Earles v Barclays Bank Plc, Court of Appeal - Mercantile Court, October 08, 2009, [2009] EWHC 1 (Mercantile)

Resolution Date:October 08, 2009
Issuing Organization:Mercantile Court
Actores:Earles v Barclays Bank Plc


Claim No. 9BM400009





Birmingham District Registry

Date: 8th October 2009


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  1. This is the type of an action between a customer and his bank that has become increasingly prevalent in the mercantile court in these times following the recent economic downturn and the banking credit crisis.

  2. The Claimant is a customer of the Defendant and has banked with them for over 30 years. Indeed, he is a former bank manager with the Bank, like his father before him. Subsequently, he became a property developer and is currently indebted to the Bank for some £2.45 million.

  3. On 30th March 2005, Eden Holding Limited (`the Company') was incorporated to sell beauty products in London through a team of salesmen led by Mr McKinney. The directors were the Claimant and Mr McKinney. By 31st March 2006, the Claimant's shareholding had increased from 20% and that of Mr McKinney reduced from 79%, according to the Directors Report and Financial statements for the year ended 31t March 2006. As a result they held equal shareholdings of 49% each. These accounts then showed a loss of £114,524 carried by shareholders funds in the same amount.

  4. In April 2006, the Claimant arranged a business loan for £75,000 to assist with capital expenditure on developing leasehold premises in Leamington Spa as a beauty salon. A business current account (a/c no: 8007-9782) was set up with an overdraft of £50,000 with statements to be sent monthly to the Claimant's address. This overdraft had a £25,000 discretionary extra facility in the hands of the Relationship Manager without his need for recourse to the Bank's Credit Team. These potential liabilities were secured by a personal guarantee of £125,000 by the Claimant that was in turn supported by a legal charge over a development site he owned personally called the Great Rollright site. The Relationship Manager for the Bank was Martin Leech aided by his assistants Katharine Shelley and Melanie Wigley-Jones of the Cardiff Business Centre Branch.

  5. Concurrently, the Claimant took out two separate loans of £600,000 and £625,00 to assist with construction work and `land' respectively relating to the development of a site at Great Rollright. A personal business account (2000-8990) was separately set up for the Claimant for this project in his name with statements being sent to him monthly at his home address.

  6. Subsequently during 2006, substantial drawings on the Company account continued to be regularly made, mainly by cheques signed by Mr McKinney. During July, the overdraft leapt up and by 17th July at £129,695 it exceeded the level of the Claimant's guarantee of £125,000. On 19th July, £100,000 was transferred from the Claimant's personal business account to reduce the overdraft to £32,260.30 i.e. below the £50,000 limit. This was the second leg of a two-part transaction, the first part being a drawdown of £100,000 from the Loan Account to the Personal Business Account. The Claimant alleges that this was the first of five unauthorised transfers amounting to £265,000 between these accounts controlled by him.

  7. On Tuesday 22 August 2006, a further drawdown of £100,000 was made from the Loan Account to the Personal Business Account. On the same day, £70,000 was transferred from the Personal Business Account to the Company Account. This brought the Company's overdraft down from £127,879.98 to £58,652.29 i.e. within the maximum discretionary limit of £75,000.

  8. The third was on 31st August when £20,000 was transferred bringing it down from £92,564.16 to £74,918 i.e. just within the permissible maximum discretionary limit.

  9. The fourth was shortly thereafter on 7th September when £50,000 was transferred bringing the Company's overdraft down from £105,674.62 to £59,244 i.e. again within the maximum discretionary limit of £75,000.

  10. The fifth was on 10th October when £25,000 was transferred bringing the Company's overdraft down from 95,912.73 to £78,916.84 i.e. just above the maximum discretionary limit of £75,000. This arose because on 6 October 2006, upon receipt of a VAT refund of £75,000 into the Premier Account, £60,000 was transferred from the Premier Account to the Personal Business Account. On 10 October 2006, £25,000 was then transferred from the Personal Business Account to the Company Account.

  11. The Claimant subsequently resigned his position as director and as company secretary of the Company on 23 October 2006 and 2 January 2007 respectively.

  12. On 1st August 2007 the banking affairs for the Company were transferred from the Relationship Manager and his team to the Business Support department under Suzanne Parton. She held a meeting with the Claimant and the Directors of the Company and resolved to obtain a report on the Company from BDO Stoy Hamlyn. Two days later, she says that the Claimant notified her of unauthorised transfers of his personal monies into the Company account.

  13. The BDO Report of 14th August 2007 detailed the parlous predicament of the Company. The transformation of the property had cost £400,000 against an initial budget of £250,000 financed primarily by directors' loans. The accounts showed an operating loss of £374,000 financed partly by management and partly by Bank financing.

  14. Subsequently, the Company went into administration on 25 January 2008. The Claimant is an unsecured creditor of the Company, pursuant to a written loan agreement dated 26 January 2007 which provided, amongst other matters, that the Claimant would make available an unsecured loan to the Company of £324,425.88, that such sum represented the balance of his director's loan account as at the date of his resignation on 23 October 2006, and that the loan would be repaid over 36 monthly instalments beginning on 26 January 2008.

  15. The Claimant further alleges that as a result of the allegedly unauthorised transfers he has sustained consequential loss and damage. In October 2007, he claimed that his alleged consequential losses amounted to £605,000; a month later, in November 2007, he claimed that they had risen to nearly £1.1 million; by the time he issued this action, he was claiming that they were some £2,157,000. His total claim is now for some £2.4 million plus interest - approximately the same amount as he owes the Bank.

  16. The Bank categorically denies that the disputed Transfers were not authorised by the Claimant. It contends that the Claimant gave oral telephone instructions to staff at the Bank's Cardiff Business Centre to make each of the Disputed Transfers, which the Bank was both entitled and obliged to follow in accordance with the terms and conditions governing the account. Without prejudice to that primary case, the Bank further contends that in any event the claim is excluded under the Condition 3 of the terms and conditions governing the account, and the Claimant ratified and adopted the disputed transfers by entering into the Loan Agreement.

    Issues at trial

  17. At the Case Management Conference on 12 June 2009, HHJ Kirkham ordered split trials in respect of the Bank's liability for breach of mandate and any entitlement to damages for breach of contract Pursuant to the Judge's order, the issues at this trial were therefore:

    (1) Did Mr Earles authorise and instruct the Bank to process the Disputed Transfers (and each of them)? There is no longer any issue that these instructions could be given and accepted verbally by telephone or computer as Condition 3 of the Terms and Conditions governing the Personal Business account provide for such:

    ``3.1 You can give us instructions verbally, in writing, by telephone or computer unless an additional condition limits the way in which instructions can be given.

    3.2 Before we can accept instructions given to us by computer we will agree security procedures with you.... We may also agree security procedures with you before accepting instructions given to us by telephone.


    3.6 We can act on instructions (including instructions to make or collect payments from or into your account) given:

    (a) on a document bearing your signature(s); or

    (b) by telephone or computer, as long as we have followed the security procedures, whether or not the instruction was given by you; or

    (c) verbally, as long as we have been able to identify you without following the security procedures.

    As long as we have followed your instructions correctly, we can deduct the amount of any payment from your account. You agree that we may rely on any account number quoted in an instruction as the correct amount to be debited or credited.''

    The only issues are therefore purely factual: were these actually instructions given?

    (2) Is the Bank entitled, in the events that occurred, to rely on Condition 9.4 of the Terms and Conditions to exclude Mr Earles' claim? This was abandoned by the Bank during the trial but the legal issue of ratification became live.

    (3) Is the Bank entitled to rely on Condition 9.3 of the Terms and Conditions to exclude Mr Earles' claim for damages for breach of contract? Condition 9.3 provided:

    ``We will not be liable to you in any circumstances for:

    Loss of business, loss of goodwill, loss of opportunity, loss of profit;

    Any type of special, consequential or indirect loss whatsoever.''

    Primary Issue

  18. The resolution of the primary issue appears beguilingly simple. Were telephone calls or e-mails made on each of the 5 occasions and, if so, what was said or written?

  19. Guidance to the fact finding judge on how to approach such a seemingly simple task has been given by judges of great eminence. The extra-judicial writing of Lord Bingham of Cornhill in a paper headed...

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