Senex Holdings Ltd v National Westminster Bank Plc

This is an application by the defendant (“the Bank”) under CPR 24.2 (a) (i) for summary judgement against the claimant, Senex Holdings Limited (“SHL”), which sues for a declaration that the Bank is indebted to SHL in the sum of £1 million.

The application raises a short point as to the circumstances in which a bank may act on an instruction that is not in strict accordance with the terms of a joint mandate relating to a joint account.

The facts can be shortly stated. In 1999, SHL owned the freehold title of land that was the former site of Prices Candle factory in Wandsworth (“the Site”). At this time, SHL was owned 100% by Mr Richard Simpson and from May 2004 was a 100% subsidiary of Senate Capital Limited (“SCL”), whose share capital was owned entirely by Mr Richard Simpson. SHL applied to the London Borough of Wandsworth (“LBW”) for planning and redevelopment permission of the Site and on 12 May 1999 entered into a “Section 106 Agreement” with LBW under which £1 million was to be deposited by SHL in an escrow account against certain of its obligations under the agreement. The agreement was varied by a further agreement dated 22 September 1999 (“the September Agreement”) and replaced by a new agreement concluded in May 2001 under which it was stipulated that the £1 million deposit would be held pursuant to the new agreement.

Pursuant to the September Agreement, £1 million was deposited with the Bank to be held in a joint account in the joint names of SHL and WBC operated under the terms of a Joint Mandate contained in identical forms executed by SHL (acting by Mr Simpson and SHL’s Company Secretary) and by LBW (acting by the Director and Assistant Director of Finance). The Joint Mandate authorised the Bank to “honour or comply with all cheques or accept other written instructions to make payments by any means (including electronically) made or given by or on behalf of the Joint Account Holders” (Clause 2). Clause 3 provided that the Bank could act on the written instructions of the Joint Account Holders for all other purposes. Clause 6 contemplated that the Joint Account Holders would give the Bank a list of the names of their authorised signatories. LBW provided the names and signatures of three authorised signatories. SHL provided no details of any authorised signatories.

The Section 106 Agreements were to be registered as a local land charge and with the intent that the obligations under them ran with the land so as to be enforceable against a transferee of the Site.

In about October 2004, the Bank was told either by Mr Simpson acting on behalf of SHL or by SHL’s solicitors, acting on instructions conveyed by Mr Simpson on behalf of SHL, that the names of the joint account should be changed with SCL replacing SHL. This change of name was in contemplation of a forthcoming transfer of the Site from SHL to SCL which would render SCL an obligated party under the Section 106 Agreements. At this time, Mr Simpson was the sole director of SHL. By letter dated 1 November 2004, the Bank’s Property Manager wrote to Mr Simpson stating that he understood that Mr Simpson wanted SCL’s name to replace SHL’s name on the joint account and enclosing a New Joint Venture Mandate that was to be completed together with an authorised signatories sheet. It is not disputed that this new mandate form was signed by Mr Simpson on behalf of SCL. LBW also submitted a duly executed new Joint Mandate Form dated 21 April 2005, following which, in around June 2005 or in any case by on August 2005, the Bank swapped SCL’s name for SHL’s on the joint account. The account number and sort code remained unchanged.

In the meantime, on 24 December 2004 title to the Prices Candle Factory site was transferred from SHL to SCL, with Mr Simpson signing the transfer on behalf of SHL and SCL. Mr Simpson states in his witness statement that this transfer was in consideration of SCL assuming liability for £1.8 million worth of debts owed by SHL to various third parties. He further states that SCL subsequently paid these amounts either direct to those third parties or to SHL’s Liquidator and that he believed that the transaction under which the Site was transferred to SCL was in the best interests of both companies.

However, the stated consideration on the transfer TR1 is £1 million, not £1.8 million, and that sum does not appear clearly in SHL’s accounts for the year ended 31 March 2005.

The difference between total creditors for the year to 31 March 2004 (£2,167,527) and for the year to 31 March 2005 (£1,111,961) is difficult to reconcile with Mr Simpson’s evidence as to the assumption of debts by SCL worth £1.8 million. Indeed, on the basis of SHL’s financial statements to 31 March 2005, SHL was arguably at that date balance-sheet insolvent to the tune of £282,882 as a result of its tangible assets having gone down from £1.863 million to nil and the writing down to nil of the credit balance on the basis that the directors believed that it was unlikely that the company would satisfy its obligations under the Section 106 Agreement.

On about 17 November 2008, £1 million was transferred from the joint account to SCL pursuant to written instructions from both SCL and LBW. By this time the proposed development of the Site had become a dead letter.

On 8 July 2007, SHL’s members resolved to place the company into Creditors Voluntary Liquidation. On 7 May 2008, Mr Mark Robert Fry was appointed Liquidator of the company by order of the court.

If the change of name on the joint account was a valid act by the Bank, the result was that SHL’s rights in the £1 million under the account were transferred to SCL. SHL claims that the change of name was not validly executed by the Bank, since there was no written instruction for the change of name given on behalf of SHL. Accordingly, SHL contends that it is entitled to a declaration that the Bank is indebted to it on the account in the sum of £1 million.

Relying on the well known decision of Slynn J in London Intercontinental Trust Ltd v Barclays Bank Ltd [1980] 1 Lloyd’s Rep 214, Mr Mitchell QC for the Bank argues that Mr Simpson demonstrably had the actual authority of SHL to issue the change of name instruction and accordingly the Bank validly changed the name of the account, it being common ground that does not challenge the change of name implemented by the Bank. It follows, submits the Mr Mitchell, that SHL’s claim has no real prospect of success and judgement should be entered against SHL.

In London Intercontinental Trust Ltd v Barclays Bank Ltd the defendant was appointed the plaintiff’s bank pursuant to a resolution of its board under which it was authorised to honour cheques drawn on the plaintiff’s behalf provided such cheques were signed by any two directors or by one director and the company secretary. The plaintiff was incorporated to operate an investment trust which was the brain child of certain directors and employees of a firm of stock brokers, Mitton Butler Priest & Co Ltd (“MB”). A substantial part of the plaintiff’s share capital was owned by MB and three of the plaintiff’s directors were directors of MB, including a Mr Ross. These three directors were the governing mind and will of the plaintiff.

In November 1973 and January 1974 Mr Ross alone signed two cheques respectively for £100,000 and £95,000 payable to MB and drawn on the plaintiff’s account with the defendant. The intention was to deposit these sums with MB and thereby earn a slightly better rate of interest than could be earned with a bank, whilst at the same time assisting MB (with whom the plaintiff worked closely) by providing money at a cheaper rate than it would have had to pay in the market. Mr Ross genuinely believed that in making these payments there was no risk to the plaintiff. Two of the other members of the plaintiff’s board who were also directors of MB, plus the plaintiff’s secretary, knew and approved of the first transfer; and one other member of the plaintiff’s board who was also a director of MB, plus the plaintiff’s secretary, plus an employee of MB who was involved in the running of the plaintiff, knew and approved of the second transfer. The two deposits had not been repaid to the plaintiff when MB was hammered by the Stock Exchange and went into liquidation.

The plaintiff claimed that its account with the bank had been wrongly debited because the two cheques had not complied with the mandate. Slynn J held that Mr Ross had actual authority to transfer both of the sums to MB and as a result the bank was entitled to act on the cheques drawn on his single signature. The cheques were not invalidated by the fact that the bank had a mandate requiring two signatures. “The bank as a result of its failure to observe the discrepancy took a risk in honouring the cheque that Mr Ross was not in fact authorised. In the case of both of these cheques I hold that he was so authorised.” (Footnote: ¹)

Mr Edwards for SHL contends that it is strongly arguable that when the Bank changed the name on the joint account, SHL was insolvent and in giving his instruction on SHL’s behalf that SCL’s name should be substituted for that of SHL, Mr Simpson was acting in breach of the duty he owed in those circumstances to SHL’s creditors to keep the company’s property inviolate and available for the repayment of its debts; cf Winkworth v Edward Baron Development Co Ltd and others [1987] BCLC 193, per Lord Templeman at p. 197 f-g. It follows, submits Mr Edwards, that Mr Simpson cannot have had actual authority to instruct the Bank to change the name on the joint account, and thus the Bank cannot rely on London Intercontinental Trust Ltd v Barclays Bank Ltd.

Whilst I accept that it is arguable on the material before me that Mr Simpson was in breach of duty to SHL’s creditors in instructing the Bank on behalf of SHL to change the name on the account, I do not agree that this means that Mr Simpson did not have actual authority quoad the company for the purpose of establishing that the Bank was entitled to act on his instruction.

If a bank acts on an instruction given on behalf of a company that does not conform to the applicable mandate, it makes legal and commercial sense that it should take the risk that the individual giving the instruction has not had conferred on him by the company authority to give the instruction. Where, however, authority to give the instruction has been conferred by the company, I think it would make little commercial sense to subject a bank which acts on the instruction to the risk that the individual was acting in breach of duty to third parties. A fortiori where for all practical purposes the company and the individual are effectively but one entity.

Thus, let it be supposed that: (i) X held the Site individually but as a constructive trustee and that he was LBW’s counterparty; (ii) LBW had no notice (actual or constructive) of the trust; (iii) the account had been in the joint names of X and LBW; (iv) the mandate signed by X authorised the Bank to act on the account holders’ written instructions; (v) in breach of trust X transferred the Site to a third a party and gave instructions to the Bank over the telephone for the account to be in the names of the third party and the LBW; (iv) LBW gave a written instruction for the proposed change of name; (iv) the Bank, without notice (actual or constructive) acted on the instructions of X and LBW; and (v) subsequently, the £1 million is paid out to the third party on the written instructions of the third party and LBW. There could, in my opinion, be no question but that the Bank would be entitled to act on the instructions of both X and LBW to change the names of the account holders if LBW made no objection to the change of name in the knowledge that X’s instruction did not conform to the mandate. And if this be so, given that it is not suggested that the Bank had notice of any breach of duty to SHL’s creditors and LBW are not challenging the change of name, I cannot see why the Bank should not be treated as having been entitled to rely on the change of name instruction it received from Mr Simpson if he was authorised by SHL to give the instruction.

Was Mr Simpson authorised by SHL to give the change of name instruction? Mr Simpson was indisputably the directing mind and will of SHL. He was the effective owner, through his ownership of SCL, of the whole of SHL’s share capital; he was also a director of SHL when the instruction was first given and remained a director throughout 2005. It follows, in my view, that as between Mr Simpson and the company -- the Bank’s customer -- Mr Simpson was authorised to give the instruction he gave, and since the Bank had no notice (actual or constructive) of any breach of duty to SHL’s creditors and LBW make no complaint of breach of mandate, the Bank ought to be treated as having been entitled to act on Mr Simpson’s instruction, even though the instruction did not conform to the requirements of the mandate.

For these reasons, I conclude that there is no real prospect of SHL’s claim against the Bank succeeding and the Bank is entitled to summary judgement against SHL.