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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> JS Cruickshank (Farmers) Ltd v. Gordon & Innes Ltd & Ors [2007] ScotCS CSOH_113 (04 July 2007)
URL: http://www.bailii.org/scot/cases/ScotCS/2007/CSOH_113.html
Cite as: [2007] CSOH 113, [2007] ScotCS CSOH_113

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OUTER HOUSE, COURT OF SESSION

 

[2007] CSOH 113

 

A96/06

 

 

 

 

 

 

 

 

 

 

 

OPINION OF LORD MALCOLM

 

in the cause

 

J S CRUICKSHANK (FARMERS) LTD

 

Pursuers;

 

against

 

GORDON & INNES LTD (IN RECEIVERSHIP) AND OTHERS

 

Defenders:

 

 

ннннннннннннннннн________________

 

 

 

Pursuers: Armstrong, Q.C., Upton; Russell Jones & Walker

Third Defenders: Connal, Q.C., Solicitor Advocate; McGrigors

 

Non participating parties:

First and Second Defenders: Agents: Burness

 

4 July 2007

[1] This is one of several similar actions which have arisen out of the receivership of the first defenders, Gordon & Innes Ltd (G & I). G & I acted on behalf of a number of potato growers in the marketing and sale of potatoes in North East Scotland. The second defenders are the receivers of G & I. They were appointed by the Royal Bank of Scotland (the bank) who were G & I's bankers and are the third defenders. The potato growers, including the pursuers, J S Cruickshank (Farmers) Ltd, relied upon G & I to sell their potatoes under and in terms of two styles of agreement, termed respectively a "commercial" contract and a "high grade" contract. Apart from the type of potato, the main difference between the two agreements was that under the commercial contract G & I obtained a percentage commission on the sale proceeds, whereas under the high grade arrangement an agreed sum per ton of potatoes sold was retained by the sellers. Also, with regard to commercial potatoes the growers were paid an average of the prices paid for all potatoes over a season, i.e. on a pooled basis. The growers considered that the potatoes were sold by G & I as their agents and on their behalf. G & I paid potato sale receipts into a separate account held by them with the bank which, since October 1999, was entitled "growers account." G & I had other accounts with the bank. On G & I's insolvency the bank combined all G & I's accounts, including the growers' account. Some of G & I's accounts were overdrawn. Thus the monies in the growers' account were used by the bank to reduce G & I's overall indebtedness to it. The pursuers and the other growers claim that the bank was not entitled to do that. Rather it should have retained the funds in the growers' account quite separately as monies belonging to the growers. They require the bank to account to them for the monies in the growers' account. At a procedure roll debate Mr Connal QC for the bank argued that the pursuers' averments in support of this case are irrelevant and lacking in specification. He invited me to take the view that the action so far as directed against the bank should be dismissed.

[2] I was informed that the various actions by the growers all involve the same defenders and much the same issues. They have been remitted to the ordinary roll from the Commercial Court, and all, bar this action, are sisted pending the outcome of this debate. Before the remit, Lord Clarke heard a similar submission by the bank in one of the other actions - see Devron Potatoes Ltd v Gordon & Innes Ltd & Others 2003 SCLR 101. In that case the pursuers were a cooperative of potato growers. However the averments and the issues were similar, and in many respects identical, to those in the present action. Indeed the pleadings in that case are incorporated into the present record. I refer to Lord Clarke's opinion for a full account of the averments and the relevant background circumstances. Having heard much the same arguments as those presented to me by Mr Connal on behalf of the bank, Lord Clarke allowed a proof before answer. Subsequently the Devron action settled. However there was no formal agreement that the procedure in the other actions would follow that decided in the Devron case. The debate before me was, except in minor respects, in effect a re-run of the hearing before Lord Clarke. Naturally Mr Armstrong for the pursuers invited me to follow the earlier decision, albeit I am not bound by it. On the other hand Mr Connal observed that there are differences in the Devron case, particularly the existence of an express agency agreement between Devron and G & I. Also that action did not involve high grade potatoes, but only commercial potatoes, which operated on a pooled basis. Nevertheless he invited me to take the view that Lord Clarke had taken too narrow a view of the submissions for the bank, and had fallen into error.

 

The pursuers' case on record

[3] Despite Lord Clarke's opinion, it is appropriate for me to outline the case which the pursuers offer to prove. The averments are lengthy. What follows is a summary, though I hope a fair one. Mr Armstrong explained that the two written agreements are not a complete record of the arrangements between G & I and the growers. In relation to the commercial contract, the conduct of the parties and various communications between them demonstrate that it was agreed that G & I would act as the pursuers' agent in selling the goods; would not take title to them; and would pay the sale receipts into a special bank account, which, after deduction of G & I's commission and expenses, would be remitted to the growers. By arrangement between G & I and the bank, in October 1999 that account was renamed the "growers' account." There are lengthy averments detailing the evidence relied upon for the above. Further, G & I expressly described themselves as marketing agents in their document headed "Terms of Payment for Season 1999/2000." Their terms and conditions were consistent with the above arrangement. For example clause 4 obliged G & I to "market the crop to best advantage." The risk of damage from the weather remained with the grower until loading for delivery to the ultimate buyer. G & I were to be paid "on an average pool price based on 85% ex farm price achieved for the relevant variety, grade, size and tuber number." G & I wrote to Devron stating that "we are not obliged to pay growers until we have been paid by customers." The same agency, commission, and pooled basis of calculating due payments was applied consistently between G & I and a large number of growers, all specified on record. G & I did not demur after several pool growers wrote to G & I stating that potatoes grown by them remained their property until they received payment. The pool system of calculating average payments shared or spread the risk of (a) price fluctuations during the season (b) of unsold potatoes, and (c) of bad debtors. Interim payments were on the basis of predictions of the total pool price. G & I took no risk regarding unsold potatoes and fluctuating prices. They had no responsibility for the quality of the goods. G & I referred to themselves as marketing "your crops" when writing to growers. They consistently described their role to purchasers as that of agents.

[4] The high grade contract related to seed potatoes used for the purpose of growing further seed potatoes. The terms and conditions were similar to the other agreement, except that the price was not calculated on a pooled basis. By acquiring knowledge of growers' production plans G & I ensured that supply and demand for high grade seed crop remained in balance, so that there were purchasers for each grower's crop. Planning ahead over a three year period allowed the parties to do business on the basis that the growers would be paid only if the crop was sold by G & I, consistently with G & I's role as agents, but with the assurance that the crop would indeed be sold. Had G & I not been acting as agents in respect of both types of crop they would have been exposed to an unrealistic level of financial risk.

[5] The issue of a separate bank account was discussed between G & I's financial managers and Mr Dutch, the commercial manager of the bank's branch at Queens Cross, Aberdeen. As a result of those discussions Mr Dutch was aware that the account was to be operated as condescended on by the pursuers. He represented to G & I's managing director, Mr Ryan, that G & I had the bank's approval to do this. The pursuers aver that there is no reasonable explanation for the change of name of the account to "growers' account" other than an intention to keep the proceeds of potato sales separate from G & I's trading account, and protected from their other creditors such as the bank. In this way the potato sale proceeds were distinguished from the property of G & I. It is averred that the growers asked for this arrangement as a safeguard against the insolvency of G & I. The account was dedicated to the fruits of the arrangement between the growers and G & I. G & I's director, Mr Stuart, represented to growers that G & I acted only as agents, and that the separate growers' account meant that "their money was entirely safe." Mr Ryan told growers that their money was "ring-fenced" and separate from G & I's own funds. Devron's minute to the bank's Mr Robinson on 30 June 2000 summarised how the legal relationship between G & I and the growers had been represented by G & I to Devron. On 2 August 2000 the sum at credit to the account was г1.233 million. Of that some г70,000 was owed by G & I to the pursuers. This was in respect of potatoes sold by G & I on the pursuers' behalf, the bulk relating to high grade potatoes (though I was informed that in the other actions the bulk of the claims relate to commercial potatoes).

[6] The specific case against the bank is set out in Condescendence 7 as follows. The bank was aware that the growers' account had been dedicated to the purpose of a separate account for monies held for growers and from which sales expenses were taken. The bank was well aware of the widespread practice of marketing agents being obliged to account to growers for their sales of agricultural produce. Mr John Robinson, the manager of the bank's specialised lending services, specifically minuted in February 2000 that the growers operated on profit share and that G & I acted as "sole marketing agents, receiving a commission of about 17%". A KPMG report to the bank recorded the profit sharing arrangement. The business relationship manager of the Huntly Branch was specifically advised of the agency relationship, and that the proceeds of potato sales did not belong to G & I, but were held by G & I as agents and could not be used to fund G & I's operations. To the bank G & I specifically referred to themselves as marketing agents who had a right in a question with a grower to deduct costs before remitting sales proceeds to the grower. In any event, in all the circumstances the bank was put on inquiry in order to be in good faith in dealings with the account. Any relevant inquiries would have revealed the true position. In intromitting with the monies in the growers' account the bank did not act in good faith. It knew enough to be aware of the fiduciary nature of G & I's activities. The bank had unjustly enriched itself and so should repay the relevant share of the funds to the pursuers. Alternatively the bank holds the monies as a constructive trustee for the growers, and should account therefor to the growers.

 

The submissions made on behalf of the bank

[7] Mr Connal's submissions for the bank can be summarised as follows. A bank is not obliged to inquire into the nature of funds paid into a customer's account, nor as to whether they truly belong to the customer. In the present case the relevant account was not a designated trust account. The pleadings are inadequate to establish (a) that the account was held in a fiduciary capacity (b) that if it was, that the bank knew this, and (c) that the bank was in bad faith. Any case based on bad faith must be supported by very clear and specific averments. Bank accounts are merely book entries based on a purely contractual relationship between the bank and its customer. Once money is paid into an account it belongs to the bank, albeit it is subject to an obligation upon the bank to repay an equivalent amount to the customer. If a customer is in a position of overall indebtedness to the bank, the bank can retain a sum in credit in one of several accounts held by the customer in order to reduce that overall indebtedness. The bank can do this up until it receives notice that the monies do not belong to the customer or until it becomes in bad faith. Simply to aver that G & I sold as agents for the growers, and that the bank knew this, is not enough to entitle the pursuers to a remedy against the bank. The above propositions were made under reference to Thomson v Clydesdale Bank Ltd (1893) 20R (HL) 59; Royal Bank of Scotland v Skinner [1931] SLT 382; Clark v Ulster Bank [1950] NI 132; and Style Financial Services Ltd v Bank of Scotland 1996 SLT 421 (Second Division) and 1998 SLT 851, (Lord Gill).

[8] Mr Connal submitted that it must be demonstrated that the bank knew that it would be improper to treat the funds as belonging to G & I. Banks are entitled to assume that funds lodged by a customer within an account held by the customer are his funds, even if it is known that the customer regularly holds funds belonging to others, for example an auctioneer or a stockbroker. Again reference was made to the Irish case of Clark. It is not enough for the pursuers to prove that the bank knew that G & I were selling potatoes for farmers and that the proceeds were put into the said account. This does not amount to knowledge of a fiduciary relationship between G & I and the growers. It does not put the bank on inquiry or otherwise mean that it acted in bad faith. Under reference to Lord Gill's opinion in Style Financial Services, it was submitted that the pursuers' averments must offer to prove something "close to dishonesty" on the part of the bank. At one point Mr Connal's submission was to the effect that the bank was entitled to act as it did even if it knew that the funds belonged to someone else. However, the main thrust of his submission was that the pursuers' pleadings, even if established, would not demonstrate what he described as the necessary bad faith or dishonesty on the part of the bank, such as, for example, if it had been given express notice of a trust relationship. Reliance was placed upon Bank of Scotland v MacLeod Paxton Woolard & Co 1998 SLT 258, and also to Lord Nicholls of Birkenhead in Royal Brunei Airlines v Philip Tan Kok Ming [1995] 2 AC 378 at 392 G, all for the proposition that there has to be dishonesty or improbity on the part of the bank. Fairly read the pleadings do not meet this test, thus the case against the bank is bound to fail and should be dismissed.

[9] Mr Connal submitted that there are no specific references in any of the contracts to trust monies, nor to a trust relationship. Properly construed the high grade agreement is simply that of a contract for the sale of potatoes by the growers to G & I. One should not go beyond the terms of the agreements, thus the bulk of the pursuers' averments are irrelevant. In any event the references to broader understandings and agreements are lacking in specification. Discussions which did not involve the bank are irrelevant. There is no sound basis for the proposition that there was a fiduciary obligation owed by G & I to the growers. At most the pursuers have a financial claim against G & I, but no preference to the funds in the growers' account. The growers had no separate interest in any identifiable fund. G & I could have used sale receipts as they wished. The growers took the risk of G & I's insolvency.

[10] Mr Connal submitted that the averments about a discussion with the bank's Mr Dutch are insufficient, since it is not said that the bank specifically agreed that the growers' account would be protected from the bank itself. That is a necessary element - "the key thing" - and cannot be left to inference. It should be specifically averred. The most that can be said is that the pursuers offer to prove that the bank knew that this was to be a fund for the proceeds of potato sales and for deduction therefrom of G & I's expenses. It does not follow that the bank agreed that the account would be protected from the bank's normal right to combine accounts when assessing a customer's overall indebtedness to the bank. With reference to the various averments that Devron told the bank of the intended position, Mr Connal's submission was that Devron's understanding was not a correct reflection of the true position in law, namely that G & I were only agents, not fiduciaries. In short there is nothing to disturb the normal contractual relationship between G & I and its bank. The averments do not support a duty of inquiry on the part of the bank, nor that it was on notice of a trust fund. In any event the authorities suggest that dishonesty or something close to it is required, otherwise a bank is under no general duty to investigate the true position.

[11] Both parties refer to constructive trust in their pleadings. However Mr Connal submitted that no separate issue arises under this heading. Constructive trust cannot provide a separate or alternative route to recovery if the pursuers' averments are otherwise irrelevant. Subsequently, for the pursuers Mr Armstrong made a similar submission.

 

Submissions on behalf of the pursuers

[12] For the pursuers Mr Armstrong observed that only the third defenders were seeking dismissal. In line with the cases against G & I and the receivers, he submitted that the case against the bank should be remitted to a proof before answer. He relied on Lord Clarke's decision in the earlier Devron case. Such distinctions as can be identified in relation to the Devron case make no real difference to the proper outcome. Lord Clarke's decision was based on very similar averments. In many major sections the averments are identical in both actions. Mr Armstrong accepted that, in general, a bank is entitled to receive money from a customer, even one who commonly acts on behalf of others, without inquiry, and on the basis that the customer is free to lodge funds within his own account as his money. However, Mr Armstrong submitted that it is different once the bank is on notice that the customer is or may be behaving improperly. Reference was made to Thomson and to Lord Gill's opinion in Style Financial Services. The averments are sufficient to support a fiduciary obligation on G & I towards the growers. The case is similar to that discussed in the Inner House decision in Style Financial Services. The claim is based on recompense. The bank is unjustly enriched and should account to the growers. It is not a matter of tracing specific funds. The ultimately unsuccessful outcome of the claim in Style Financial Services was based on specific features relating to the facts of that case. In particular there was an express agreement excluding any fiduciary duty, and there was no separate or earmarked account. In Style the agent had express authority to mix his money with the pursuers' funds.

[13] Mr Armstrong submitted that if an agent is bound to hold his principal's monies separately from his own, a fiduciary duty arises. The separate account, namely the "growers account", is "the key indicator." Reference was made to Bowstead of Reynolds on Agency (2006 ed) pp181/91, and to Re Gross, ex parte Kingston (1871) L.R 6 Ch. App 632. The written contracts were not intended to be comprehensive, for example as to arrangements for payment. The pleadings are relevant and sufficiently specific in terms of (a) the broad picture as to clearly understood arrangements between the pursuers and G & I, and (b) knowledge of those arrangements on the part of the relevant bank officers. The only material difference between the two types of contract was that, in respect of high grade potatoes, the marketing agents' margin was fixed, whereas for commercial potatoes, which are potatoes at the end of their life cycle and ready to be sold to the public, it was a percentage of the average pooled price. Even in respect of high grade potatoes there was no entitlement to payment until G & I sold the product. There is no relevant distinction to be made between the two types of potatoes in terms of agency and fiduciary obligation for the balance of the sale proceeds. With reference to Royal Brunei Airlines, Mr Armstrong observed that the case dealt with a bank assisting a customer in a fraud. Different considerations can arise when a bank knowingly receives monies belonging to a third party. The test for recovery may well be less strict in such cases, where the approach is based more on it being unconscionable that the bank should retain the funds, as opposed to any requirement that the bank acted dishonestly. Reference was made to BCCI v Akindele [2001] Ch 437.

[14] As to the attack on the specification in the pleadings, Mr Armstrong submitted that this is not a case of fraud or criminal conduct on the part of the bank, and thus the very high standard suggested by Mr Connal did not arise. In any event, there was more than sufficient detail in the averments to provide fair notice as to the case the bank was required to meet at proof.

Discussion and Decision
[15] In essence Mr Connal's submission was that the pursuers' averments are irrelevant because of the absence of averments sufficient to establish what he described as the necessary dishonesty (or "something close to dishonesty") on the part of the bank. In this regard I consider it important to note that the present case does not involve an allegation of impropriety in the conduct of G & I. Many of the cases in this area of the law, including most of those cited to me, are concerned with the improper lodging of money in or withdrawing of money from an account with a bank. In such cases, in a question between a disadvantaged third party and the bank, it is well established that the mere fact that the wrongdoer was the bank's customer does not impose any reparation or recompense obligation on the bank towards the third party. There is clear authority that banks are under no general duty to make inquiries or check that a customer is acting properly when lodging monies in or withdrawing monies from his own account. This is so even if the customer is known to handle monies on behalf of other people. Further, to make the bank liable on the basis of mere negligence, for example by carelessly failing to identify and then stop a customer's wrongdoing, would render banking an impracticable activity. As it is sometimes put, a bank is not required to be an amateur detective. The cases show that much more than the bank's negligence is required if a customer's wrongdoing is to result in it incurring liability to a third party. Thus the general rule is that the tension between the potentially conflicting interests of, on the one hand, the bank's customer that his bank honour his instructions, and that of third parties that a bank does not facilitate a fraud upon them, will be resolved in favour of the bank, unless the bank is in some way complicit in or associated with its customer's wrongdoing. In other words, a banker is entitled to assume that all is well unless there is a good and clear reason to suspect the contrary. However, as mentioned above, the present case does not involve any allegation of wrongful conduct on the part of G & I.

[16] Further, in the context of the present action, and in assessing the submissions for the bank, it is important to note that the cases principally relied upon by Mr Connal, and the general principles laid down in them, relate to circumstances where the relevant account is held in the name of the bank's customer. In such cases the basic premise of the arrangement between the bank and its customer is that the customer owns and operates the account on his own behalf. In these circumstances it is understandable and appropriate that the bank is entitled to proceed on the basis that, unless and until it has good reason to suspect that something is amiss, the normal rules apply, and the customer can intromit freely with the funds in the account. However, if the bank is on notice of a potential fraud or a breach of trust, that is sufficient to overrule the normal duty of the bank to honour the payment instructions from its customer. That normal duty must give way when the bank is alerted to wrongdoing. Thus, if a bank dishonestly assists wrongdoing, or receives money through a customers' account which it knows it should not receive, it can be liable to those harmed by these actions. That said, in my view the difficulty for Mr Connal is that the present case is not in this line of country, and thus many of the cases relied on by him for his attack on the pursuers' pleadings are not in point. There is no suggestion by the pursuers of any wrongdoing on the part of G & I in lodging or withdrawing monies from the growers' account. The account was being operated in the manner envisaged by the growers and their selling agents. The present action does not involve a bank assisting in wrongful conduct, nor of a bank knowingly receiving money which is the fruit of wrongdoing. Rather it is a case concerning a bank appropriating for its own purposes monies lodged in an account which the pursuers offer to prove was being operated for the ultimate benefit of the principals of the bank's customer, and that this was known to the bank. On the face of it, the admitted name of the account, namely "growers account", is powerful prima facie evidence in support of this position. In other words, this is a case concerning an allegation that the bank simply took funds to which it was not entitled, perhaps misguidedly, rather than from any dishonest intention or bad faith. In unjust enrichment terms, the pursuers' case could be regarded as based on the condictio sine causa. However, the fundamental point is that the pursuers aver that (a) the monies belonged to the pursuers, and (b) the bank had sufficient notice of that fact. In such a case there is no need to require the pursuers to aver dishonesty, nor some separate head of bad faith on the part of the bank.

[17] In discussion during the debate the submission for the bank ultimately came to be that in the absence of averments that either the bank was specifically informed that this was a trust account, or that it expressly agreed that the monies in the account would be protected from the bank itself, the case against the bank is irrelevant. I am satisfied that this is too narrow and restrictive an approach. An express trust account is a classic example of this kind of case, but I was given no authority for the proposition that it is only in respect of a designated trust account that an account can be dedicated to a third party and thus removed from the reaches of the bank should its customer fall into overall indebtedness towards the bank. Indeed the authors of Wallace & McNeil "Banking Law" (10th ed) state at page 11: "The name or heading of an account opened in a customer's name is sufficient notice to the banker of the nature of the account".

[18] In Re Gross,ex parte Kingston James L J began his judgment with the following arresting sentence: "This case has been argued with a courage, a pertinacity, and a learning which it has been melancholy, in my judgement, to see thrown away upon a case so utterly hopeless". So far as I am aware, history does not record the reaction of the unnamed Ipswich County Court Judge who initially upheld the "utterly hopeless case". However, for present purposes it may be instructive to notice wherein the hopelessness lay. James L J explained that a county treasurer had an account with a bank, which was a separate account headed "Police Account". He said "That was as clear and distinct a statement that the monies paid into it were monies belonging to the county, as if he had put the county monies into a strong box labelled 'county monies' ". He concluded that when the county treasurer absconded, the monies standing to the account were as much county monies as if they had been kept in such a box. James L J stressed that the bankers knew that it was a county account. Mellish L J indicated that the name of the account showed that the bank was prepared to treat it as a trust account, and that on the bankruptcy of the customer it belonged to the trust. For these reasons the claim of the bank to retain the monies was rejected in favour of the county. On the face of it, it would be open to the pursuers to approach the present case in exactly the same way. However, the question arises whether the case principally relied upon by Mr Connal, namely Thomson v Clydesdale Bank, requires a different outcome in Scots law. In that case a stockbroker, whose bank account was overdrawn, paid into his account a sum of money by endorsing a cheque received by him from another broker to whom he had sold certain shares, on the instructions from a body of trustees to sell the shares and then invest the price on deposit with certain colonial banks. Within a few days the broker absconded. The account remained in overdraft. The trustees sued the bank for the sum paid in. There was no evidence that the bank knew that the broker had improperly paid the money into his account. The House of Lords affirmed the judgement of the Second Division that the bank was not bound to repay the money to the trustees. It can immediately be noticed that there was no question of the name of the account indicating that it was being operated for the benefit of a third party. Rather the customer was operating his own account in an improper manner, all to the damage of others. Thus the relevant circumstances in Thomson can be distinguished from those in the present action. The trustees argued that the bank had notice that the sum paid in did not belong to their customer, but rather that he held it on behalf of others. However, it was held that any such knowledge would not, in itself, disable a bank from retaining the monies in satisfaction of the customer's debt to the bank. The Lord Chancellor (Herschell) said at 60

"No doubt if the person receiving the money has reason to believe that the payment is being made in fraud of a third person, and that the person making the payment is handing over in discharge of his debt money which he has no right to hand over, then the person taking such payment would not be entitled to retain the money, upon ordinary principles which I need not dwell upon. But in the present case there appears to me to be an absolute absence of any evidence of that kind."

[19] Mr Connal claims support from this passage by noting that equally there is no offer to prove "evidence of that kind" in the present case. However, in my view the pursuers are not obliged to provide such evidence where the case does not depend upon the improper conduct of a customer's account, but rather is based on an account specifically designated as and set up for the benefit of third parties. In such a case, the fact that the payments were made in the ordinary course of the customer's business does not mean that the bank can ignore the interest of the third parties in the account funds, and then use them to reduce their customer's indebtedness to the bank. In Thomson the Lord Chancellor noted that it is common for persons such as stockbrokers to act as principals for others, but that this does not, in itself, prevent them from paying in monies received by them into their own accounts in discharge of a liability incurred towards the bank. However, I consider that it is a very different matter when the monies are paid into an account which the pursuers offer to prove was specifically set up and designated as being for the benefit of third parties, and that the bank knew that. In such a case the preferential interest of the third party is not dependent on proof of the bank having knowledge of wrongdoing by its customer, not least since this type of claim does not presuppose any such wrongdoing. On the other hand, in the circumstances of Thomson, which dealt with an account in the name of the alleged wrongdoer and which was operated for his own purposes, it was entirely appropriate that the trustees required to establish more on the part of the bank before they could succeed, such as specific knowledge that its customer was defrauding the trustees. The concern that, were it otherwise, the business of banking would be burdened by an impracticable obligation of inquiry into the source of funds paid into accounts, does not arise when the account is specifically dedicated to the third party claimant. In Scots law I consider that such cases are most naturally considered and determined in the context of unjust enrichment, where the key feature is wrongful taking, which may or may not involve dishonesty or dishonourable conduct.

[20] All of this is consistent with recent English authority in which a distinction has been drawn between (a) a bank assisting in wrongdoing, and (b) a bank appropriating monies which it should not have taken. In the latter case dishonesty is not a pre-requisite to an obligation on the bank to reimburse the true owner. In Royal Brunei Airlines at 386 F Lord Nicholls commented that "Recipient liability is restitution-based: accessory liability is not." In BCCI v Akindele, Nourse L J discussed whether a banker's knowledge of the interest of the claimant in the funds was such as to make it "unconscionable" that the bank should retain the monies for its own purposes. In that context, it was not essential to prove impropriety on the part of the bank.

[21] For all of these reasons I reject the main submission from Mr Connal. However, even if I am wrong in that, and dishonesty or bad faith on the part of the bank is required, I would have needed more persuading that the averments of the pursuers would not at least entitle them to an inquiry on this matter, given the averments that the bank officers were aware of the nature and purpose of the account. Neither Mr Connal nor Mr Armstrong considered it necessary for me to dwell on whether the averments of constructive trust are apposite. The other complaints on behalf of the bank relate to more detailed issues of specification and lack of proper notice. They did not impress me as being of such a nature or significance as to justify the prevention of a proof before answer on all of the pursuers' averments. On the contrary I consider that there is more than sufficient notice of a relevant case. In the event that I intended to allow a proof before answer, Mr Connal suggested that it might be beneficial to discuss certain procedural issues. Thus, before remitting the case for a proof before answer on all the averments, I shall put the case out By Order to hear parties.


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