of agreement this dispute can be referred to the Master. In the light of figures in the accounts there will be an order for an interim payment in the sum of £150,000.

In principle Lloyds may be entitled to possession of the property. However as the property is a dwelling house there may be a defence under the Administration of Justice Act 1970. Furthermore it may be that the application for possession ought to have been brought in the County Court and the Particulars of Claim should have contained more detailed information. I will leave it to the parties on the date when judgment is handed down to make submissions as to the further conduct of the possession claim.