IN THE SUPREME COURT
QUEENS BENCH DIVISION (COMMERCIAL COURT)
24th July 2003
Before:
Between:
-and-
-------------------------
Jonathan Nash for the claimant
Lindsey Stewart for the first defendant
Richard Slade for the second defendant
-------------------------
1. There are before the Court three applications: one by the Claimant, Gulf International Bank B.S.C. ('Gulf'), dated 27th February 2003 for summary judgment against the Second Defendant, Wachovia Bank, National Association ('Wachovia'), alternatively against the First Defendant, Albaraka Islamic Bank B.S.C. ('Albaraka'); one by Albaraka dated 28th March 2003 for an order that Gulf's claim be struck out, alternatively for summary judgment against Gulf; and the last by Wachovia dated 7th April 2003 for summary judgment against Gulf.
2. Gulf's application may have been launched in earnest but has since been maintained only, as it was put in the Skeleton Argument submitted on its behalf by Mr. Jonathan Nash, 'in order to protect its position in the event that [Albaraka] succeeds in its application'. Mr. Nash has submitted that, owing to developments since Gulf's application was issued, the issues arising in this action are not suitable for summary determination and that the correct course is for the Court to give directions for a trial of the action. This was suggested on behalf of Gulf to the other parties in correspondence and Wachovia agreed to withdraw its application against Gulf if Gulf agreed to withdraw its application against Wachovia. Gulf maintained its application against Wachovia because Albaraka declined to withdraw its application against Gulf. Hence Wachovia maintained its application against Gulf. However, it is apparent that Gulf's primary submission remains that all the applications (including its own) should be rejected and the action should proceed to trial.
3. Whilst Gulf and Wachovia may not be the most enthusiastic of applicants, in contrast apparently to Albaraka, the measure of detectable enthusiasm which may underlie their applications will not decide them.
4. There is little significant dispute among the parties in relation to the essential background facts.
5. Albaraka maintained a US$ account with Gulf's New York branch. On 20th March 1999, Albaraka, on the application of a Sharjah company called Solo Industries Limited ('Solo'), opened letter of credit T20/99 in favour of an English company called Simetal Limited ('Simetal') in the amount (after amendment) of US$1,887,100. The letter of credit was payable 180 days from the date of negotiation, and was to be advised and negotiated by Wachovia's London branch. By telexed amendment to the letter of credit dated 24th March 1999, the letter of credit was to be confirmed by Wachovia and credit was to be available to Wachovia 180 days after negotiation by acceptance of Simetal's drafts. Wachovia was also authorised by Albaraka to claim reimbursement from Albaraka's US$ account with Gulf in New York.
6. On 29th March 1999 Wachovia accepted the documents presented to it by Simetal. Although the credit was available 180 days thereafter (27th September 1999), Wachovia made an immediate discount payment to Simetal of US$1,821,215.31 in exchange for the documents which it then forwarded to Albaraka.
7. By telex dated 8th April 1999, Albaraka told Wachovia that the documents were in order and confirmed that Wachovia could seek reimbursement from Gulf on 27th September. Also on 8th April 1999, Albaraka advised Gulf's reimbursement department in New York that it was authorised to honour a claim for reimbursement made by or on behalf of Wachovia by debiting Albaraka's account with it, However, by telex dated 1st May 1999, Albaraka cancelled that authorisation and sought Gulf's confirmation of cancellation. On the same day, Albaraka advised Wachovia that the letter of credit was under investigation and requested that Wachovia stop payment under it until further instruction. Albaraka also told Wachovia that any payment made under the letter of credit before further instruction would not be reimbursed. Since it had already discounted the letter of credit on 29th March 1999, Wachovia responded to Albaraka that it would be seeking reimbursement in accordance with Albaraka's telex of 8th April. On 3rd May 1999, Gulf informed Albaraka that it had cancelled the reimbursement authorisation in respect of the letter of credit.
8. After being asked for clarification, Albaraka advised Wachovia by telex dated 7th June 1999 that Solo and its associates were suspected of being involved in fraud. There then followed correspondence between Wachovia and Albaraka in which the latter maintained the suspicion of fraud against Solo and others, and Wachovia maintained that, even if this were correct, having discounted the letter of credit it was entitled to and would claim full reimbursement at the maturity date.
9. On 22nd September 1999, Wachovia informed Gulf that it claimed payment of US$1,887,100 on 27th September pursuant the letter of credit. Because of a procedural error, Gulf overlooked Albaraka's earlier cancellation instructions and on 27th September paid Wachovia the requested sum (less $50 administration fee) by way of a US dollar transfer from its account with Chase Manhattan Bank in New York to Wachovia's account with First Union Bank International. At the same time, Gulf debited Albaraka's account with it with the payment and informed Albaraka accordingly. Albaraka immediately protested and demanded an immediate refund on the basis that the debit to its account by Gulf was unauthorised. On 29th September 1999, Gulf recredited (with value) Albaraka's account with the full amount that had been debited on 27th September. On the same day, Gulf notified Wachovia that the sum had been paid in error and asked for it to be returned. Wachovia refused. There appears to be no real dispute among the parties that Gulf's payment to Wachovia on 27th September was made under a mistake of fact.
10. The reason for Albaraka's actions in canceling Gulf's authority to pay and in seeking to persuade Wachovia not to make any payment pursuant to the letter of credit was that Albaraka had begun to suspect that the bulk of Solo's trade involved fictitious or fraudulent transactions and money laundering activities. This suspicion had a far wider significance than that attaching purely to letter of credit T20/99. Albaraka and a number of other banks, mainly based in the Middle East, had been opening letters of credit, confirmed by Wachovia, over a substantial period on applications made by Solo in favour of a number of companies including Simetal. Albaraka believed that the principals of Solo and Simetal (respectively Mr. Madhav Patel and Mr. Milton Kounnou) were directly implicated in these suspected fraudulent and fictitious transactions. Albaraka was not alone in its suspicions. In July 1999 Albaraka and a number of banks, including Gulf, formed a banking group to investigate the suspected fraud and to attempt to recover the losses sustained.
11. These investigations ultimately led to a number of actions against Wachovia by a number of banks including Albaraka and Gulf, in which the banks alleged against Wachovia that Wachovia had known or had been reckless about whether or not Solo and Simetal had been participating in fraudulent and fictitious transactions. Proceedings were first brought against Wachovia in October/November 2000 by Arab Banking Corporation, Emirates Bank International and Bank Muscat. Then Albaraka, represented by Allen & Overy, commenced proceedings against Wachovia in May 2001. Lastly Gulf, represented by Reynolds Porter Chamberlain, brought its own action against Wachovia in February 2002. On 20th September 2002 Allen & Overy took over from Reynolds Porter Chamberlain the conduct of Gulf's claim against Wachovia. In all actions (save for the Albaraka action), the claimant banks sought damages for fraud against Wachovia. Additionally, Albaraka, which had made no payment to Wachovia in respect of letter of credit T20/99, sought a declaration that it was not liable to do so. The action brought by Gulf did not include any claim to relief in respect of the payment that it had made to Wachovia in relation to letter of credit T20/99, and Allen & Overy received no instructions from Gulf to advance any such claim. As for Wachovia, it denied any complicity in fraud and, in relation to Albaraka's additional claim to declaratory relief in relation to letter of credit T20/99, asserted that Albaraka was indeed not liable to make payment to it in relation to the letter of credit since, it alleged, Albaraka's debt to it in relation to that letter of credit had already been discharged by Gulf's payment on 27th September 1999.
12. The trial of the banks' actions against Wachovia was due to begin on 4th November 2002 with an estimated length of hearing of 24 days. A mediation was arranged to take place on 18th October 2002. Shortly before the mediation, by letter dated 15th October, Reynolds Porter Chamberlain on behalf of Gulf notified Allen & Overy, as solicitors to Albaraka, that according to Gulf an agreement had been made by Gulf with Albaraka in March 2002 to the effect that, if the claim by Albaraka against Wachovia in relation to letter of credit T20/99 was resolved in such a way as to leave a shortfall due to Gulf, Albaraka would make up the difference. Reynolds Porter Chamberlain added that, in the event that Albaraka's claim for declaratory relief against Wachovia were successful, then Wachovia should reimburse to Gulf the monies that it had received pursuant to its payment request, and that any negotiated settlement of the actions should address this. On 17th October 2002, Gulf's solicitors wrote to Wachovia's solicitors, copied to Albaraka's solicitors, and suggested that, because - so they said - a successful claim by Albaraka against Wachovia in relation to the letter of credit would mean that Gulf was entitled to reimbursement from Wachovia whilst an unsuccessful claim would mean that Gulf would be entitled to reimbursement from Albaraka, it was appropriate that they should attend the mediation to represent Gulf's interests in relation to the letter of credit. Reynolds Porter Chamberlain also made it plain that, in their view, if the matter of Gulf's position in relation to the letter of credit were not resolved, that would give rise to continuing litigation among Albaraka, Wachovia and Gulf. Finally Reynolds Porter Chamberlain notified the solicitors for Albaraka and Wachovia that, if the issue were not resolved at the mediation, they had instructions to commence proceedings against both those banks and have such action consolidated with the other claims due to tried in November 2002.
13. Both Albaraka and Wachovia agreed to the participation of Gulf's solicitors at the mediation. However, the mediation was unsuccessful and no compromise was reached.
14. On 21st October 2002, Gulf issued a Claim Form naming Albaraka and Wachovia as first and second defendants respectively. That Claim Form alleged that Gulf's payment to Wachovia on 27th September 1999 was made under a mistake; that Albaraka's liability to reimburse Wachovia in respect of the payment made under the letter of credit was the subject matter of proceedings before the Commercial Court in which the former was alleging fraud against the latter; that, depending on the outcome of those proceedings, Gulf sought repayment from Albaraka or Wachovia; and lastly, that an agreement had been made between itself and Albaraka in March 2002 having the effect already described in Reynolds Porter Chamberlain's letter dated 15th October.
15. The Claim Form was served on Wachovia on 22nd October 2002 and by letter of the same date, Gulf's solicitors invited Allen & Overy to accept service on Albaraka's behalf. However, Allen & Overy did not have or obtain such instructions, and the actions due to be tried on 4th November 2002 proceeded without Gulf's new claim. On 18th November, a senior officer of Albaraka was served with Gulf's Claim Form whilst he was in London to give evidence at the trial. After several days of oral evidence at the trial given by witnesses called by Albaraka and Wachovia, the claimant banks, including Albaraka and Gulf (but the latter only in respect of letters of credit issued by it) reached agreement for the compromise of the proceedings. Gulf was represented by Allen & Overy in connection with the settlement. The settlement agreement, compromising all the disputes in the litigation, was concluded on 25th November 2002.
16. The terms of the settlement agreement were embodied in a confidential schedule attached to a Consent Order dated 25th November. That Order recited the acknowledgement of all the parties to the proceedings (including therefore all the parties to this action with which I am concerned) that '[none of them] nor any of their respective current or former employees, officers, directors or agents acted dishonestly, in bad faith, or with knowledge of or was reckless as to any fraudulent activity committed by any of Madhav Patel, Milton Kounnou, or any employee, officer, director or agent of Solo Industries Limited, Simetal Limited or Hamco, or of any company related to any of these.' During the course of the private hearing of these applications, I was referred to specific provision made in the confidential settlement agreement annexed in the schedule to the Consent Order to cover the consequences of Gulf's separate action against Albaraka and Wachovia in relation to its payment under letter of credit T20/99.
17. In its Particulars of Claim, Gulf maintains its primary claim against Wachovia. That claim has developed since the time when it served its Claim Form because it now espouses as its primary case against Wachovia the proposition first averred by Wachovia in its draft Amended Defence that the claim for restitution against Wachovia is governed by the laws of the State of New York. It appears to be common ground between Gulf and Wachovia that, according to New York law, the principles that apply to resolve the dispute between them are to be found in what is described as the 'discharge for value' rule, as explained and analysed in Banque Worms v. Bank America International (77 N.Y.2d 362, 570 N.E2d 189, 568 N.Y.S.2d 541). It is to be observed in passing that, whilst Wachovia formally required Gulf to prove a mistake in making the payment to it on 27th September 1999, Mr. Richard Slade, who appears for Wachovia in relation to these applications, has accepted in his Skeleton Argument that 'Gulf was acting under a mistake when it paid Wachovia without authority on 27 September 1999, and debited Albaraka's USD account.'
18. Although it has confirmed in its Skeleton Argument in relation to the applications presently before the Court that it has abandoned any claim against Albaraka based on an alleged agreement concluded in March 2002, it still appears that Gulf's claim against Albaraka is secondary to that made against Wachovia. It seems from its pleadings and from what I have been told by Mr. Nash on its behalf that Gulf is seeking to recover from Albaraka on four bases: first, it says that, if it cannot recover from Wachovia, then it is entitled to recover from Albaraka. Secondly, it claims that it is entitled to recover from Albaraka if its payment to Wachovia has or is found to have discharged any liability of Albaraka under letter of credit T20/99. Thirdly, it claims that 'in those circumstances' (which I interpret to mean, if and in the event that Gulf is not entitled to recover from Wachovia whilst its payment to Wachovia has discharged a liability of Albaraka to Wachovia under the letter of credit) Albaraka will have been unjustly enriched by the discharge of its obligation to Wachovia at Gulf's expense. Lastly, it was explained by Mr. Nash in his oral submissions that Gulf also claimed restitution from Albaraka on unjust enrichment principles even if its payment to Wachovia did not discharge any liability of Albaraka to Wachovia under the letter of credit. This last way in which Gulf put its case neither was explicitly pleaded nor featured in Mr. Nash's Skeleton Argument (where, on the contrary, Gulf's case for unjust enrichment appears to have been based solely on its discharge of Albaraka's liability to Wachovia). Moreover, this last way in which Gulf put its case was not significantly developed in the course of the hearing.
19. CPR Part 24.2 provides as follows:
The Court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if
(a) it considers that
(i) that claimant has no real prospect of succeeding on the claim or issue; or
(ii) that defendant has no real prospect of successfully defending the claim or issue; and
(b) there is no other compelling reason why the case or issue should be disposed of at a trial.
20. In the light of the guidance given by Swain v. Hillman [2001] 1 All ER 91 (CA) and Three Rivers DC v. Bank of England [2001] 2 All ER 513, an application under Part 24 should be approached as follows:
i. Part 24 confers on the court an exceptional power since the ordinary principle, which is established to meet the ends of justice, is that disputes are to be resolved at trial on the evidence and after completion of disclosure.
ii. Part 24 is to be applied in the interests of all concerned to dispose of cases or issues that are not fit for trial at all.
iii. The test whether a case or issue is fit for determination on an application for summary judgment is whether there is a real prospect of the claim or defence, as the case may be, succeeding in circumstances where 'real' is to be equated with 'realistic' and contrasted with 'fanciful'.
iv. A Part 24 application is not to be used for the conduct of a mini-trial on the documents chosen to be deployed by the parties without disclosure or oral evidence. Where the case or issue is complex or its determination is time-consuming, the court must be astute not to allow an application for summary judgment to turn into a mini-trial and should consider with care whether or not the application should be permitted to proceed. However, where there is a realistic prospect of benefit to the parties, the court may permit the application to proceed but it will be necessary for it to keep in mind the nature of the exercise that is permissible under Part 24.
21. As I have indicated at the beginning of this judgment, all three parties to this action make applications under CPR Part 24.2. Additionally, Albaraka makes an application upon the somewhat narrower basis under CPR Part 3.4 (2)(a) that Gulf's Particulars of Claim disclose no reasonable grounds for bringing the claim against it.
22. Since, as I have also indicated, it appears that Gulf's claim against Albaraka is secondary and alternative to its primary claim against Wachovia, I shall address the latter first.
23. The New York 'discharge for value' rule underlies both Wachovia's defence to Gulf's claim and also its application against Gulf for summary judgment. Wachovia submits that it applies on the basis that, under English conflicts of laws principles, the governing law in a case of payment under a mistake of fact is the proper law of the obligation, and the proper law of the obligation is the law of the country in which the enrichment occurs: Dicey & Morris, The Conflict of Laws 13th edition Rule 200(2)(c); Chase Manhattan Bank v. Israel-British Bank [1981] Ch. 105. Gulf accepts that there is at least a good argument that Wachovia is right in its analysis of the governing law, and that New York may therefore apply.
24. Wachovia and Gulf have both adduced expert evidence on New York law in the form of letters of opinion addressed to their respective solicitors. Wachovia relies on the opinion of Mr. Craig P. Murphy of Windels Marx Lane & Mittendorf LLP expressed in letters dated 26th March and 18th June 2003. In the first, Mr. Murphy proceeded on the assumption that Albaraka was obligated to reimburse Wachovia under the letter of credit in respect of the payment that Wachovia had made to Simetal on 29th March 1999. Mr. Murphy explained the 'discharge for value' rule and concluded that, in the case of a mistaken payment by electronic transfer to a beneficiary, if the beneficiary received the funds in circumstances where it was entitled to them and without knowledge that they had been erroneously provided, the beneficiary would be entitled to retain them. In the second, Mr. Murphy addressed the hypothesis that the beneficiary may not have been entitled to receive the funds but nevertheless received them in the belief that it was entitled to them. He concluded (in terms that reflected his view of how a New York court would decide but which can be seen also to reflect his own opinion on the applicable principles of New York law) that, if a beneficiary received funds in good faith in the regular course of business and for valuable consideration, and without notice of a mistake on the part of the paying party, the beneficiary would be entitled to keep them.
25. Gulf relies on the opinion of Mr. Martin Domb of Hill, Betts & Nash LLP expressed in a letter dated 9th May 2003. Mr. Domb set out his opinion on what would have to be proved in the application under New York law of the 'discharge for value' rule. First, if Gulf makes out its case that it made the payment to Wachovia under a mistake, then it will have established a prima facie case to recover the payment from Wachovia under the law of restitution. Secondly, it would then be for Wachovia to prove (a) that it received the payment in satisfaction of a valid debt owing to it from Albaraka (b) that it made no misrepresentation (presumably to Gulf to induce the payment) and (c) that it had no knowledge or notice that Gulf had made the payment under a mistake.
26. Gulf did not adduce any evidence of expert opinion in rebuttal of Mr. Murphy's second letter. It became clear, however, through Mr. Nash's submissions at the hearing, that its real attack on Wachovia's defence was concentrated on the issue whether Wachovia received the payment from Gulf without knowledge or without being on notice that it was made under a mistake. This is, of course, an issue of fact. Wachovia has adduced in evidence the witness statement of Mr. Hall who at the relevant time worked in Wachovia's Trade Finance department. On the basis of the documents that I have seen, in the absence of disclosure and oral evidence which may be tested in cross examination, I do not feel that I can conclude that either Gulf's claim against Wachovia under New York law or Wachovia's defence based on the 'discharge for value' rule has no real prospects of success. It seems to me that it is plainly arguable, and by no means fanciful, that Albaraka's communications to Wachovia on 1st May and 7th June 1999 put Wachovia on notice that payment was not going to be made to reimburse Wachovia in respect of its discounting of the letter of credit; and that, when it received payment from Gulf on 27th September 1999, such payment had been made under some mistake. It may be that Mr. Hall or, if it is relevant, a reasonable person in Mr. Halls' position, would have thought, when payment was received, that it was because Albaraka had concluded that it was obliged to procure payment on the maturity date under the letter of credit, especially in view of the fact that Wachovia had discounted the letter of credit before being warned of Albaraka's suspicions of fraud and of the fact that the letter of credit was an acceptance and not a deferred payment credit. However, I am not in a position to come to any final conclusion on this issue by undertaking a mini-trial of it on the basis of documents and untested witness statements alone. Therefore, unless it is unrealistic to suppose that Wachovia cannot establish any one of the other ingredients of the 'discharge for value' rule, or any extension of them that might sustain Wachovia's defence, the claim by Gulf against Wachovia is, to my mind, clearly one that should be resolved at trial on the evidence and after completion of disclosure.
27. In relation to those other ingredients, it is unclear to me on the state of the evidence of New York law that has been presented for the purposes of these applications whether the 'discharge for value' rule applies only in circumstances where the payment is effective to discharge a valid debt (an issue which is likely in my view to be governed by English law, and about the answer to which there can in my view be no realistic dispute: see paragraph 36 below); or also in circumstances where the payment is received by a creditor and accepted to be in discharge of a valid debt even though it may not in law achieve such discharge. While certain statements in the leading case of Banque Worms v. Bank America International (77 N.Y. 2d 362, 570 N.E. 2d 189, 568 N.Y.S. 2d 541) indicate that the rule applies only where a debt has actually been discharged (hence the name 'discharge for value'), other statements in that and other New York cases suggest that it might be more complex. For example, it is suggested that, where a bank has made payment under the mistake that it had been instructed by its customer, the debtor, to do so and where that payment has been received and treated by a creditor as a discharge of the debtor's indebtedness, the bank may in certain circumstances be subrogated to the creditor's rights against the debtor 'on the obligation paid by the [debtor's] Bank'. Unless in this example the basis of the subrogated claim, as recognised under New York law, were that the bank was entitled to claim restitution on the ground of unjust enrichment, this suggests that the payment will not in law have had the effect of discharging the indebtedness of the customer to the creditor: if it were otherwise, there would necessarily be a question over whether there remained any rights of value to which it was possible for the bank to succeed (other than rights over any relevant security) for the purposes of making a subrogated claim against its customer, the debtor.
28. The matter is made more complex by further issues that have been identified as arising for determination in the event that Wachovia may not have been entitled to payment under the letter of credit but nevertheless received it from Gulf in the belief that it was entitled to such payment (a fortiori where Wachovia was entitled to payment under the letter of credit but the payment by Gulf did not have the legal effect of discharging Albaraka's indebtedness): namely, whether, under New York law principles, Wachovia should be entitled to keep it on the grounds that it had provided value or good consideration for the payment, or could be said to have changed its position because of Gulf's payment. Mr. Slade accepts on behalf of Wachovia that these additional issues may raise matters of foreign (i.e. New York) law but submits that the answer to them appears in the evidence in Mr. Murphy's second opinion letter to which, Mr. Slade says, there has been no challenge. The opinion expressed by Mr. Murphy in his second letter appears to require an extension to the 'discharge for value' rule set out by the Federal Court in the leading case of Banque Worms v. Bank America International (77 N.Y. 2d 362, 570 N.E. 2d 189, 568 N.Y.S. 2d 541) but appears to find some support from the statements made in that and other cited cases. I do not consider that I am in a position to accept that extension as an accurate representation of New York law without having a proper opportunity of evaluating the relevant principles and properly testing Mr. Murphy's opinion against relevant source material and authorities. I may not regard Wachovia's arguments on these issues as particularly compelling on the material that has been presented on these applications but I certainly do not regard them as fanciful or unarguable.
29. Therefore, I do not consider that I am in a position to say that Wachovia has no realistic prospects either on New York law or on the facts of making out its defence based on the 'discharge for value' rule or an extension of it; nor does it remotely appear to me that Gulf's prospects of success against Wachovia are fanciful. For those reasons, I do not consider that summary judgment is appropriate to be given on either Gulf's claim or Wachovia's defence.
30. I have not considered it necessary at this juncture to address the position between Gulf and Wachovia under English law. This is not so much because, as it seems to me on a brief encounter with the proposition, the issues arising between Gulf and Wachovia are governed by the laws of the State of New York as because of Gulf's acceptance that there is at least a good argument that New York applies. In those circumstances, it is clearly not fanciful to proceed on that basis (save to the extent that the issue of whether the payment by Gulf discharged an indebtedness owed to Wachovia by Albaraka might be governed by English law). If, under New York law, triable issues arise between the parties (as I have found they do), summary judgment is inappropriate.
31. Mr. Nash identifies in his Skeleton Argument on behalf of Gulf the issue which, he says, arises between Gulf and Albaraka, in the following terms: 'If Wachovia does have a defence to [Gulf's] claim for repayment under either English law or New York law, does [Albaraka] have any defence to [Gulf's] claim for reimbursement of the mistaken payment (under either system of law)?'
32. The first basis upon which Gulf says in its Particulars of Claim that it is entitled to recover against Albaraka is that it is not entitled to recover the payment from Wachovia. Miss Lindsey Stewart, who appears on behalf of Albaraka, submitted that the mere fact that Wachovia is not liable to Gulf does not, in and of itself, render Albaraka liable. I agree. There must be something additional. The question is what, if anything, additionally is alleged to arise as between Gulf and Albaraka to make the latter liable to the former if and in the event that Wachovia has no liability?
33. It appears that the additional feature sought to be relied upon by Gulf is to be found in the second way in which Gulf advanced its case: namely on the basis that, by making payment to Wachovia, it is submitted Gulf discharged a liability of Albaraka to Wachovia in relation to the letter of credit. Gulf proceeds from that premise to the third way in which it proposes to make out its case: namely, on the basis that, in circumstances where its payment to Wachovia discharged a valid debt owed by Albaraka, Gulf has a claim for reimbursement against Albaraka under New York law or a claim for restitution against Albaraka under English law.
34. The problem for Gulf in this context is the establishment of the premise: namely, that by making payment to Wachovia, Gulf discharged a liability of Albaraka in relation to the letter of credit. Gulf would have to prove two elements: first, that Albaraka owed a liability to Wachovia in relation to the letter of credit; and, secondly, that Gulf's payment discharged that liability.
35. In relation to the first, it seem to me at least realistically arguable (if not correct) that, by virtue of the terms of the settlement agreement made by Albaraka with Wachovia and Gulf, in which it was explicitly agreed that no party to the proceedings, including Wachovia and any of its relevant officers or employees, had acted dishonestly, in bad faith or with knowledge of any fraudulent activity committed by any of Mr. Patel, Mr. Kounnou or any employee or agent of Solo, Simetal or Hamco, Albaraka cannot deny that it was liable to Wachovia in relation to the discounted (acceptance) letter of credit. This is because (a) having entered into the settlement in those terms and in circumstances where it was aware that Gulf would be seeking relief against it in the event that that the outcome of those proceedings was a finding that Wachovia had not been party to any fraud, it seem to me likely that Albaraka is now estopped from denying the truth of those terms: Greer v. Kettle [1938] A.C. 156; and (b) it seems likely to me that the risk of fraud by the beneficiary being proved in the period between discounting and maturity under an acceptance letter of credit was borne by Albaraka and not by Wachovia, even assuming (contrary to what appears to me from the documents in evidence before the court) that there was clear evidence of fraud by the beneficiary in that period: c.f. Banco Santander SA v. Bayfern Ltd. [1999] 2 All ER (Comm) 18.
36. However, in relation to the second, it seems to me that Gulf has an insuperable difficulty. Under English law (as it appears Mr. Nash and those instructing him have correctly accepted either in submission or in correspondence), in the absence of compulsion, discharge by one person of another's debt will only occur if the debtor authorised or subsequently ratified the payment by that person: Goff & Jones, The Law of Restitution 6th edition paras. 1-018, 15-002, Crantrave Ltd. v. Lloyds Bank plc [2000] Q.B. 917. It is clear on the undisputed facts of this case that Albaraka did not authorise or ratify Gulf's payment to Wachovia. On the contrary, Albaraka expressly withdrew Gulf's instructions to pay and Gulf expressly acknowledged that withdrawal; and, following Gulf's payment, Albaraka did the opposite of ratifying the payment: rather than adopting the payment, it protested that it had been made without authority and it took issue with Wachovia's statements that the payment had discharged any liability to Wachovia in relation to the letter of credit.
37. Mr. Nash has suggested that Gulf's position may be better under New York law. However, Mr. Nash did not explain why New York law should govern the specific questions whether a liability was owed by Albaraka to Wachovia and whether Gulf's payment was effective to discharge that liability. He did not refer to any English conflicts of laws principles that would be relevant to these questions and Gulf's Particulars of Claim do not appear to suggest that those specific questions are governed by anything other than English law. This is in contrast to the facts that all the relevant dealings between Albaraka and Wachovia in relation to the letter of credit appear to have taken place between Albaraka in Bahrain and Wachovia in London; that the beneficiary of the letter of credit was in England; that the negotiation, acceptance and payment were to take place in England; and that the characteristic performance of the contract between Albaraka and Wachovia (namely, payment by Wachovia to the beneficiary) was to take place in England. I conclude that I should, therefore, approach the specific questions on the basis that their determination depends on English as the governing law. On that basis, as I have already indicated, I conclude that the payment by Gulf to Wachovia was not effective to discharge any liability owed by Albaraka to Wachovia. Any contrary argument under English law has no real prospect of success.
38. Mr. Nash's submission that Gulf's position is improved under New York law originates from the analysis which he advances to the effect that, if Wachovia succeeds on 'discharge for value' principles under New York law, it can only be because it will have succeeded in establishing that Gulf's payment to Wachovia discharged a debt owed by Albaraka to Wachovia. Thus, he says, the court will have had to have concluded that, by making payment to Wachovia, Gulf discharged a liability of Albaraka in relation to the letter of credit. However, for the reasons that I have expressed above, I do not think that that is necessarily correct.
39. Moreover, if it were to be correct, it would not be, for reasons that I have already stated, because of the application of English law. As I have indicated above, Mr. Nash has not explained the basis of any suggestion that the question whether Gulf's payment to Wachovia was effective to discharge a valid debt owed to the latter by Albaraka is governed by any law other than that of England. Nor has he identified to me any principles of any legal system other than that of England that might apply, or suggest how they should or might be applied in this case. The expert evidence of New York law adduced on behalf of Gulf does not directly address or answer the question whether, in circumstances (a) where Gulf had no authority from Albaraka to make the payment, (b) where it had confirmed to Albaraka it had cancelled the reimbursement authorisation, and (c) where after learning that payment had been made despite its revocation of Gulf's authority, Albaraka explicitly disavowed such payment as having been made on its behalf or as having had the effect of discharging any liability that it might be alleged to have to Wachovia, New York law would nevertheless conclude that the payment had the effect of discharging a valid debt owed by Albaraka to Wachovia. In this context, I do not ignore the fact that, in his written submissions on behalf of Gulf, Mr. Nash suggested that New York law applied to Gulf's claim against Albaraka for unjust enrichment. However, those submissions did not address the question of the governing law applicable to the separate and discrete question whether Gulf's payment to Wachovia was effective to discharge a valid debt owed to the latter by Albaraka. Nor do I ignore that fact that, in his oral submissions, Mr Nash did make the suggestion that New York law applied to that question. However, he was unable to offer any sustainable reason why that should be the case.
40. Therefore, I conclude that Gulf has no real prospect of success in either the second or the third ways in which it put its case for reimbursement from Albaraka. This leaves the fourth and last basis on which it advanced its claim against Albaraka: namely, that Albaraka is liable to make restitution to Gulf on unjust enrichment principles even if Gulf's payment to Wachovia did not discharge any liability of Albaraka under or in relation to the letter of credit. This way of putting its case has not found its way into Gulf's Particulars of Claim or in Mr. Nash's written submissions but I propose to deal with it nonetheless.
41. The fact that Gulf made a payment to Wachovia that may have benefited Albaraka is insufficient by itself to entitle Gulf to seek restitutionary relief from Albaraka. As Clauson L.J. said in In re Cleadon Trust Ltd. [1939] Ch. 286, 323-4:
It is to be observed that the equity cannot operate against C (the company or the principal) merely because C has in fact received a benefit from B's action in providing the money: that fact alone, as Falcke's case has settled (so far as this court is concerned), would not set up an equity against C. The equity must, it would seem, arise from the fact that C, by himself or by a person authorised to act, in the matter of payment of C's debts, for C, has used the money so as to obtain a benefit for C. The benefit has not been an unsought benefit conferred on C behind his back. It is a benefit which C has obtained for himself by using (either himself or by his agent) A's money as his own. It is his conduct in so using A's money which makes it unconscientious that he should retain the benefit while refusing recognition of A's just claim to recoupment.
42. In Crantrave Ltd. v. Lloyds Bank Plc [2000] Q.B. 917, (a case where a bank had made an unauthorised payment to the creditor of a customer and had then sought to debit the customer's account) the Court of Appeal treated In re Cleadon Trust Ltd. 'as authority for the proposition that, in the absence of authorisation or ratification by the company [in this case, Albaraka] of the bank's [in this case, of Gulf's] payment to the third party [in this case, Wachovia], the 'mere fact' that the bank's payment enured to the benefit of the company does not establish an equity in favour of the bank against the company.' Nonetheless Pill L.J., at page 924 of the report, did admit of circumstances 'in which a court may intervene to prevent unjust enrichment either by the customer in having his money from the bank as well as having the claim of his creditor met'. Because it was unnecessary for his decision, Pill L.J. did not identify what those circumstances might be. It is suggested in Goff & Jones at paragraph 3-051 that those circumstances might include a case where the third party creditor, having been paid, does not sue the debtor and the party who made the unauthorised payment is unable to recover it from the creditor on the basis of a total failure of consideration. But the burden of proving an unjust enrichment on the evidence is firmly on the party who made the unauthorised payment (in this case, Gulf). Gulf has not adduced any realistically sustainable evidence that Albaraka was enriched as a result of the payment or that, if there was any such enrichment, it was unjust. It is certainly correct that Albaraka brought a claim for declaratory relief against Wachovia that it was not liable to pay Wachovia in relation to the letter of credit; that Wachovia did not contest that claim on the basis, so it averred, that the payment had gone to discharge a liability owed to it by Albaraka under the letter of credit; and that the claim was one of many which were ultimately settled on certain terms. But these facts, in and of themselves, do not offer a sustainable basis for a case of unjust enrichment, and Gulf failed to supplement them with any further evidence such as might justify a conclusion that it had real prospects of success in relation to this unpleaded and largely unargued case. Accordingly, I reject the possible fourth way in which Gulf might have advanced its case against Albaraka.
43. Further in support of its applications, Albaraka submitted it would be an abuse of process in the proceedings against it if Gulf were permitted to introduce the issue of Albaraka's liability under the letter of credit. Miss Stewart, who appeared on behalf of Albaraka, suggested that, if it were permitted to do so, Gulf would be re-opening an issue that was litigated at length and at great expense in the earlier proceedings to which, and to the settlement of which, Gulf was a party.
44. I do not consider that, by bringing its claims in these proceedings, the process of the court is being abused. As Lord Bingham pointed out in Johnson v. Gore-Wood [2002] A.C. 1, 31 B-E, what is required is 'a broad merits based judgment which take account of the public and private interests involved and also takes account of all the facts of the case ...'
45. It might, of course, have been possible for Gulf to incorporate its claims against Wachovia and Albaraka in the earlier proceedings, or have them tried at the same time as or immediately following those proceedings, even though that against Albaraka would have been a contingent one against a co-claimant in those proceedings. Probably it should have done so although I am bound to say that, if it had done so, and the claims and defences had developed as they have in these proceedings, they would have been an unwelcome distraction from the principal issues arising in those earlier proceedings and it might well have proved to be impracticable to have them dealt with at the same time. In any event, Wachovia and Albaraka were fully aware of Gulf's claims against them when the trial of the earlier proceedings began and when those proceedings were settled; and were fully alive to the fact that, if those claims were not resolved in the course of, or at the same time as, those earlier proceedings, then they could expect to have to defend them in the separate action that had already either been served on them or otherwise been brought to their attention. The fact that Gulf's claims were in the forefront of their minds is not only reflected in the terms of the confidential settlement agreement but also in other communications and correspondence passing between the parties' solicitors to which I was referred at the private hearing. It is true that Gulf's claims have developed considerably in the Particulars of Claim since the time when they were first formulated in Gulf's Claim Form. Nevertheless, it was with Gulf's claims well in mind that Albaraka and Wachovia determined to come to terms and determined that it should be agreed by all parties that none of them had acted dishonestly or in bad faith or with knowledge of any relevant fraudulent activity by any third party. Thus, it does not appear to me that, whilst Gulf might be re-opening an issue which was the subject-matter of the earlier proceedings (namely, that of Albaraka's liability under the letter of credit), it would be correct to say that its determination in the context of these proceedings is anything other than that which was contemplated. It would also be wrong to describe the issue as having to be re-litigated as though there might have to be some far-reaching exercise duplicating what had occurred in the earlier proceedings and giving rise to a risk of inconsistent results: it is clear from the material that has been put before the court that the issue of Albaraka's liability to Wachovia will be determined on the basis of the brief facts agreed among all the parties in their settlement agreement, and of the legal principles to be applied to those agreed facts. On the basis of all the facts, it seems to me clear that, whilst I should and do give full recognition to the public interest that there should be finality in litigation and that parties should not be vexed more than once in the same matter, Gulf would not be abusing the process of the court if it were permitted to raise in these proceedings the issue of Albaraka's liability under the letter of credit.
46. In the light of the above, I dismiss Gulf's and Wachovia's applications for summary judgment against each other and Gulf's application for summary judgment against Albaraka, and I grant Albaraka summary judgment on its application against Gulf. I decline to make an order in Albaraka's favour under CPR Part 3.4(2)(a).
47. I shall welcome the assistance of counsel on the terms of the appropriate orders that follow from my judgment, all issues of costs, and such other directions as they might consider appropriate.