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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> First City Monument Bank Plc v Zumax Nigeria Ltd [2019] EWCA Civ 294 (01 March 2019) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2019/294.html Cite as: [2019] EWCA Civ 294 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
BUSINESS LIST (ChD)
Mr Justice Barling
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE NEWEY
and
LORD JUSTICE MALES
____________________
| FIRST CITY MONUMENT BANK PLC |
Appellant (Defendant) |
|
| - and - |
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 ZUMAX NIGERIA LIMITED |
Respondent (Claimant) |
____________________
Mr Francis Collaço Moraes (instructed by Mordi & Co) for the Respondent
Hearing dates: 12-14 February 2019
____________________
Crown Copyright ©
Lord Justice Newey:
Zumax Nigeria Limited ("Zumax"), summary judgment.
Zumax is a Nigerian company which formerly provided engineering and other services to oil companies. It is based in Warri, Nigeria.
Zumax's main banker was IMB, with which it held a Naira-denominated account in Lagos. Zumax also had Naira-denominated accounts with Warri branches of Citibank Nigeria, Standard Trust Bank and Equitorial Trust Bank.
Zumax undertook work would be invoiced in US dollars and asked to pay the money into an account that Redsear Limited ("Redsear), a company incorporated in the Isle of Man, held with Chase Manhattan International ("Chase") in London. Barling J described Redsear as a nominee of Zumax, and it was common ground before us that Redsear held the funds that it received from Zumax's customers on trust for Zumax. Money in the account ("the Redsear Account") would be used to meet Zumax's US dollar business needs, with any surplus funds being transferred to Nigeria.
Zumax itself or (say) to one of the company's suppliers, it would in the first instance be transferred from the Redsear Account to one or other of the Commerzbank accounts. In the case of money destined for Zumax, the plan, according to Zumax, was that it should be credited with Naira to a corresponding value on its account with IMB in Lagos. FCMB, in contrast, maintains that Zumax would often prefer to use an informal "parallel" market which offered a more attractive exchange rate than the official rate. Mr Toyin Owolabi, who was IMB's treasurer and head of treasury/business development between 2000 and 2004, has said in a witness statement that in such circumstances:
"IMB would pay through its local NGN [i.e. Naira] account with Citizens Bank, by issuing a cheque to the customer or paying into one of the customer's local current accounts with another bank in Nigeria or direct to a third party (such as a supplier) as the customer wishes".
| Number | Date of receipt | Amount |
| 1 | 10 May 2000 | $205,000 (less $15 charge) |
| 2 | 11 May 2000 | $105,000 (less $15 charge) |
| 3 | 12 May 2000 | $205,000 (less $15 charge) |
| 4 | 24 July 2000 | $505,000 (less $15 charge) |
| 5 | 8 January 2001 | $355,000 & $250,000 (less $15 charge on each transfer) |
| 6 | 10 August 2001 | $901,000 (less $15 charge) |
| 7 | 23 October 2001 | $410,000 |
| 8 | 24 December 2001 | $155,000 (less $15 charge) |
| 9 | 27 February 2002 | $251,000 (less $15 charge) |
| 10 | 23 April 2002 | $410,000 (less $15 charge) |
Zumax), but it is common ground that he was not acting on behalf of IMB in signing the Redsear instructions (see paragraph 66(vii) of the judgment). To a substantial extent, Mr Chinye's instructions were then reflected in the relevant entries in the statements that Commerzbank produced for the three accounts.
"Beneficiary: International Merchant Bank IMB
for further credit to
Ref: By order of Redsear Ltd UK".
The Commerzbank statement then recorded in respect of the credit entry (for $204,985, after deduction of a $15 charge):
"FOR FURTHER CREDIT TO ZUMA[X] NIGERIA LIMITED BEING USD 205000 LESS OUR CHG
REDSEAR LTD".
Zumax" or "for final credit to Zumax". In the majority of cases, that language was reflected in the entries in the Commerzbank statements (though "for further credit" was abbreviated to "FFC" on two occasions). With the seventh and eighth transfers, however, there was no reference to Zumax in the bank statements. The entry for the eighth transfer, for example, stated:
"RFB [i.e. reference for beneficiary] /BY ORDER/REDSEAR LIMITED//ATTENTION FARRAH UDIN
REDSEAR LIMITED 24 RIDGEWAY STREET DOUGLAS ISLE OF MAN".
Zumax claims a declaration that FCMB is liable to account "as trustee" for the total of the ten transfers (viz. $3,752,000), an order for FCMB to pay the sum found due on the taking of such account, and interest. The amended particulars of claim allege:
"Upon receipt of the said funds IMB, its agent/nominee and its successors (including FCMB) held the said fund on resulting or constructive trust for
Zumax goes on to allege that Zumax never received any of the money and that FCMB therefore "holds the said funds on trust or on constructive trust for Zumax". As regards interest, this is said:
"The sum total of the interest amounts claimed by
Zumax applied for summary judgment. The application was stayed to await the outcome of a dispute as to jurisdiction (which was resolved in Zumax's favour: see [2016] EWCA Civ 567), but eventually came before Barling J in 2017. As the judge explained, Mr Francis Collaço Moraes, who appeared for Zumax (as he also did before us), made clear at the outset of his submissions that the claim was a proprietary one and that the application was made "solely on the basis that a trust in favour of Zumax exists" (paragraph 55 of the judgment). FCMB both denied that there was any trust and advanced a number of other defences. The judge, however, did not consider that there was anything of substance in FCMB's arguments against the existence of a trust (paragraph 83) and concluded (in paragraph 82):
"In the light of the evidential material shown to me, I consider that all the criteria are satisfied for the transfers in question to be impressed with a trust in favour of http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2017/2804.html&query=(
The judge further rejected a suggestion from FCMB that it would be Redsear rather than Zumax that would have the right to enforce any trust, saying (in paragraph 80):
"I consider that such a submission is unsustainable. First, I consider that the settlor was clearly
Zumax summary judgment on all the transfers other than the third and ordered FCMB to pay £2,659,576.89 (the sterling equivalent of $3,507,450 on 10 November 2017). The extent of FCMB's liability for interest was to be determined in a subsequent accounting exercise.
Zumax's claim in respect of the tenth transfer is barred as an abuse of process or by reason of cause of action estoppel and (b) it paid or otherwise accounted to Zumax for transfers other than the tenth. I shall begin, however, by addressing the dispute as to whether there was a trust.
Were the transfers held on trust?
The context
"As a general rule, it has been laid down, that when property is given absolutely to any person, and the same person is, by the giver who has power to command, recommended, or entreated, or wished, to dispose of that property in favour of another, the recommendation, entreaty, or wish shall be held to create a trust.
First, if the words are so used, that upon the whole, they ought to be construed as imperative;
Secondly, if the subject of the recommendation or wish be certain; and,
Thirdly, if the objects or persons intended to have the benefit of the recommendation or wish be also certain."
An express trust thus needs certainty of intention, subject-matter and objects.
"In the present case the intention to create a secondary trust for the benefit of the lender, to arise if the primary trust, to pay the dividend, could not be carried out, is clear and I can find no reason why the law should not give effect to it."
"The lender pays the money to the borrower by way of loan, but he does not part with the entire beneficial interest in the money, and in so far as he does not it is held on a resulting trust for the lender from the outset. Contrary to the opinion of the Court of Appeal, it is the borrower who has a very limited use of the money, being obliged to apply it for the stated purpose or return it. He has no beneficial interest in the money, which remains throughout in the lender subject only to the borrower's power or duty to apply the money in accordance with the lender's instructions. When the purpose fails, the money is returnable to the lender, not under some new trust in his favour which only comes into being on the failure of the purpose, but because the resulting trust in his favour is no longer subject to any power on the part of the borrower to make use of the money. Whether the borrower is obliged to apply the money for the stated purpose or merely at liberty to do so, and whether the lender can countermand the borrower's mandate while it is still capable of being carried out, must depend on the circumstances of the particular case."
"73. A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cashflow. Commercial life would be impossible if this were not the case.
74. The question in every case is whether the parties intended the money to be at the free disposal of the recipient: In re Goldcorp Exchange Ltd [1995] 1 AC 74, 100 per Lord Mustill. His freedom to dispose of the money is necessarily excluded by an arrangement that the money shall be used exclusively for the stated purpose, for as Lord Wilberforce observed in the Quistclose case [1970] AC 567, 580:
'A necessary consequence from this, by a process simply of interpretation, must be that if, for any reason, [the purpose could not be carried out,] the money was to be returned to [the lender]: the word "only" or "exclusively" can have no other meaning or effect.'"
"The borrower's interest pending the application of the money for the stated purpose or its return to the lender is minimal. He must keep the money separate; he cannot apply it except for the stated purpose; unless the terms of the loan otherwise provide he must return it to the lender if demanded; he cannot refuse to return it if the stated purpose cannot be achieved; and if he becomes bankrupt it does not vest in his trustee in bankruptcy. If there is any content to beneficial ownership at all, the lender is the beneficial owner and the borrower is not."
"in deciding whether particular arrangements involve the creation of a trust and with it the retention by the paying party of beneficial control of the monies, proper account needs to be taken of the structure of the arrangements and the contractual mechanisms involved. As Lord Millett stressed in Twinsectra (at [73]) and the judge repeated in [17] of his own judgment, payments are routinely made in advance for particular goods and services but do not constitute trust monies in the recipient's hands. It is therefore necessary to be satisfied not merely that the money when paid was not at the free disposal of the payee but that, objectively examined, the contractual or other arrangements properly construed were intended to provide for the preservation of the payor's rights and the control of the use of the money through the medium of a trust."
"Once the Claimants had paid the monies to the Defendant's HSBC account … they had parted with the monies unconditionally. There was no retention of a beneficial interest by them in the monies in a way comparable to the situation arising from the undertaking set out at Paragraph 9 of the Twinsectra case, or the specific arrangement underlying the loan in Barclays Bank Ltd v Quistclose Investments Ltd (1970) AC 567. What the Swift transfer document required … was the transfer of the monies to the Defendant's account at the HSBC. Once this was done the Claimants had disposed of the monies and had not retained an interest in it. Moreover, the fact that Field 70 of the Swift Transfer Document referred to Trust International as the account within the Defendant to which the monies should be attributed does not suffice to impose a trust obligation on the Defendant vis à vis the Claimants."
When the case reached the Court of Appeal, the claimants did not pursue the Quistclose point: see [2006] EWCA Civ 1492, [2007] Bus LR 220, at paragraph 7.
"The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal, but he is of course answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands."
"We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder…. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked."
"Transfer" (as used in "account transfer"), Staughton J observed in Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728 (at 750), "may be a somewhat misleading word, since the original obligation is not assigned …; a new obligation by a new debtor is created". One chose in action is extinguished or reduced pro tanto, and a chose in action is brought into existence representing a debt in an equivalent sum (see R v Preddy [1996] AC 815, at 834).
The Judge's reasoning
Zumax' or, in the case of three of the transfers 'for final credit to Zumax'". He went on in the next paragraph:
"In my view those unequivocal instructions, conveyed by Redsear/
"Not only were the purpose of the transfer and identification of the beneficiary expressly acknowledged by Commerzbank by the designation in its own documents, which reflected the instructions of Mr Chinye, but by the same token the funds were segregated by being so identified on the face of the Commerzbank account statements. It is clear beyond argument that both Commerzbank and the account holder were aware of this, at the latest, when the funds reached the account."
In the judge's view, there was "clear and uncontroverted support in the evidential material … that funds transferred to the accounts in question were treated by FCMB and Commerzbank as identifiable and segregated" (paragraph 75). The judge further considered that the various matters that he listed in paragraph 76 make "clear that the funds in question were also regarded by FCMB as belonging to Zumax".
The parties' positions
Zumax and not be at the free disposal of IMB. The correct analysis, she maintained, was that IMB never became a trustee but had a personal obligation to credit Zumax with the amounts of the transfers. In any case, IMB would not have known that the transfers were for the benefit of Zumax until it saw the relevant entries in the Commerzbank statements, by which time the funds would already have been IMB's legally and beneficially and it would have been too late to impress them with a trust. The entries in respect of the seventh and eighth transfers, furthermore, did not even mention Zumax. Further, were any transfer to have been subject to a Quistclose trust, it would have been Redsear rather than Zumax which would have been entitled to enforce it.
Zumax's name, as opposed to Redsear's, for the reasons that the judge gave. Mr Moraes further prayed in aid matters relating to (a) interpleader proceedings initiated by Commerzbank in 2003 and (b) what FCMB has said about the tenth transfer.
Analysis
Zumax, without any trust. Redsear will have needed to identify the entity for whose benefit the transfers were made regardless of whether they were to be impressed with a trust. Payers must routinely seek to identify to whom a payment is to be credited without any trust being intended. Abou-Rahmah v Abacha is a case in point.
Zumax banked with IMB, and the basic banker-customer relationship is that of debtor and creditor (see paragraph 25 above). The principle that "money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases" (see paragraph 25 above) is both long-established and fundamental to how banking is carried on. Of course, it is possible for a banker to become a trustee for a customer, but that is very much the exception rather than the rule. In Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, Lord Browne-Wilkinson noted (at 704) that "wise judges have often warned against the wholesale importation into commercial law of equitable principles inconsistent with the certainty and speed which are essential requirements for the orderly conduct of business affairs". In the present case, Zumax's submissions, if accepted, could confuse and complicate the operation of correspondent accounts. After all, were the transfers in dispute held on trust, would it not follow that payments into correspondent accounts must commonly be subject to trusts? It is notable, too, that on Zumax's own case the idea was for IMB to end up owing Zumax equivalent sums (once the money had been credited to Zumax's Naira account with IMB, according to Zumax). If there was to be a personal obligation at that stage, why should it be inferred that Zumax was meant to have a proprietary claim against IMB en route to that destination?
Zumax. I do not myself, however, see them as important. Those identified in sub-paragraphs (i), (ii) and (iii) all involved occasions when IMB/FCMB said that money "belonged" to Zumax or something similar. Thus, sub-paragraph (i) referred to a letter that IMB sent to Commerzbank on 27 June 2002, shortly after the IMB Morgan Account had been frozen (see paragraph 41 below), in which the heading included the words "Re: USD Credits: $409,985.00 Belonging to Zumax Nigeria Ltd." and the writer then said that, if Commerzbank checked through its records, it would appreciate that it had "been receiving payments on their behalf over the years". In sub-paragraph (ii), the judge said that FCMB's defence in the present proceedings contended that relevant funds had been paid to Zumax by bankers' drafts, a contention which, the judge considered, "indicates that they belonged to Zumax". As for sub-paragraph (iii), this was based on the witness statement of Mr Owolabi, who, in the course of explaining the parallel market, remarked that once IMB had made a payment in Naira from its account with Citizens Bank "the dealer would note the amount in the USD account which now belonged to the bank, effectively debiting the customer's allocated amount of funds in the USD account". Aside, however, from the fact that all these matters post-dated the disputed transfers, it is quite possible to speak of money in a bank account "belonging" to the customer even though the money is in truth owed to the customer by the bank. Further, payment by bankers' drafts (or otherwise) is consistent with IMB having had a personal obligation to Zumax. It does not seem to me to tell you anything about whether IMB was a trustee rather than a debtor.
"As the court knows, like any correspondent bank account, the Bank's correspondent bank accounts in London and elsewhere are pooled accounts into which are credited all customer receipts and disbursements without segregation. The monies in these accounts are customer monies and not the bank's own assets, but the injunction seeks to prevent the bank from dealing with the monies in accordance with customers' instructions."
ZUMAX NIG LTD" featured in the entry. Zumax contends that these matters indicate that funds were earmarked. However, the entries in question related to only a very few of the multitude of receipts into the Commerzbank bank accounts (relating both to Zumax and to other customers) and are in any event explicable on the basis that they may in one way or another have helped IMB to keep track of what it owed to customers.
"There are three relevant bases for such a claim, and most of the claimants have a claim (if any) under the first basis, which is that a person who has been defrauded may trace property into the hands of the recipient…. The second basis for a claim is that a payment was made by mistake. Whether a person who has made a payment by mistake has a proprietary claim is by no means clear. But I am satisfied that in a case of this kind, where (as in the case of the payment by Citizens Union Bank) double payment was made at the request of the recipient (IMB Morgan), where there is an identifiable fund, and where the recipient has notice of the claim, it would be unconscionable for IMB Morgan (and in effect the other claimants to the fund) to retain the benefit of that payment…. Third, where money is paid for a purpose which is not fulfilled, the recipient holds the money on trust for the payer: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; Carreras Rothmans Ltd v Freeman Matthews Treasure Ltd [1985] 1 All ER 155. The third head applies to the claims by Mr Vine/Hawick Plant Auctions, and Mr Baker."
Zumax put forward one claim, in respect of the IMB Morgan Account. Lawrence Collins J said this about the claim:
"On April 22, 2002, $410,000 was transferred, on behalf of
Zumax and other claimants received only about 9% of their claims (see paragraph 51 of Lawrence Collins J's judgment).
Zumax had a proprietary interest in the 10th transfer" and that "IMB Morgan itself had made no claim to the monies". I do not myself, however, see the interpleader proceedings as lending any support to Zumax's case on the trust issue. While Lawrence Collins J may have held Zumax to have had a proprietary interest in the tenth transfer, that was on the (mistaken) basis that the money derived from an unrelated fraud perpetrated by Mr Chinye. Zumax did not suggest to Lawrence Collins J (and he did not find) that the tenth transfer, or any of the other transfers now at issue, was subject to either an express trust or a Quistclose trust. Further, it is hardly surprising that IMB Morgan did not assert any claim to money in the IMB Morgan Account when the balance on it was wholly inadequate to meet the proprietary claims, almost entirely founded on fraud, to which it was subject.
Zumax. To my mind, however, this is at most a forensic point, especially since the very skeleton to which Mr Moraes referred made it perfectly plain that FCMB's position was that the transfers at issue were not subject to any trust. The point does not go to the substance of the dispute.
Zumax), IMB was obliged to credit Zumax with them, either through Zumax's Naira account in Lagos or (on FCMB's case) potentially in some other way, via the parallel market. I do not, however, consider that IMB became a trustee. Its obligations were personal.
"The defendant [i.e. the Nigerian bank] received the monies as the agent of its customer to whom it owed duties arising from their contractual relationship."
"it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it".
It is to be noted, moreover, that FCMB said in its appellant's notice that the relief that it was seeking from this Court included an order to the effect that it was not a trustee.
Zumax until it was too late to impress them with a trust and that it would anyway have been Redsear rather than Zumax which would have been entitled to enforce any Quistclose trust. I would not wish, however, to be taken to have endorsed paragraph 80 of the judge's judgment (quoted in paragraph 13 above).
Other matters
Zumax's application for summary judgment was founded on its trust arguments, its particulars of claim also include an allegation that IMB and its successors owed Zumax a fiduciary duty. That allegation is not developed and, as presently pleaded, the relief sought is dependent on the trust claim. However, Miss Melwani did not suggest that we were in a position to rule on whether the claim based on breach of fiduciary duty was well-founded although, if it is to proceed, the particulars of claim will require amendment. I thus need to address two further grounds of appeal that FCMB advances.
The tenth transfer
Zumax should not be allowed to seek relief in respect of the transfer on a different basis in the present proceedings.
"It is clear from [
The judge went on to refer to evidence that "in 2004 the information available to Zumax was limited, and that it was the court not Zumax who identified the receipt of $410,000 into the IMB Morgan Commerzbank Account, and confirmed that Zumax had a proprietary right to the sum" (paragraph 135).
Zumax in fact had all the material it reasonably needed to advance its claim in the interpleader proceedings on an express/Quistclose trust basis. With a view to substantiating that, she seeks permission to adduce new evidence. She submits that, in the circumstances, FCMB has at least an arguable defence, as regards the tenth transfer, of abuse of process or cause of action estoppel.
Zumax cannot be criticised for not asserting in the interpleader proceedings a personal claim such as it is now to take forward in the present proceedings. It could not have availed it to do so since only those with proprietary claims were to receive anything, and then only a small fraction of what they were seeking. As mentioned above (paragraph 41), Lawrence Collins J explained in his judgment that claimants had to "show that they have a proprietary right, i.e. a right in property and not simply a debt due from IMB [Morgan]". In advancing, moreover, a proprietary claim to funds in the IMB Morgan Account, Zumax was not saying anything about whether it had a personal claim against IMB. Zumax cannot, in the circumstances, be said to have renounced whatever personal claim it might have against FCMB. Further, there is no question of FCMB having been prejudiced by Zumax's recovery of a small proportion of the tenth transfer as a result of the interpleader proceedings: Zumax accepted in its particulars of claim that it should give credit for what it received.
Payment
Zumax for the first, second and fourth to ninth transfers.
Zumax but which proved in fact to record "sums which were debited to Zumax's Naira Account with FCMB, and which can be seen to increase Zumax's overdraft" (paragraph 112 of the judgment). By the time of the hearing before Barling J, FCMB was relying on other schedules produced by Mr Chinye, but the judge concluded that FCMB was "clutching at straws" (paragraph 127) and that its payment defence was hopeless. He said this:
"138. In my view there is no substance whatsoever in the current version of this defence, based on a notional set of bankers' drafts which were said arguably to have been issued at about the same time and in the same amounts as, and in addition to, the drawdown payments referred to in the Warri Schedule. There is no evidence that any such additional bankers' drafts existed, and the suggestion that they did is wholly implausible in the circumstances. There is no reason to suppose that further relevant material would become available at a trial or that oral evidence would make a difference. FCMB have identified no issue in this regard which requires a trial. The current bankers' draft defence is hopeless.
139. FCMB have only been constrained to rely on this point because their two earlier defences (the initial denial of receipt of the transfers, and the subsequent Warri Schedule defence) have been shown to be false. FCMB's inability to point to any real evidence in support of the latest defence inevitably falls to be seen in the context of those earlier assertions, which were vigorously made and later abandoned…."
The judge went on to say that an expert report dealing with the parallel foreign exchange market did not affect his view (paragraph 140).
Zumax was paid as a result of parallel market transactions. On that basis, she said, Zumax could be expected to have received sums corresponding to the transfers into one or other of its Warri accounts (none of which was held with IMB).
i) It is inherently probable that Zumax was paid. Mistake is unlikely to provide an explanation for failure to pass on seven transfers made over a period of nearly two years. That leaves fraud, but, while Mr Chinye may have misappropriated other money, there is no reason to suppose that he diverted these sums, which he himself instructed should be transferred for the credit of Zumax. Further, no one else has been identified as the potential fraudster;
ii) Mr Owolabi has confirmed that customers such as Zumax would normally prefer to use the parallel market and that such transactions would not be recorded in a bank's official books;
iii) FCMB's inability to put forward documentary evidence confirming payment to Zumax can also be explained by the fact that FCMB was not itself involved in the transactions but has inherited IMB's rights and duties only through two mergers. It is significant in this context that FCMB has been unable to find bankers' drafts that are known to have existed during the relevant period;
iv) Statements and other records from the Warri banks are not as yet available for the relevant period. The fact that Zumax was able to adduce statements for the Citibank Nigeria account in the Nigerian litigation for early 2003 suggests that material documents could be obtained, but it seems that Zumax has not even asked for them; and
v) Zumax was extraordinarily slow to complain of non-payment, and FCMB has not had the chance to cross-examine Zumax's witnesses about the reasons for this.
i) There is no documentary evidence indicating that Zumax was paid. Transactions on the parallel market such as FCMB suggests must have taken place would have been recorded to some degree at least, but nothing substantiating them has been found;
ii) Zumax does not itself have relevant documents. Its trade books were taken when it went into receivership in December 2002 and were not returned when the receivership came to an end in 2005. Nor does Zumax have bank statements for the Warri accounts for the period when the relevant transfers were made;
iii) A due diligence report on IMB prepared in 2005 when First Inland Bank plc (which became Finbank) was seeking to acquire it found, among other things, "Unethical banking practices", some "fictitious accounts" which were used by management "to warehouse bogus and unauthorised expenses and open, operated and concealed from the regulatory authorities to siphon money out of the bank", a "travelers' cheque scam" and a "Finders fees scam";
iv) Zumax raised queries as long ago as 2002; and
v) FCMB is essentially hoping that something will turn up, and that is not good enough. As Briggs J said in Lexi Holdings v Pannone and Partners [2009] EWHC 2590 (Ch) (at paragraph 4):
"the principle is that, in order to challenge an assertion that a party has no real prospect of success, or of successfully defending, in relation to a claim or issue, it is necessary to do more than say that some evidence currently unavailable might turn up in time for the trial".
i) As Miss Melwani pointed out, there is nothing in the due diligence report to suggest that IMB or anyone working for it was stealing money from customers' accounts, let alone a correspondent account;
ii) The due diligence report confirms that IMB had been engaged in transactions on the parallel market; and
iii) It is appropriate for the Court to ask itself, not merely what is at present available to support FCMB's case, but whether "reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case" (see Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2006] EWCA Civ 661, [2007] FSR 63, at paragraph 18, and Easyair, at paragraph 15(vi)) and whether "there is a sufficient prospect that material will become available in time for trial so as to afford the defendant the real prospect of a successful defence" (Lexi Holdings, at paragraph 4).
Zumax's Warri accounts for the relevant period become available and prove to lend no support to FCMB's case, it may need to re-evaluate its position. As matters stand, however, I have concluded, on balance, that FCMB does have a real prospect of defeating the claim as regards the first, second, fourth, fifth, seventh, eighth and ninth transfers on the strength of the payment defence.
Zumax was paid via its Naira account in Lagos. The document in question is an internal IMB memo dated 16 July 2001 in which Mr Chinye said:
"
I have verified these receivables and hereby grant approval to their request.
Make a draft of GTB or STB payable at Warri in favour of the company today. Company MD will be in the Bank at 6.00 pm to collect same."
With the benefit of this document, FCMB maintains, the sixth transfer can be linked to a credit entry on Zumax's Naira account in October 2001. The point was summarised as follows in one of Miss Melwani's skeleton arguments:
"[T]he memo shows that
Zumax had made. However, the documents in question amounted to 3714 boxes and 114 bags which, while they had some generic labelling on the outside, were not otherwise indexed or catalogued, and the memo was not found at that stage. It came to light when, following Barling J's judgment, FCMB made a "wholesale non-discriminatory search of every document at all three locations, looking for any document anywhere that referred to 'Zumax'", involving 10 people searching through boxes and bags for some 78 days.
i) Zumax was prevented from explaining the Naira 119,369,250 credit in October 2001 by the fact that its records had been taken from it and not returned;
ii) Mr Chinye never suggested that there was a link between the Naira 119,369,250 credit and the sixth transfer;
iii) The documents do not show Zumax to have asked for or needed "a temp OD to accommodate an immediate cash requirement of N100 million". Although one version of the statements for Zumax's Naira account showed it to have a debit balance of some Naira 397 million at the relevant date, other versions belied that;
iv) The sixth transfer was not paid into Commerzbank "within the next week" after 16 July 2001 (when the memo was written), but not until 13 August;
v) There was an interval of two months between receipt of the sixth transfer and the date of the Naira 119,369,250 credit; and
vi) Even using the parallel market, the sixth transfer (of $901,000 less the $15 charge) could not have generated a credit of Naira 119,369,250.
"It may well be that the standard of diligence required of a defendant preparing his case in opposition to a summons for summary judgment, especially if under pressure of time, will not be so high as that required in preparing for trial."
At all events, my own view is that FCMB satisfies the reasonable diligence requirement, in the light of the matters mentioned in paragraph 65 above.
Limitation
Conclusion
Zumax for the first, second and fourth to ninth transfers. In contrast, I would dismiss the appeal on ground 3E (relating to the tenth transfer).
Lord Justice Males:
Lord Justice Lewison:
"But the analogy entirely fails, as it appears to me, when you come to consider the relative situation of a banker and his customer; and for that purpose it is quite sufficient to refer to the authorities, which have been quoted, and to the nature of the connection between the parties … Money, when paid into a bank, ceases altogether to be the money of the principal…; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it.. The money paid into the banker's, is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker's money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places. The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal, but he is of course answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.
That has been the subject of discussion in various cases, and that has been established to be the relative situation of banker and customer. That being established to be the relative situations of banker and customer, the banker is not an agent or factor, but he is a debtor. Then the analogy between that case and those that have been referred to entirely fails; and the ground upon which those cases have, by analogy to the doctrine of trusteeship, been held to be the subject of the jurisdiction of a Court of Equity, has no application here, as it appears to me." (Emphasis added)
"Now, as to the banker: is his position with respect to his customers that of a trustee with respect to his cestui que trust? Is it that of a principal with respect to an agent? or that of a principal with respect to a factor? I see no ground for contending that there is any identity in those two points. I am now speaking of the common position of a banker, which consists of the common case of receiving money from his customer on condition of paying it back when asked for, or when drawn upon, or of receiving money from other parties, to the credit of the customer, upon like conditions to be drawn out by the customer, or, in common parlance, the money being repaid when asked for, because the party who receives the money has the use of it as his own, and in the using of which his trade consists, and but for which no banker could exist, especially a banker who pays interest. But even a banker who does not pay interest could not possibly carry on his trade if he were to hold the money, and to pay it back, as a mere depositary of the principal. But he receives it, to the knowledge of his customer, for the express purpose of using it as his own, which, if he were a trustee he could not do without a breach of trust." (Emphasis added)
"We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked. We also speak of tracing one asset into another, but this too is inaccurate. The original asset still exists in the hands of the new owner, or it may have become untraceable. The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it." (Emphasis added)
"I think that there is only one contract made between the bank and its customer. The terms of that contract involve obligations on both sides and require careful statement. They appear upon consideration to include the following provisions. The bank undertakes to receive money and to collect bills for its customer's account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them."
"In my view those unequivocal instructions, conveyed by Redsear/