Royal
Courts of Justice
Strand
London, WC2
Wednesday, 18th February 2004
B E F O R E:
-v-
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MR J
NASH (instructed by REYNOLD PORTER CHAMBERLAIN) for the Claimant
MISS L STEWART (instructed by ALLEN & OVERY) for the First Defendant
MR R SLADE (instructed by CMS CAMERON MCKENNA) for the Second Defendant
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1. Introduction
2. This is an appeal by Gulf International Bank BSC ("Gulf") against an order made on 24th July 2003 by Mr Gavin Kealey QC sitting in the Commercial Court as a Deputy Judge of the High Court. The respondent to the appeal is Albaraka Islamic Bank BSC ("Albaraka") which was the first defendant in the action. The second defendant in the action was Wachovia Bank National Association ("Wachovia") which was formally called First Union National Bank.
3. The judge considered a number of applications for summary judgment. Gulf made applications for summary judgment against both Albaraka and Wachovia, each of which made applications for summary judgment against Gulf. The judge refused both Gulf's application against Wachovia and Wachovia's application against Gulf. It follows that Gulf's action against Wachovia will proceed and the judge gave detailed directions in that regard. Neither Gulf nor Wachovia appeals against those orders.
4. This appeal arises out of the orders made as between Gulf and Albaraka. The judge dismissed Gulf's application for summary judgment against Albaraka but allowed Albaraka's application for summary judgment against Gulf and accordingly dismissed Gulf's claim against Albaraka. I note in passing that the judge refused Albaraka's application to strike out Gulf's claim against it under CPR 3.4(2). The judge refused Gulf's application for permission to appeal but I subsequently granted it on paper and this is the hearing of that appeal. It is important to note that on this appeal Gulf is not seeking summary judgment against Albaraka but submits that the orders giving judgment to Albaraka and dismissing Gulf's claim against Albaraka should be set aside.
5. It follows that if the appeal succeeds Gulf's claims against both Albaraka and Wachovia will go ahead whereas, if it fails, Albaraka will drop out of the action. It is fair to say that it was always Gulf's case that the appropriate course was for all issues to be determined at a trial between Gulf, Wachovia and Albaraka.
The Facts
6. The facts are set out between paragraphs 4 and 16 of the judgment and are not significantly in dispute. I can therefore state them comparatively shortly and do so principally on the basis of the judgment. On 20th March 1999, on the application of a Sharjah company, called Solo Industries Limited (" Solo"), Albaraka 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 to be advised and was later confirmed by Wachovia and credit was to be available to Wachovia 180 days after negotiation by acceptance of Simetal's drafts. Wachovia was authorised by Albaraka to claim reimbursement from Albaraka's US dollar account with Gulf in New York.
7. On 29th March Wachovia accepted the documents presented to it by Simetal. Although the credit was available 180 days thereafter, that is on 27th September, Wachovia made an immediate discounted payment to Simetal of US $1,821,215.31 in exchange for the documents which it then forwarded to Albaraka. Wachovia's case throughout has been that, having accepted conforming documents, it was bound to pay Simetal and entitled to recover the amount of the credit from Albaraka. Albaraka reserves the right to say that Wachovia was not bound on acceptance and that Wachovia was under no obligation to pay under the credit if fraud came to light before the due date for payment, but it is common ground that that issue is not relevant on an application for summary judgment.
8. On 8th April 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, Albaraka advised Gulf 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. By telex dated 1st May, sent to Gulf, Albaraka cancelled its authorisation to pay and sought Gulf's confirmation of the cancellation. On the same day Albaraka advised Wachovia that the letter of credit was under investigation and requested Wachovia to stop payment under it until further instructions. Wachovia replied to Albaraka that it had already paid and that it would be seeking reimbursement in accordance with Albaraka's telex of 8th April. On 3rd May Gulf informed Albaraka that it had cancelled the reimbursement authorisation in respect of the letter of credit.
9. After being asked for clarification, Albaraka advised Wachovia by telex dated 7th June 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 that were correct, having discounted the letter of credit, it was entitled to and would claim full reimbursement at the maturity date.
10. On 22nd September Wachovia demanded payment from Gulf of US dollars $1,877,100 (US) for value 27th September pursuant to the letter of credit. Because of a procedural error Gulf overlooked Albaraka's earlier cancellation instruction and on 27th September it paid Wachovia the requested sum less a $50 administration fee by a transfer from its account with Chase Manhattan Bank in New York to Wachovia in New York. At the same time Gulf debited Albaraka's account with it 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 28th September Gulf notified Wachovia that the sum had been paid in error and asked for it to be returned. On 29th September Gulf recredited with value Albaraka's account with the full amount which had been debited on 27th September. On 30th September Wachovia refused to make repayment to Gulf saying "we are treating the sum ... received from you ... as reimbursement under [the letter of credit]".
11. In due course proceedings were commenced between Wachovia and Albaraka in which Albaraka sought declarations that it was not indebted to Wachovia under the letter of credit because Wachovia was implicated in a fraud being conducted by the beneficiary, Simetal. Wachovia defended those proceedings by admitting that Albaraka was not indebted to it because it, Wachovia, had received payment from Gulf under the letter of credit. Those proceedings were compromised by a settlement agreement which was concluded on 25th November 2002. The terms of that agreement were agreed to be confidential between the parties and I shall refer to it only so far as absolutely necessary.
12. The judge observed at the end of paragraph 16 of his judgment that it was clear from the evidence to which he was referred that Albaraka's solicitors, Allen & Overy, expected and intended that the resolution of discrete issues arising in relation to the letter of credit T20/99 should be left over and dealt with among all three parties on some later occasion.
13. The present proceedings were issued on 21st October 2002. In them Gulf sought repayment of the payment from Wachovia on the basis that the money paid to it had been paid by mistake or, alternatively, from Albaraka on the basis that, if it was precluded from recovering the sum from Wachovia, then it must be entitled to reimbursement from Albaraka.
The Proceedings
14. In its particulars of claim Gulf asserted that its primary claim lay against Wachovia for repayment of money paid under a mistake of fact. It pleaded in the alternative that it was entitled to claim reimbursement of the money from Albaraka in the event that it was not entitled to recover the sum from Wachovia and/or in the event that its payment to Wachovia was found to have discharged any liability of Albaraka under the letter of credit.
15. In its defence Albaraka denied any liability to make reimbursement to Gulf. Apart from pointing out that the payment had been made without its authority, the principal ground for resisting the claim was that Gulf had in fact recredited Albaraka's account with the amount of the payment with value on 27th September 1999 and this was said to refute Gulf's claim.
16. Wachovia's defence included the following:
Wachovia had provided good consideration and Wachovia accepted the reimbursement in discharge of that debt and/or in good faith and/or without knowledge or notice of Gulf's alleged mistake and/or without knowledge or notice that Albaraka had revoked Gulf's authority to discharge the debt to Wachovia.
The debt alleged to be discharged was Albaraka's liability as issuing bank to Wachovia as confirming bank, which had paid under the letter of credit. It was said that Gulf was not entitled to claim repayment of the monies from Wachovia. Wachovia also relied upon the fact that the proceedings between it and Albaraka had been settled by an agreement which precluded any determination of the actual liability arising under the letter of credit. At that stage, neither Albaraka nor Wachovia pleaded any foreign law. The judge noted in his judgment that there was no serious dispute that the payment which Gulf had made to Wachovia had been made by mistake.
17. Gulf initially relied upon English law. It issued an application for summary judgment against Wachovia, alternatively against Albaraka. Albaraka was joined on the basis of Wachovia's plea that the payment discharged the debt owed under the letter of credit. In these circumstances, I would accept Mr Nash's submission that it was prudent to join Albaraka in case the court were to conclude that Gulf was precluded from recovering its money from Wachovia by reason of the alleged discharge.
18. After the application had been issued, as already indicated Albaraka and Wachovia issued their own applications for summary judgment against Gulf. Wachovia also served a draft amended defence, asserting for the first time that the question whether or not Wachovia should be bound to make reimbursement to Gulf was governed by New York law and that under New York law a "discharge for value" defence was available to it.
19. The thrust of this defence is that, if the recipient of a mistaken payment (here Wachovia) accepts it in discharge of a debt owed to it (here by Albaraka) in good faith and without notice of the mistake, then the mistaken payer (here Gulf) is not entitled to claim repayment.
20. In response to this Gulf prepared its own draft amended particulars of claim asserting that, if Wachovia were correct in its analysis of the law of New York and made out the facts necessary to sustain the discharge for value defence, then Albaraka would be liable to make repayment to Gulf. I should note in passing that Gulf puts it claim against Wachovia under both English law and New York law in the alternative. However Gulf accepts and the judge held that it is at least arguable that New York law applies as between Gulf and Wachovia.
21. Expert evidence as to New York law was served by Wachovia in support of its case on New York law. Gulf responded with its own expert evidence of New York law which broadly agreed with the legal analysis of the claim between Gulf and Wachovia set out above. So far as the claim against Albaraka was concerned, Gulf's expert expressed the view that in the event that Wachovia's discharge for value defence succeeded, then Gulf would have a claim against Albaraka which New York law would analyse as arising by way of subrogation to Wachovia's claim against Albaraka.
22. Some four days before the hearing of the application for summary judgment, Wachovia served further expert evidence suggesting that the discharge for value defence was available to it, even if Wachovia were not able to assert that there was in fact a debt owed to it by Albaraka because it had bound itself not to make the assertion by reason of the settlement agreement. This appears to have been on the basis that Wachovia could retain the payment because it had accepted and performed a payment obligation to the beneficiary of the letter of credit (Simetal) and that this constituted "good consideration" justifying its retention of funds.
Discussion
23. As between Gulf and Wachovia the applications for summary judgment were, as already stated, dismissed. The judge held that the existence of the discharge for value defence gave rise to issues of fact: in particular (a) whether it is necessary for the defence to be made out that the receipt of the mistaken payment by Wachovia should in fact discharge the indebtedness owed to the recipient and (b) whether or not Wachovia knew or had noticed that the payment was made by mistake. Gulf did not, as I understand it, contend that the application for summary judgment against Wachovia could succeed in the light of those issues.
24. As to the position between Gulf and Albaraka, the judge first considered the position under English law and concluded, as a matter of English conflicts rules, first that the debt between Albaraka as issuing bank and Wachovia as confirming and negotiating bank is governed by English law, and secondly that, in the absence of compulsion, a person cannot discharge the indebtedness of another unless the debtor either authorises or subsequently ratifies the discharge. Mr Nash accepts both those conclusions as correct. It follows, as the judge held, that as a matter of English law, on the facts the debt between Albaraka and Wachovia cannot have been discharged by the mistaken payment.
25. The judge further considered whether Gulf had a claim against Albaraka in the general law of restitution, or unjust enrichment, although he observed that this point was not pleaded or included in Mr Nash's written submissions. He held that Gulf had no such claim.
26. The judge first observed in paragraph 41 of his judgment, in my opinion correctly, that 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. He quoted the following well known passage from the judgment of Clauson LJ in Re Cleadon Trust Ltd [1939] Ch 286 at pages 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.
In those propositions Mr Nash emphasises the words "merely" and "by itself".
27. However, he relies upon the fact that the judge recognised the limitations of the principle in paragraph 42 of his judgment as follows:
In Crantrave Ltd v. Lloyds Bank Plc [2000] QB 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 LJ, 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 LJ 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 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 fact, 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 prospect 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.
28. Mr Nash submits that there is scope for argument in a developing area of the law that, if Wachovia is entitled to retain the payment, then Gulf should be entitled to a restitutionary remedy against Albaraka on the ground that, although no debt was discharged in law by the mistaken payment, Albaraka has in fact had a benefit at Gulf's expense, namely that it has not and will not pay under the letter of credit, and it should make restitution to Gulf for that benefit.
29. Mr Nash emphasises in this regard that, in considering this question and indeed the position under the law of New York if it is applicable, it is important to have in mind that it only arises if Gulf's claim against Wachovia fails. The precise analysis of the claim against Albaraka is dependent to some extent upon the jurisprudential basis of the failure of the claim against Wachovia. It is not at present known what that will be.
30. There appears to me to be some force in this point. Indeed one of the features of the case which troubled me when I gave permission to appeal was the potential overlap between the issues between Gulf and Wachovia, which are to be tried in any event, and the issues between Gulf and Albaraka. I will return to this point in a moment.
31. Mr Nash relies on the recognition by Pill LJ in the Crantrave case that there might be circumstances in which the Court might step in to prevent unjust enrichment by the customer having his money from the bank as well as having the claim of his creditor "met" or, as May LJ put it at page 925:
If there were circumstances not amounting to ratification in which it would nevertheless be unconscionable to allow the customer to recover from the bank the balance of a payment which the bank made gratuitously.
32. The unjust enrichment suggested here is put in this way by Mr Nash:
(1) It appears that Wachovia's entitlement to retain the payment (which is the hypothesis on which the claim against Albaraka is based) can only arise if, for the purposes of the discharge for value principle under New York law, it is held either that the debt was discharged by the mistaken payment, ie contrary to English law, or that legal discharge of the debt was not necessary for the purposes of the discharge for value rule or that there was some other defence provided for in New York law. At this stage, since the claim against Wachovia is proceeding to trial, it is not possible to say which, if any, of these defences may succeed. The court should proceed on the basis that any of them might succeed.
(2) In these circumstances, if the claim against Wachovia is governed by New York law but the claim against Albaraka is governed by English law, although Gulf's case is that this also could not arise and that both claims must be governed by the same system of law, then Gulf may be in the position of having paid off Albaraka's debt, but being unable to recover it from Wachovia because Wachovia has accepted it in discharge of this debt, and that that is sufficient under New York law to permit it to retain the payment.
(3) In such a case the English rule that it is not possible to discharge the debt of another person without the debtor's authorisation or ratification operates to produce injustice where the system of law relevant to the claim for recovery of the mistaken payment from the creditor in effect permits a discharge, if the recipient accepts the payment as such. As Goff & Jones on the Law of Restitution observes in paragraph 3-151 of the sixth edition, the potential injustice of the English rule is avoided by recognising a claim by the payer against the mistaken recipient, but on this analysis the claim would fail on grounds not recognised by English Law.
(4) Goff & Jones put this example:
"C is D's creditor. D is B's (a bank's) customer. B pays C without D's authority. B then indemnifies D. In practice C, having been paid, will not sue D. D will then have been unjustly enriched."
As applied to the facts of this case that example can be stated as follows: Wachovia is Albaraka's creditor; Albaraka is Gulf's customer; Gulf pays Wachovia without Albaraka's authority; Gulf then indemnifies Albaraka; in practice Wachovia, having been paid, will not sue Albaraka so that Albaraka will then have been unjustly enriched.
(5) Accordingly this is a case where the court should intervene to prevent unjust enrichment where Albaraka in practice has the benefit of payment by Gulf of its liability under the letter of credit, the existence of which it cannot deny by reason of the settlement agreement.
33. Mr Nash recognises that this claim will be an extension of existing authority. However, he submits that this is an area of developing law and that the court should be slow to give summary judgment before the facts are found in such a case: see most recently Equitable Life Assurances Society v. Ernst & Young [2003] EWCA Civ 1114. He submits that this principle is particularly apposite here because the claim against Albaraka is contingent upon the failure of the claim against Wachovia and the precise jurisprudential basis on which the latter claim might fail is not known at this stage.
34. In a spirited and in many ways compelling argument, Miss Stewart submits that there was no unjust enrichment here. She submits that there can be no question of it being unconscionable to refuse to order Albaraka to repay the money that Gulf had paid to Wachovia. Albaraka behaved entirely properly throughout and instructed Gulf not to pay Wachovia. It also repeatedly informed Wachovia that the payments made was Gulf's and not Albaraka's money.
35. She further makes these submissions:
1. Assuming for present purposes that Wachovia's payments to the beneficiary under the letter of credit constituted valuable consideration passing to Albaraka, Gulf cannot be described as having paid for such consideration. Wachovia's payment to Simetal was made on 29th March. Gulf's unauthorised payment to Wachovia was made on 27th September. Wachovia's payment was neither dependent upon nor consequent upon that made by Gulf. Nor was there any other connection between them. In order to establish such a connection Gulf would have to demonstrate, in the words of the judge, "that by making payment to Wachovia Gulf discharged a liability of Albaraka in relation to the letter of credit." This Gulf is unable to do.
2. It cannot be said that Albaraka was enriched by being relieved by Gulf's payment from any claim by Wachovia under the letter of credit, when Albaraka (a) expressly declined to ratify or adopt Gulf's payment and (b) brought proceedings against Wachovia for the very purpose of establishing that, quite apart from any payment made by Gulf, Wachovia had no such claim. Albaraka's proceedings against Wachovia sought a declaration that Albaraka was not liable to reimburse Wachovia in respect of payment made purportedly pursuant to the letter of credit. Albaraka therefore voluntarily brought before the court the very issue which any claim brought by Wachovia would have raised.
3. The release of any claim by Wachovia against Albaraka is the consequence of Albaraka having brought, at its own expense and risk, proceedings against Wachovia for the declaration, and Albaraka's having compromised those proceedings on terms which provided for such relief. The release is not therefore an enrichment at the expense of Gulf.
36. I entirely see the force of those submissions but I have reached the conclusion that Gulf's case under this head is not fanciful. It appears from the judgment that the argument on this part of the case before us has been very much more extensive than before the judge. It does seem to me that the extent of the possible exceptions contemplated by Pill LJ and May LJ in the Crantrave case has not been fully worked out. The question is not whether Albaraka has behaved impeccably but whether it would be unjustly enriched in circumstances where the effect of Wachovia keeping the money paid by Gulf by mistake was (at least arguably) in practice to discharge Albaraka's liability to Wachovia under the letter of credit. Absent fraud and subject to the effect of acceptance of the documents, Albaraka would have been liable to reimburse Wachovia under the letter of credit. These questions should, to my mind, be considered at a trial.
37. As to Miss Stewart's reliance on the settlement agreement, this is not something which was discussed in any detail by the judge. It seems to me (at least arguably) to raise as many questions as it answers. Suffice it to say that at the trial it may be necessary to focus on the recital and the terms of the agreement including the term under which Wachovia agreed to indemnify Albaraka in respect of any liability which it may have to Gulf in respect of this very payment. Given the confidentiality of the agreement it is not appropriate for me to say anything further about it at this stage. However, for all these reasons, I would allow Gulf to advance its claim for unjust enrichment under English law at trial.
38. I turn to New York law. Mr Nash submits that, if Gulf cannot recover from Wachovia because of the provisions of New York law, it should in principle be entitled to recover from Albaraka under New York law. He submits that in that event, if New York law applies, Gulf can recover under the New York law of subrogation. The judge did not consider this question because he was not persuaded that Gulf had an arguable case that New York law applies. He said this in paragraph 39 of his judgment:
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.
Mr Nash submits that the judge was wrong to hold that New York law could not apply to this question. Again, as with unjust enrichment under English law, it appears that the argument before us was much more extensive than it was before the judge.
39. The steps in the argument that the New York law applies are these.
1. The concept of the proper law of the obligation to make restitution is derived from rule 200(1) of Dicey & Morris - set out in the 13th edition of Dicey & Morris On the Conflict of Law at paragraph 34 capital R-OO1, which reads:
"Rule 200-(1) The obligation to restore the benefit of an enrichment obtained at another person's expense is governed by the proper law of the obligation.
(2) The proper law of the obligation is (semble) determined as follows:
(a) If the obligations arises in connection within contract, its proper law is the law applicable to the contract;
...
(c) If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs."
2. In the present case the relationship between Gulf and Albaraka consisted of an account held in Gulf's books in New York. Subject to the subsequent withdrawal of authority, Gulf was authorised by Albaraka to debit this account with the payments made under the letter of credit. The cancellation of this authority was given to Gulf in New York and confirmed by Gulf in New York to Albaraka in Bahrain.
3. Gulf paid Wachovia in dollars in New York. It then debited Albaraka's account in New York with the relevant payment and shortly afterwards recredited the same account in the light of Albaraka's protests.
4. In these circumstances it is likely that the proper law of Albaraka's obligation to make restitution is New York law. The steps in that argument are these:
(a) under English conflicts rules the proper law of the contract between Albaraka and Gulf constituted by the account in New York is New York law;
(b) Gulf's right to restitution from Albaraka arises "in connection with" this contract, within the meaning of rule 200(2)(a) in Dicey;
(c) it is realistic to suppose that if Albaraka and Gulf had given the matter any thought, they would have expected the law governing the contract (ie New York law) also to deal with the consequences of a payment made by Gulf to a third party, in purported but mistaken performances of its contractual obligation to Albaraka;
(d) alternatively New York is the place of enrichment of Albaraka within the meaning of rule 200(2)(c);
(e) in the present case, Albaraka did not receive the relevant payment but on Gulf's argument it has received a benefit from that payment, consisting of being relieved from a claim by Wachovia for payment under the letter of credit.
5. Albaraka argues that an enrichment, consisting of the discharge of or other beneficial effect upon, a debt governed by English law, must be located in England. No authority is cited for this proposition and there is no reason in principle why it should be right.
6. By giving primacy to the proper law of the obligation between Albaraka and Wachovia, Albaraka seeks an advantage by creating a situation where the law governing the restitutionary claim against Albaraka is different from the law governing the restitutionary claim against Wachovia, notwithstanding that both claims arise from a single mistaken payment made in New York in purported fulfilment of obligations arising under a banking relationship created in New York. This gives rise to the possibility that Gulf may fall into a legal black hole between the two systems of law, not because the principles of either system have the result that Gulf must bear the loss, but because the application of two different systems of law to each limb of the restitutionary claim produces this result. Where, as here, the court is concerned with alternative claims arising out of a single event, the conflict rule should be applied to produce the result that the alternative claims against Wachovia or Albaraka are evaluated by the same system of law.
40. Miss Stewart's submissions may be summarised in this way:
1. The only manner in which Gulf's payments to Wachovia could have enriched Albaraka is in relation to any debt owed by Albaraka to Wachovia in that such payment might have had the effect of discharging such debt completely or partially or possibly of mitigating or in some other way affecting, short of discharge, any liability in relation to it.
2. An enrichment consisting in the discharge of or other beneficial effect upon a debt governed by English law must be located in England.
3. The proper law of an obligation to restore the benefit of any unjust enrichment obtained at Gulf's expense is the law of the country in which such enrichment occurred, which in the present case was England.
4. There is no factor indicating that the proper law of any obligation upon Albaraka to make restitution should be different from the place of enrichment.
Miss Stewart submits that in all the circumstances English law governs any claim by Gulf against Albaraka. There is undoubted force in those submissions but, for my part, I do not think that the submissions to the contrary advanced by Mr Nash can be rejected at this stage as fanciful.
41. The third and last topic discussed in argument is whether Gulf has an arguable case under New York law on the assumption that New York law is applicable. Miss Stewart submits that the answer is "no", although I think she recognises that, in terms of arguability, this is the least persuasive of her submissions on the three topics which have been discussed.
42. There is an issue between Gulf and Wachovia as to the ingredients of the discharge for value defence under New York law. Gulf and Albaraka say that the defence requires a discharge of the debt owed by Wachovia to Albaraka which is a valid discharge by the proper law of the debt. If that is correct, the defence will, as I see it, fail, because, as already indicated, it is common ground that the payment by Gulf to Wachovia, without Albaraka's authority or ratification, did not discharge Albaraka's liability to Gulf under English law.
43. However, Wachovia says that such a discharge is not necessary under New York law. If that case is accepted by the trial judge, and Wachovia establishes the other facts necessary to the defence, Mr Nash submits that Gulf is entitled to recover from Albaraka on the basis of the New York law of subrogation, as explained by Mr Domb of Hill, Betts & Nash.
44. It is fair to say that that point was not clearly spelt out in Hill, Betts & Nash's opinion. That is because they were focusing on the defence then being advanced by Wachovia, which depended upon the discharge of a valid debt owed by Wachovia to Albaraka. On that basis Mr Domb expressed the view that if Wachovia was not liable to Gulf because it could rely on the defence, it followed that Gulf could recover from Albaraka under the broad doctrine of subrogation in New York law.
45. The opinion stated the principle by reference to the judgment in what was said to be a leading or the leading case on topic, namely Gerseta Corporation v. Equitable Trust Company of New York (1926) 241 NY 418 as follows:
Subrogation, an equitable doctrine taken from the civil law is broad enough to include every instance in which one party pays a debt for which another is primarily answerable and which equity and good conscience should have be discharged by the latter so long as the payment was made either under compulsion or for the protection of some interested party making the payment and then discharging of existing liability.
Mr Domb added that a payment by mistake is considered to fall within that principle.
46. The reason that there was no further opinion evidence of New York law was, as indicated earlier, that Wachovia served its expert evidence in support of its alternative case only four days before the hearing before the judge. Despite the absence of evidence it seems likely to me that it is at least arguable that if, contrary to the case for both Gulf and Albaraka, Wachovia's alternative formulation of the defence succeeds, there will be evidence of New York law available to Gulf based on the broad definition of subrogation quoted above to the effect that Gulf is entitled to recover from Albaraka by exercising a right of subrogation so defined.
47. In my opinion, Gulf should be entitled to explore the position under New York law at the trial both as between itself and Wachovia and between itself and Albaraka. This again seems to have been an aspect of the case much more fully debated before us than before the judge, who does not discuss it in his judgment as between Gulf and Albaraka; no doubt because of his conclusion that the proper law of Albaraka's obligations could only be English law.
Conclusion
48. The judge correctly set out the proper approach to applications for summary judgment under Part 24 of the CPR. Part 24.2 provides that the court may give summary judgment against a claimant if it has no real prospect of succeeding on the claim and if there is no other compelling reason why the case should be disposed of at trial. The authorities show "that a real prospect of success" is to be contrasted with a fanciful prospect of success.
49. I would like to pay tribute to the care with which the judge dealt with the issues in this case, which (to my mind at least) have a certain complexity. I would also especially reiterate the point I have already made that none of the topics upon which we have been addressed was addressed in anything like the same detail before the judge. I have nevertheless reached a different conclusion from the judge on each of those three topics.
50. The claim by Gulf against Albaraka is closely bound up with Gulf's claim against Wachovia. If Gulf's claim against Wachovia succeeds, Gulf's claim against Albaraka does not of course arise. But if Gulf's claim against Wachovia fails, it is, to my mind, far from clear that Gulf's claim against Albaraka is fanciful. One of my concerns is that it is not at all clear on what basis Gulf's claim will fail, if it does fail. It seems to me that because of that uncertainty there is a compelling reason for allowing Gulf to proceed with its claim against Albaraka in the alternative, so as to be confident that all the issues will be fairly determined between the parties.
51. In any event, for the reasons I have given, I do not think that Gulf's claim against Albaraka can fairly be regarded as fanciful or as Lord Woolf put it in Swain v. Hillman [2001] 1 All ER 91 "not fit for trial at all". I do not regard Gulf's case that, if English law applies, it is entitled to recover from Albaraka on the grounds of unjust enrichment as fanciful. The same is true of its submission that Gulf's right to recover, if any, is governed by New York law and that under New York law it is subrogated to Wachovia's claim against Albaraka.
52. For these reasons, I would allow the appeal and permit Gulf to proceed to trial to enable it to advance a claim against Albaraka should its claim against Wachovia fail. I would only add that, given the indemnity to which I have referred earlier, I can see no injustice in this approach.
53. I agree.
54. I also agree. Consequently the appeal will be allowed.