Chase Manhattan Bank NA v Israel-British Bank (London) Ltd
| Chase Manhattan Bank NA v Israel-British Bank (London) Ltd | |
|---|---|
 | |
| Court | Court of Appeal |
| Citation(s) | [1981] Ch 105 |
| Keywords | |
| Constructive trust | |
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd is an English trusts law case, concerning constructive trusts. It held that a trust arose to protect a payment made under a mistake, with the benefit of a proprietary remedy. This is seen important for the question of what response, personal or proprietary, may come from a claim in unjust enrichment.
Facts
Chase Manhattan was instructed to pay $2m to the Israel-British Bank, but it paid the sum twice by mistake. The Israel-British Bank went insolvent, after Yehoshua Ben-Zion, the managing director, was convicted of embezzling £20 million ($39.4 million) from the bank. Chase Manhattan wished to claim its money back, without waiting in the insolvency queue. The Israel-British bank had known about the mistake before it finally went into liquidation.
Judgment
Goulding J held that Chase Manhattan could recover the full sum, because the money was held on trust from the moment it was received. He said the following.[1]
| “ | In the circumstances, however, the depositors retained an equitable property in the funds they parted with, and fiduciary relationships arose between them and the directors. In the same way, I would suppose, a person who pays money to another under a factual mistake retains an equitable property in it and the conscience of that other is subjected to a fiduciary duty to respect his proprietary right. I am fortified in my opinion by the speech of Viscount Haldane L.C. in Sinclair v Brougham [1914] AC 398, 419, 420, who, unlike Lord Dunedin, was not suspected of heresy in In re Diplock.
[...] Little evidence has been adduced to show how a court in New York would classify or characterise for the purposes of private international aw those provisions of its own law which have been under scrutiny in this case. It is not necessary for me to make a finding on the point, and I do not feel I have the materials to make one de bene esse. I have on the other hand heard a good deal of argument, and I have been referred to a number of authorities, regarding the characterisation of the same provisions of New York law by an English court. It is unnecessary, and therefore undesirable, for me to express any opinion on that question. I have held, after examining In re Diplock [1948] Ch. 465, that under English municipal law a party who pays money under a mistake of fact may claim to trace it in equity, and that this right depends on a continuing right of property recognised in equity. I have found, on the evidence presented by the parties, that a similar right to trace is conferred by New York municipal law, and that there too the party paying by mistake retains a beneficial interest in the assets. No doubt the two systems of law in this field are not in all respects identical, but if my conclusions are right no conflict has arisen between them in the present case, and there is no occasion to draw a line, on either side of the Atlantic, between provisions that belong to substantive law and provisions that belong to adjective law. The difficulties of defining the distinction and of applying it in various legal contexts appear in several well known authorities, e.g. in the judgment of Atkin L.J. in The Colorado [1923] P. 102, 110-112, and in the speech of Lord Pearson in Boys v Chaplin [1971] A.C. 356, 394, 395. It would be wrong for me, merely in recognition of counsel's industry, for which I am nonetheless grateful, to make observations obiter on so important a subject. |
” |
Significance
The case was reviewed in Westdeutsche Landesbank Girozentrale v Islington LBC by Lord Browne-Wilkinson, and it was held that it might have been rightly decided in the result because the recipient bank's conscience would have been affected upon receipt of the money. This view was controversial, and particularly criticised by Peter Birks on the ground that the more straightforward way to establish a claim would be for unjust enrichment, which triggers a proprietary remedy in a similar circumstance, regardless of the position of one's notional conscience.
See also
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Notes
- ↑ [1981] Ch 105, 119 and 127-128