400

Ibrahim v Barclays Bank plc (CA) [2013] Ch

Court of Appeal A

Ibrahim v Barclays Bank plc and another

[2012] EWCA Civ 640
2012 May 9, 10; 16 Rimer, McFarlane, Lewison LJJ
B
Debt  Discharge of debt  Payment under legal compulsion  Letter of credit
procured to indemnify guarantor of debt  Debtor giving counter-indemnity to
guarantor  Guarantor recovering under letter of credit amount equivalent to
debt outstanding from debtor under counter-indemnity  Guarantor
subsequently assigning rights to debt to person providing indemnity to issuer of
letter of credit  Whether guarantors rights to debt under counter-indemnity
already extinguished by payment under letter of credit  Whether e›ective C
assignment of rights

L Group, which was owned by an English company, experienced cash ow

di–culties and petitioned for administration. E›orts were made to keep the business
going with interim nancing arrangements until it could be disposed of and
renanced. A Malaysian company controlled by the claimant entered into an
agreement to purchase all the shares of the owner of L Group, subject to a due D
diligence period before completion. Interim nancing arrangements were put in
place whereby the defendant bank, the principal lender to L Group, agreed to provide
further nance of £2.5m under a new facility, a Government department agreed to
guarantee L Groups liability to the defendant bank in that sum, L Group agreed a
counter-indemnity to pay to the department all sums due under the departments
guarantee to the defendant bank, the claimant arranged for a letter of credit to be
issued by a second bank in favour of the department as beneciary and the claimant E
agreed to indemnify the second bank. By a realisation agreement the defendant bank
and the department agreed that they would share equally the rst £3.2m of recoveries
in L Groups insolvency and that any surplus over £3.2m would go to the department
until it had been repaid in full for any liability incurred under its guarantee. In the
course of conducting its due diligence the company decided not to proceed with the
acquisition of L Group, which went into administration. That constituted an act of
default under the defendant banks new facility, under which £1.4m had been drawn F
down. The defendant bank made formal demand on the department under its
guarantee for repayment of sums outstanding under the new facility, which were
paid. The department demanded payment from L Group of all sums due under the
counter-indemnity, and demanded payment from the second bank under the letter of
credit. The second bank paid the department. The claimant repaid the second bank
under his indemnity to that bank. The claimant, asserting that he had become
G
subrogated to the rights of the department under the realisation agreement and
the counter-indemnity, brought proceedings against the defendant bank and the
Secretary of State responsible for the Government department, alleging that the
defendant bank had received part of the proceeds of sale of L Groups assets and had
failed to account to the department or to the claimant for what was due to them.
Relief was sought only against the defendant bank. The judge held that the payment
by the second bank to the Secretary of State under the letter of credit had discharged H
L Groups obligations to the Secretary of State under the counter-indemnity and the
guarantee facility agreement, whereupon the Secretary of States right to distribution
moneys under the realisation agreement had terminated, and accordingly the
claimants claim to be subrogated to the Secretary of States right to those moneys
failed. After the trial the Secretary of State assigned his rights arising out of the

' 2013 The Incorporated Council of Law Reporting for England and Wales
 401
[2013] Ch Ibrahim v Barclays Bank plc (CA)

A realisation agreement and the counter-indemnity to the claimant, with the result that
the issue of subrogation fell away.
On the claimants appeal, on the sole issue whether the payment by the second
bank to the Secretary of State had discharged L Groups obligations under the
counter-indemnity
Held, dismissing the appeal, that payment by a third party to a creditor under
legal compulsion on account of a debt owed by a debtor would automatically
B discharge the debtors debt even if the legal compulsion arose out of a contractual
obligation voluntarily assumed by the third party; that where a payment by a third
party was made under compulsion questions of agency, authority and ratication did
not arise; that, since in order to make his claim against the second bank under the
letter of credit the Secretary of State had been required to certify that the amount
demanded represented and covered the unpaid sums due from L Group, the payment
by the second bank had been on account of L Groups debt in the sense that it was
C referable only to that debt and therefore had been paid under compulsion, and so had
the legal consequences, as between the Secretary of State and L Group, of a payment
by L Group; that consequently the payment by the second bank had discharged in full
L Groups liability to the Secretary of State under the counter-indemnity and the
Secretary of States rights under the realisation agreement thereby had come to an
end; and that, accordingly, there had been no rights for the Secretary of State to
assign to the claimant and no rights to which the claimant had become entitled by the
D
assignment (post, paras 49, 50, 61—62, 67—68, 69, 70).
Moule v Garrett (1872) LR 7 Ex 101, Brooks Wharf and Bull Wharf Ltd v
Goodman Bros [1937] 1 KB 534, CA and Electricity Supply Nominees Ltd v Thorn
EMI Retail Ltd (1991) 63 P & CR 143, CA applied.
Exall v Partridge (1799) 8 Durn & E 308 and In re Rowe; Ex p Derenburg & Co
[1904] 2 KB 483, CA distinguished.
Decision of Vos J [2011] EWHC 1897 (Ch); [2012] 1 BCLC 33 a–rmed.
E The following cases are referred to in the judgment of Lewison LJ:
Brooks Wharf and Bull Wharf Ltd v Goodman Bros [1937] 1 KB 534; [1936] 3 All
ER 696, CA
Caledonia North Sea Ltd v British Telecommunications plc [2002] UKHL 4; 2002 SC
(HL) 117; sub nom Caledonia North Sea Ltd v Norton (No 2) [2002] 1 All
ER (Comm) 321; [2002] 1 Lloyds Rep 553, HL(Sc)
F Commercial Banking Co of Sydney Ltd v Jalsard Pty Ltd [1973] AC 279; [1972]
3 WLR 566, PC
Electricity Supply Nominees Ltd v Thorn EMI Retail Ltd (1991) 63 P & CR 143, CA
Exall v Partridge (1799) 8 Durn & E 308
Moule v Garrett (1872) LR 7 Ex 101
Owen v Tate [1976] QB 402; [1975] 3 WLR 369; [1975] 2 All ER 129, CA
Rowe, In re; Ex p Derenburg & Co [1904] 2 KB 483, CA
Simpson v Eggington (1855) 10 Exch 845
G
The following additional cases were cited in argument:
Bovis Construction Ltd v Commercial Union Assurance Co plc [2001] 1 Lloyds Rep
416
Crantrave Ltd v Lloyds Bank plc [2000] QB 917; [2000] 3 WLR 877; [2000] 4 All
ER 473, CA
H Credit Agricole Indosuez v Muslim Commercial Bank Ltd [2000] 1 Lloyds Rep 275,
CA
Keighley Maxsted & Co v Durant [1901] AC 240, HL(E)
Kotonou v National Westminster Bank plc [2010] EWHC 1659 (Ch); [2010] 1 All
ER (Comm) 1164
Swotbooks.com Ltd v Royal Bank of Scotland plc [2011] EWHC 2025 (QB)

' 2013 The Incorporated Council of Law Reporting for England and Wales
402
Ibrahim v Barclays Bank plc (CA) [2013] Ch

Tate & Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR A
149; [1981] 3 All ER 716
Zuhalk K, The and The Selin [1987] 1 Lloyds Rep 151

The following additional cases, although not cited, were referred to in the skeleton
arguments:
Banque Financire de la Cit v Parc (Battersea) Ltd [1999] 1 AC 221; [1998] 2 WLR
475; [1998] 1 All ER 737, HL(E) B
Boscawen v Bajwa [1996] 1 WLR 328; [1995] 4 All ER 769, CA
Castellain v Preston (1883) 11 QBD 380, CA
Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291, CA
Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] AC 643; [1988] 3 WLR 730;
[1989] 1 All ER 37, HL(Sc)
Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC 1;
[1990] 3 WLR 78; [1990] 2 All ER 705, HL(E) C
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1991] 3 WLR 10; [1992] 4 All ER
512, HL(E)
MacDonald Dickens & Macklin v Costello [2011] EWCA Civ 930; [2012] QB 244;
[2011] 3 WLR 1341; [2012] 1 All ER (Comm) 357, CA
McGuinness v Norwich and Peterborough Building Society [2011] EWCA Civ 1286;
[2012] BPIR 145, CA
Morris v Ford Motor Co Ltd [1973] QB 792; [1973] 2 WLR 843; [1973] 2 All ER D
1084, CA
Uren v First National Home Finance Ltd [2005] EWHC 2529 (Ch); The Times,
17 November 2005

APPEAL from Vos J

The claimant, Syed Azman Bin Syed Ibrahim, brought an action against
the defendants, Barclays Bank plc and the Secretary of State for Business, E
Innovation and Skills, seeking relief concerning his subrogation to
contractual rights enjoyed by the Secretary of State as against the bank in
relation to secured funding which had been provided by the bank to LDV
Group (LDV) and related companies. On 21 July 2011 Vos J [2011]
EWHC 1897 (Ch) dismissed the claim, holding that a payment made by UBS
Singapore (UBS) to the Secretary of States department under a letter of
F
credit had had the e›ect of discharging LDVs liability to the Secretary of
State under both a counter-indemnity given by LDV to the Secretary of State
and an agreement whereby the Secretary of State had guaranteed LDVs
liability to the bank; and that the Secretary of States right to distribution
moneys under a realisation agreement whereby he had agreed to share
equally with the bank the rst £3.2m of recoveries in LDVs insolvency and
that any surplus would go to him until his departments liability under the G
guarantee had been repaid in full, had terminated on the discharge of LDVs
liability and accordingly the claimant could not claim to be subrogated to
the Secretary of States right to those moneys.
By an appellants notice led on 10 August 2011 the claimant appealed on
the grounds, inter alia, that the judge had (1) been wrong to hold that the
guarantor liabilities of LDV to the Secretary of State had been discharged;
H
(2) come to an erroneous conclusion as to the intentions of UBS, and failed
to have adequate regard to the evidence of the intentions of the Secretary of
State and of LDV; (3) failed to appreciate the position of UBS more generally
as the issuer of a letter of credit; (4) misunderstood the principal arguments
put to him on behalf of the claimant; (5) wrongly disregarded the evidence of

' 2013 The Incorporated Council of Law Reporting for England and Wales
 403
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Argument

A the motivation for the wording required in the demand to be made under
the letter of credit being in part the Secretary of States concern to satisfy the
requirements of European Union regulations on state aid, hence the
importance of the Secretary of State obtaining a complete indemnity, not one
limited to the amount paid out to the bank under the guarantee; and
(6) erred in misinterpreting the wording of the demand under the letter of
credit. At the hearing of the appeal the claimant applied for permission to
B
introduce in evidence an assignment to the claimant executed on
29 February 2012 by the Secretary of State of his rights arising out of or in
relation to the realisation agreement and the counter-indemnity; and to
amend the particulars of claim to plead that assignment and to delete his
reliance on subrogation. Permission to adduce the evidence and to amend
the particulars of claim was granted. The claimant therefore did not pursue
C grounds of appeal on the issue of subrogation which fell away, and so the
only issue remaining before the Court of Appeal was whether the payment
by UBS to the Secretary of State had discharged LDVs obligations under the
counter-indemnity.
The facts are stated in the judgment of Lewison LJ.

Romie Tager QC and Hugh Jackson (instructed by Winckworth

D
Sherwood LLP) for the claimant.
[Tate & Lyle Food and Distribution Ltd v Greater London Council
[1982] 1 WLR 149 was relied on in support of the application to adduce new
evidence and amend the particulars of claim which was granted by the
court.]
Payment of a debt made by a third party who is not jointly liable for the
E debt does not discharge the debt unless payment is made by the third party as
agent for or on account of the debtor, and with his prior authority or
subsequent ratication. Where the third party makes the payment not as
agent for or on account of the debtor, the debtor continues to be indebted:
see Simpson v Eggington (1855) 10 Exch 845. To discharge the debt the
payment must be made expressly by the third party for and on behalf of the
debtor: see In re Rowe; Ex p Derenburg & Co [1901] 2 KB 483. That
F
principle is analogous to the rule that a contract made without the authority
of the principal cannot be enforced by or against him unless the contract was
made by the agent purportedly on behalf of the principal and was capable of
being and had been ratied by the principal: see Keighley Maxsted & Co v
Durant [1901] AC 240. As a result the payment made by UBS bank to the
Government department under the letter of credit was not authorised by the
G debtor, L Group, which remains indebted to the Government department.
[Reference was made to Go› & Jones, The Law of Restitution, 7th ed
(2006), pp 18—19; Chitty on Contracts, 30th ed (2008), para 21-041 and
Halsburys Laws of England, 5th ed, vol 1 (2008), para 60.]
A credit is a separate transaction from the sale or other contract on which
it may be based: see articles 4 and 5 of the Uniform Customs and Practice for
Documentary Credits ICC Publication No 600 (UCP 600). The e›ect of
H
the autonomy principle is that a bank issuing a letter of credit is not
concerned as to the underlying transaction in respect of which it represents
the paying mechanism, only that the letter of credit conforms to the
requirements of UCP 600: see Commercial Banking Co of Sydney Ltd v
Jalsard Pty Ltd [1973] AC 279 and Credit Agricole Indosuez v Muslim

' 2013 The Incorporated Council of Law Reporting for England and Wales
404
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Argument

Commercial Bank Ltd [2000] 1 Lloyds Rep 275. It follows that in making A
payment under the letter of credit UBS bank is not paying L Groups debt but
paying a sum of money which it has been certied that L Group owes to the
Government department. It is not to be treated as if the sum has been paid
by L Group, which is a stranger to the letter of credit. UBS bank acted as
principal, discharging its own autonomous contractual obligations under
the letter of credit, not as agent on behalf of, or for the account of, L Group. B
What payment under the letter of credit represents depends on the intention
of the parties to it and why the claimant set up the letter of credit on which
the Government department can draw. To determine that issue it is
necessary to look at the arrangements between the claimant and the
department, not L Groups arrangements with the department. The receipt
of the payment by the Government department is not to be treated as related
to, or the performance of, any underlying contractual obligation but as the C
independent discharge by UBS bank of its letter of credit obligations to the
department. L Group had no expectation that a payment by UBS bank
would relate to, let alone discharge, its liabilities under the counter-
indemnity. L Group remains indebted to the Government department, and
as the assignee of the rights of the Secretary of State responsible for the
department under the agreements between the Secretary of State and D
the defendant bank in relation to recoveries under L Groups insolvency, the
claimant is entitled to recover the outstanding debt.
Patrick Goodall and Rupert Allen (instructed by Addleshaw
Goddard LLP) for the defendant bank.
Where a third party is under a legal obligation to pay a sum of money to a
creditor on account of a debt owed by a debtor, and the third party pays the E
creditor, the debtors obligation to pay the creditor is automatically
discharged whether or not the debtor consents to, authorises or raties the
payment. Whether UBS bank is to be regarded as a guarantor of L Groups
liabilities under the counter-indemnity or as having an autonomous,
freestanding obligation to pay under the letter of credit, L Group and UBS
bank were responsible to the Government department for the same debt,
and, since the department cannot claim to be repaid twice, L Groups debt F
should be discharged: see Electricity Supply Nominees Ltd v Thorn EMI
Retail Ltd (1991) 63 P & CR 143. Payment under legal compulsion
discharges a debt even if there has been a voluntary assumption of an
obligation by the third party: see Moule v Garrett (1872) LR 7 Ex 101;
Brooks Wharf and Bull Wharf Ltd v Goodman Bros [1937] 1 KB 534;
Owen v Tate [1976] QB 402 and The Zuhal K and The Selin [1987] G
1 Lloyds Rep 151. It is not unusual for a letter of credit to be used to
discharge a debt: see Kotonou v National Westminster Bank plc [2010] 1 All
ER (Comm) 1164. The letter of credit references the debt by L Group to the
Government department. That is the debt discharged by UBS bank under
the letter of credit.
The autonomy principle does not have the e›ect that the underlying
H
transaction cannot be considered. [Reference was made to Benjamins Sale
of Goods, 8th ed (2010), para 23-070.] It is specically stated in the letter of
credit that the Government department could make a claim under the letter
of credit by certifying that the amount demanded represents and covers the
unpaid sums due to the department by L Group. In its demand for payment

' 2013 The Incorporated Council of Law Reporting for England and Wales
 405
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Argument

A from UBS bank the department certied in those very terms, and was paid, in
discharge of L Groups liability to the department under the counter-
indemnity. The payment was made and accepted on those terms. There is
no need for an additional requirement that the third partys payment should
be made in its capacity as agent for the debtor: see Crantrave Ltd v Lloyds
Bank plc [2000] QB 917 and Electricity Supply Nominees Ltd v Thorn EMI
Retail Ltd 63 P & CR 143. The cases cited in support of the agency
B
requirement on examination do not support that proposition: see Simpson v
Eggington (1855) 10 Exch 845 and In re Rowe; Ex p Derenburg & Co
[1904] 2 KB 483. L Group consented to the Government department
accepting payment in respect of its liabilities so as to discharge its debt, and
is deemed to have consented to the terms in the letter of credit agreed by the
Secretary of State. Payment to a creditor under an indemnity will
C automatically discharge any equal or co-ordinate liabilities to indemnify the
creditor against the same loss: see Bovis Construction Ltd v Commercial
Union Assurance Co plc [2001] 1 Lloyds Rep 416 and Caledonia North Sea
Ltd v British Telecommunications plc 2002 SC (HL) 117. Even if L Group
had not given its prior consent to the discharge of its debt by payment under
the letter of credit, it subsequently ratied that payment and accepted that its
liability to the Government department had been discharged: see
D
Swotbooks.com Ltd v Royal Bank of Scotland plc [2011] EWHC 2025
(QB). The department has been fully reimbursed by payment in full which
discharges the debt entirely.
Tager QC replied.
The court took time for consideration.
E
16 May 2012. The following judgments were handed down.

LEWISON LJ

Introduction and background

F
1 The only remaining issue in this appeal is whether a debtors liability
to his creditor is discharged when the creditor recovers an equivalent
amount to the debt from a bank that has provided a standby letter of credit.
2 The factual background is as follows. LDV Group (LDV) was at
the relevant time a well-known van manufacturer in the Midlands. It was an
important regional employer. Since 2005 it had been owned by GAZ
International Ltd (GAZ). However, it had run into chronic cash ow
G di–culties and had suspended production in about December 2008.
Although its cash ow position was poor, it had assets; and it was thought
that their value exceeded its liabilities. It was also hoped that if it could raise
working capital it would shortly be able to restart production. GAZ was
looking to sell LDV. But it was unwilling to put more money into the
business. The demands of LDVs numerous creditors, and its outgoings,
meant that it had an immediate cash need of the order of £1m per week to
H
keep aoat pending some form of disposal and renancing of the business.
3 Barclays Bank plc (Barclays) was the principal lender to LDV. It
had provided both overdraft facilities and equipment nance loans. As at
May 2009 the overdraft was of the order of £8.5m and the nance loans
were of the order of £1.6m. Barclays had the benet of various securities for

' 2013 The Incorporated Council of Law Reporting for England and Wales
406
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Lewison LJ

their loans, in the shape of a charge over land and a debenture over LDVs A
assets, together with a guarantee from GAZ for the overdraft up to £8.5m.
But it was also unwilling to put more money into the business.
4 Weststar LDV Sdn Bhd (Weststar) was a Malaysian company. It
was already familiar with LDVs vehicles, having enjoyed arrangements
with LDV since 2006 for the purchase of vehicles for import to, or
manufacture in, Malaysia, as well as distribution rights in South East Asia,
B
Australia and New Zealand. Mr Ibrahim, who was himself a successful
businessman, was the controller of Weststar. He was interested in arranging
for Weststar to buy LDVs business. The British Government were also keen
to see LDV survive. However the Government were unwilling at the time to
nance LDV pending its sale.
5 Ultimately the directors of LDV decided that they had no choice but
to petition for the administration of LDV. That petition was to be heard on C
6 May 2009. The imminent petition prompted a urry of activity. The
British Government in the shape of the Department of Business, Enterprise
and Regulatory Reform (BERR) modied its position. If GAZ were out of
the way it might be prepared to assist with the interim nancing of LDV.
Discussions followed between BERR, Weststar and LDV, with the
consequence that, over the May bank holiday weekend in 2009, Weststar
D
agreed to purchase all of GAZs shares in LDV under the terms of a share
sale and purchase agreement. A due diligence period was allowed for with
completion to be on 30 June 2009. The share sale and purchase agreement
included a provision requiring Weststar to use its best e›orts to secure
interim funding of £5m. Weststar understood that BERR would assist with
the interim funding. BERR approached Barclays, and asked it to provide
short term nance of £5m, against the security of a government guarantee. E
However, in return for that guarantee, BERR demanded super priority over
Barclays existing security. That was unacceptable to Barclays; but Barclays
did agree to share some of its realisations with BERR. Nor were Barclays
willing to provide as much as £5m in interim nance.
6 There was a further problem. BERR were unwilling (or perhaps in the
light of EU rules prohibiting state aid unable) to provide a non-recourse
F
guarantee. They were unwilling to accept an indemnity from Weststar.
Eventually what was agreed was that Mr Ibrahim would arrange for UBS
Singapore to provide a letter of credit in favour of BERR. UBS in turn
required an indemnity from Mr Ibrahim personally.
7 Thus the outlines of the ultimate arrangements were:
(i) Barclays agreed to provide further nance up to £2.5m (although in the
event only £1.4m was drawn down); G
(ii) BERR agreed to guarantee LDVs liability to Barclays for that further
nance limited to £2.5m;
(iii) LDV agreed by way of counter-indemnity to pay BERR on demand all
sums paid by BERR or demanded by Barclays under the BERR guarantee;
(iv) Mr Ibrahim arranged for the letter of credit to be issued by UBS in
favour of BERR as the beneciary;
H
(v) Mr Ibrahim agreed to indemnify UBS;
(vi) Barclays and BERR agreed that the rst £3.2m of recoveries in LDVs
insolvency would be shared equally between them; and any surplus over
£3.2m would go to BERR until such time as it had been repaid in full for any
liability incurred under the BERR guarantee.

' 2013 The Incorporated Council of Law Reporting for England and Wales
 407
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Lewison LJ

A 8 I will need to return to some of the details in due course.

9 In the course of conducting its due diligence Weststar decided not to
proceed with the acquisition of LDV. This had the result of pushing LDV
over the edge into administration, which was itself an event of default under
the Barclays facility. By that time just over £1.4m had been drawn down.
So, on 8 June 2009, Barclays made formal demand on BERR under the
BERR guarantee for repayment of the sums outstanding under the new
B
facility and was paid. On the following day, 9 June 2009, BERR demanded
payment from LDV under the counter-indemnity. The sums that BERR
demanded consisted not only of the sum that it was required to pay Barclays,
but also an additional sum of £6,900 for costs and expenses which it had
incurred, and which LDV was liable to pay under the terms of the counter-
indemnity. On the same day BERR also demanded payment from UBS
C under the letter of credit, and was paid. Mr Ibrahim ultimately repaid UBS
under his indemnity to UBS. Economically, therefore, the buck has stopped
with Mr Ibrahim.
10 Mr Romie Tager QC and Mr Hugh Jackson, appearing on
Mr Ibrahims behalf, say that he is entitled to share in the recoveries made by
Barclays in the same way as BERR would have been entitled to share in
D them. Mr Patrick Goodall appearing with Mr Rupert Allen on behalf of
Barclays, says that once UBS had paid BERR, BERR had no further right to
share in Barclays recoveries. Vos J agreed with Barclays that Mr Ibrahims
claim failed. With the permission of Rimer LJ, Mr Ibrahim appeals.

The relevant documents

The Berlin term sheet
E
11 Berlin was the code name given to LDV. A term sheet was
prepared on or about 11 May 2009, and circulated on 12 May. The
recipients included LDV, Barclays, BERR and Weststar, all of whom were
asked to conrm agreement to it. We were told that they did. The term sheet
contained non-binding indicative terms, although it did form the genesis of
the eventual suite of documents. The amount of the facility was to be £5m.
F £2.5m was to be made available initially, with further availability subject to
a maximum of £5m subject to the provision of covering standby letter of
credit from UBS Singapore on behalf of Weststar in favour of [Her Majestys
Government]. Next to the sidenote HMG letter of credit/bank guarantee
it provided:
Guarantee from a bank satisfactory to HMG (in its sole discretion)
G su–cient to cover the guarantee provided by HMG, to be arranged by
Weststar in favour of HMG, to reimburse any payments under its
guarantee to Barclays plus accrued interest, fees and third party costs of
documenting and, if necessary, enforcing the agreement.
12 Subject to the provision of the HMG guarantee Barclays were to
provide the loan facility to Berlin secured by Barclays existing security
H
(apart from a guarantee by GAZ). There was then provision for sharing of
the proceeds of security as between HMG and Barclays in a manner that was
eventually embodied in the realisation agreement (the RA). The term
sheet also provided that all drawdown requests made by Berlin are to be
agreed by Weststar prior to drawdown . . .

' 2013 The Incorporated Council of Law Reporting for England and Wales
408
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Lewison LJ

The new facility A

13 On 13 May 2009 Barclays wrote to LDV with the terms of the new
facility. The initial amount was to be £2.5m and the maximum was to be
£5m. Para 1.2 said that drawdown would only be available upon Barclays
receiving a written request together with written authority to the drawing
from Weststar, copied to BERR. The purpose of the facility was to provide
working capital. Para 7 said that the loan was to be secured by any security B
and/or guarantee(s) which are now or subsequently held by the bank. It
also stated that the facility was to be secured by an executed guarantee for
£2.5m from the Secretary of State.

The BERR facility

14 BERR wrote to LDV to o›er a facility. The facility was for the issue C
of guarantees relating to the Barclays loan. The rst guarantee was to be for
an amount not exceeding £2.5m. Para 5 stated that the facility would not be
available for drawing until BERR had received (among other things) a
counter-indemnity executed by LDV and a standby letter of credit issued by
UBS in favour of BERR for an amount of not less than £2.5m in a form and
substance satisfactory to BERR. D

The LDV counter-indemnity

15 The document in the case papers is not dated, but the judge found
that it was entered into on 14 May 2009. It recited that the Secretary of
State had agreed to provide a guarantee for loans to be made available to
LDV by Barclays. Clause 1 required LDV to E
pay [the Secretary of State] on demand all sums paid by [the Secretary
of State] under or in connection with any guarantee and indemnify [the
Secretary of State] on demand against all actions, charges, claims, costs,
damages, demands, expenses, liabilities, losses and proceedings which
may be brought or preferred against [the Secretary of State] . . .
Clause 2 empowered the Secretary of State to make payments and comply F
with demands without requiring proof that the amounts demanded were
due; and to pay even though LDV might dispute its own liability. Clause 6
provided that it should not be necessary for the Secretary of State before
demanding payment to endeavour to enforce any other guarantee or security
whether from LDV or any other person; and that the Secretary of State
G
shall have the right and power to claim all amounts due and payable
in respect of the liabilities hereunder from [LDV Group] or any other
person in such order and at such times as [the Secretary of State] may in its
absolute discretion consider appropriate.

The BERR guarantee

16 The BERR guarantee in favour of Barclays was executed on 18 May H
2009. By clause 2.1 the Secretary of State guaranteed the payment by LDV
of its liabilities to Barclays up to an aggregate limit of £2.5m. Clause 6.1
provided for the guarantee to terminate at midnight on 12 June 2009 (except
in relation to amounts falling due before that time).

' 2013 The Incorporated Council of Law Reporting for England and Wales
 409
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Lewison LJ

A The realisation agreement

17 The RA was made on 14 May 2009. It recited, among other things
that:
In consideration of the issue of the guarantees by [the Secretary of
State] [Barclays] has agreed that any distribution moneys received by
[Barclays] in respect of the bank liabilities will be shared between them in
B accordance with the terms of this agreement.
18 The relevant terms of the RA provided as follows:
1.1 In this agreement: . . .
 counter-indemnity: means the counter-indemnity entered into by
[LDV Group] on or about the date of this agreement in favour of [the
C Secretary of State] in respect of its liabilities under the guarantees.
 creditors: means each of [Barclays] and [the Secretary of State].
 distribution moneys: means any moneys received by [Barclays] or
any person acting on behalf of or on the instructions of [Barclays] in
respect of the bank liabilities or the guarantor liabilities, as the case may
be, including but not limited to those received from:
(a) the enforcement of the bank security or any part thereof;
D (b) the proceeds of dissolution and liquidation of [LDV Group]
and/or any related party or distribution of its assets among its creditors
(however such liquidation or distribution may occur) . . . ;
. . . guarantor liabilities: means the aggregate of the amounts in
various currencies at any time and from time to time owing by [LDV
Group] or any related party to [the Secretary of State] and unpaid in
E respect of principal, interest, default interest, commissions, charges, fees,
expenses and indemnities.
 realisation sharing amount: means an amount equal to the lesser of:
(a) £3,200,000; and . . .
2. Sharing arrangements
Turnover of distribution moneys
2.1 Unless and until the guarantor liabilities have been paid and
F
discharged in full and [the Secretary of State] has no further actual or
contingent liability under or in respect of the guarantee, to the extent that
[Barclays] receives any distribution moneys for application against the
bank liabilities or the guarantor liabilities as applicable, it shall;
2.1.1 as soon as reasonably practicable following receipt pay to
[the Secretary of State] (and pending such payment, hold on trust for
G the [the Secretary of State]) for application to the guaranteed liabilities (or
to be held by [the Secretary of State] pending such application) an amount
equal to 50% of the distribution moneys, to the extent the aggregate
distribution moneys received do not exceed the realisation sharing
amount; and
2.1.2 as soon as reasonably practicable following receipt pay to [the
Secretary of State] (and pending such payment, hold on trust for [the
H
Secretary of State]) for application to the guaranteed liabilities (or to be
held by [the Secretary of State] pending such application) an amount
equal to the total amount of the distribution moneys, to the extent the
aggregate distribution moneys received exceed the realisation sharing
amount . . .

' 2013 The Incorporated Council of Law Reporting for England and Wales
410
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Lewison LJ

4. Term of agreement A

4.1 This agreement shall continue in force until the date that [the
Secretary of State] has no further actual or contingent liability under or in
respect of the guarantee, and the guarantor liabilities have been
irrevocably discharged in full . . .
9. Successors and assigns
9.1 This agreement shall bind and inure to the benet of the respective B
successors and assigns of the creditors, provided, however, that no
creditors shall assign or transfer any interest it has under this agreement
unless the assignee or transferee undertakes to be bound by the provisions
of this agreement.
9.2 Notwithstanding clause 9.1 above, the rights and obligations of
[the Secretary of State] under this agreement shall be binding on, and C
enforceable by, any successor in title to [the Secretary of State].

The standby letter of credit

19 UBS issued its standby letter of credit on 14 May 2009. It said that it
was issued in favour of the Secretary of State covering credit facilities
provided by yourselves to [LDV] up to an aggregate amount of GBP D
2,500,000. It continued:
A claim under this standby letter of credit must cite this SBLC No
SBLC09032 and must be accompanied by the beneciaries duly signed
request for payment certifying that the amount demanded represents and
covers the unpaid sums due to yourselves by [LDV].
E
20 The standby letter of credit stated in terms that it was subject to the
Uniform Customs and Practice for Documentary Credits ICC Publication
No 600 (UCP 600).

The case below

21 Mr Ibrahim began proceedings against Barclays and the Secretary of F
State. He had thought about joining UBS, but in the end decided not to. The
particulars of claim pleaded the various agreements and the sequence of
events I have summarised, culminating in the payment by Mr Ibrahim to
UBS. The particulars of claim went on to allege in para 19: In the premises,
in the events which have occurred, [Mr Ibrahim] became subrogated to the
rights of BERR in the following: (a) the realisation agreement (b) the G
counter-indemnity.
22 The particulars of claim went on to allege that in about November
2009 LDVs assets were sold and that Barclays received part of the proceeds
of sale. They then said that Barclays had failed to account to BERR or to
Mr Ibrahim for what was due under the RA; and that Barclays had declined
to acknowledge that it held its recoveries on the terms of the RA. Thus the H
particulars of claim claimed the following relief:
(i) A declaration that [Mr Ibrahim] is entitled to be subrogated to:
(a) the rights enjoyed by BERR in relation to the counter-indemnity;
(b) the rights enjoyed by BERR pursuant to the realisation agreement.

' 2013 The Incorporated Council of Law Reporting for England and Wales
 411
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Lewison LJ

A (ii) A declaration that [Barclays] holds all such monies as it may have
received, and as it may receive from LDV pursuant to the terms of the
realisation agreement.
(iv) An account by [Barclays] of all such sums as it may have received
from LDV.
(v) An order upon taking such account for payment to [Mr Ibrahim]
B of such sums as may be due to him pursuant to the realisation
agreement . . .
23 Although the Secretary of State was joined as a party to the
proceedings, no relief was sought against him. The Secretary of State led a
defence. In that defence he pointed out that the particulars of claim made no
claim to relief against him and revealed no cause of action against him. He
C was, however, prepared to continue as a party to the proceedings for the
purpose of assisting the court, [Mr Ibrahim] and [Barclays] if and to the
extent required in the resolution of these proceedings. He made no positive
case and no claim for relief of his own.
24 The precise legal basis on which Mr Ibrahim puts his case was not
immediately apparent from the pleadings; and the judge recorded that the
way in which Mr Tager had put his case changed somewhat during the
D
course of the trial. But ultimately Mr Tager relied on two types of
subrogation, namely: (i) subrogation to extinguished rights (which the judge
called type 1 subrogation) and (ii) subrogation to subsisting rights (which
the judge called type 2 subrogation).
25 Underpinning both ways of putting the case was the contention that
the payment by UBS to the Secretary of State did not discharge the debt due
E under the counter-indemnity from LDV to the Secretary of State: Vos Js
judgment [2012] 1 BCLC 33, para 6. The judge described Mr Ibrahims case
thus, at para 8:
Mr Tager submits that Mr Ibrahim is entitled to engage type 1
subrogation (on the basis that the arrangements with UBS were simply a
mechanism to ensure that Mr Ibrahim paid the Secretary of State, so that
F one should look at the substance rather than the form), because the debt
due from LDV to the Secretary of State was not discharged by the
payment by UBS. He submits that Mr Ibrahim can also engage type 2
subrogation because the agreement or understanding between all the
relevant parties was that Mr Ibrahim (again regarding the arrangements
with UBS as purely mechanistic) would be entitled to stand in the shoes of
G the Secretary of State to share in Barclays recoveries from an
administration of LDV if UBS paid up.
26 The judge then considered the basic contention that the payment by
UBS to the Secretary of State did not discharge LDVs obligations to the
Secretary of State under the counter-indemnity, and rejected it. He
continued at paras 130—132:
H 130. Since the answer to the rst issue is that UBSs payment did
discharge LDVs liability to the Secretary of State, this issue does not
arise. This is because, despite some prevarication in submissions, it was
ultimately common ground between the parties that, that if LDV Groups
debt to the Secretary of State was discharged by UBSs payment,

' 2013 The Incorporated Council of Law Reporting for England and Wales
412
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Lewison LJ

Mr Ibrahim could not make either a type 1 or a type 2 subrogation claim A

against Barclays.
131. The reason for that concession was simply the unambiguous
wording of the distribution provision in clause 2.1 of the RA, which is
prefaced by the following condition, namely that distributions are
permitted to the Secretary of State: Unless and until the guarantor
liabilities have been paid and discharged in full and [the Secretary of
B
State] has no further actual or contingent liability under or in respect of
the guarantee. This condition was undoubtedly fullled when UBS made
its payment to the Secretary of State because by that time:
(i) The guarantor liabilities (meaning the aggregate of the amounts
owing by LDV Group to the Secretary of State and unpaid in respect of
principal, interest, default interest, commissions, charges, fees, expenses
and indemnities) had been discharged for the reasons I have given; and C
(ii) The Secretary of State had no further actual or contingent liability
under or in respect of the guarantee.
132. Accordingly, when UBS paid the Secretary of State, the Secretary
of States right to distribution moneys as dened in the RA ceased. It
was at no time suggested that, when this right ceased, any other right of
the Secretary of State against Barclays, whether at common law or in D
equity, could survive. Nor was it suggested that any right of subrogation
could survive the termination of the Secretary of States contractual right
to distribution moneys.
27 Thus Mr Ibrahims claim failed.

Events since trial E

28 On 29 February 2012 the Secretary of State executed an assignment
of his rights arising out of or in relation to the RA and the counter-indemnity
to Mr Ibrahim. Notice of the assignment was given to Barclays on 12 March
2012. Mr Ibrahim asked for permission to introduce the assignment into
evidence on this appeal.
29 The argument in support of the application asserted that if
F
Mr Ibrahim had taken an assignment before trial then the only issue that
Vos J would have had to determine was whether the payment by UBS to the
Secretary of State discharged LDVs obligations under the counter-
indemnity. Thus there would have been no need to determine any of the
subrogation issues. The argument went on to assert that if Mr Ibrahim
succeeded in persuading this court that the payment by UBS did not
discharge LDVs debt, then it would follow that [Mr Ibrahim] is entitled to G
judgment against Barclays in the sum of [£1.4m], Barclays having recovered
[£3.8m] from LDV. Mr Tager recognised that the assignment would have
to be pleaded; and proposed an amendment to the particulars of claim to
plead it. After some discussion Mr Tager agreed that the amendments would
include not only the positive averment of the assignment, but also the
deletion of reliance on subrogation previously contained in the particulars of
H
claim. Thus paras 19 and 22(i) of the particulars of claim (which had been
the foundation of the claim at trial) would be deleted.
30 The rst point that Mr Goodall took in opposition to the application
was indeed the pleading point. As he rightly said unless the assignment was
pleaded, it went to no issue in the case. He also pointed out that an appellate

' 2013 The Incorporated Council of Law Reporting for England and Wales
 413
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Lewison LJ

A court is always very reluctant to allow an appellant to pursue a case that was
not raised below. Second, he said that the delay in achieving the assignment
had not been satisfactorily explained and for that reason too the new
evidence should not be admitted.
31 Under the old rules an amendment to a pleading related back to the
issue of the writ. Amendments were commonly refused if they would have
B
allowed a plainti› to assert a cause of action that he did not have at the date
when the writ was issued. Although it is not entirely clear whether the
doctrine of relation back has been abolished for all purposes (e g amendment
to plead a cause of action that would be statute-barred at the date of the
amendment but not at the date of the claim form), there have been cases in
which amendments have been allowed to permit a claimant to rely on events
post-dating the issue of the claim form. Moreover, if, for example, a party
C has died during the course of proceedings, it would be routine to allow his
personal representatives to carry on the proceedings. The assignment of a
cause of action from the Secretary of State to Mr Ibrahim is akin to such a
case. Although we recognised the force of Mr Goodalls point about the
paucity of evidence, we decided that the interests of justice came down
rmly in favour of allowing the amendment to be made and the new
D evidence adduced. We gave a ruling to that e›ect during the course of the
appeal. It follows that all issues about subrogation fell away.

Did payment by UBS to the Secretary of State discharge LDVs obligation?

32 As I have recorded it was common ground below that if the payment
by UBS to the Secretary of State did discharge LDVs obligations under the
E
counter-indemnity, then Mr Ibrahims claim must fail. That is still the
position on this appeal. The question of discharge is thus the only issue we
need to decide.
33 We were referred to some of the correspondence passing between the
parties both before and after the nalisation of the contractual documents.
We were also referred to parts of the evidence in which certain of the
witnesses expressed their subjective views about what they thought had been
F agreed. In my judgment all this material and evidence was entirely irrelevant
to the bare legal question we have to decide. I do not therefore propose to set
it out or discuss it. Mr Tager placed some reliance on the Berlin term sheet
(parts of which I have set out). He accepted that it was not relevant to
questions of interpretation of the suite of contractual documents, but said
that it was relevant to what the parties intended. I did not follow the
G suggested distinction.
34 The judge [2012] 1 BCLC 33 reasoned as follows.
(i) Whether a payment discharges a debt depends primarily on the
intention of the creditor and the debtor; in this case LDV and the Secretary of
State. Their intention must be derived primarily from the documents they
entered into, but it is permissible to look at other evidence to consider what
their understandings were: para 113.
H
(ii) There was no direct evidence of the intention of LDV beyond clause 6
of the counter-indemnity: para 114.
(iii) UBS was party to an autonomous instrument, namely the letter of
credit. Its intentions may not be strictly relevant but it was undoubtedly
bound by the terms of the letter of credit: para 115.

' 2013 The Incorporated Council of Law Reporting for England and Wales
414
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Lewison LJ

(iv) As a matter of interpretation of the letter of credit UBS would only be A

bound to make a payment that the Secretary of State had certied
represents and covers the unpaid sums due to the Secretary of State by
LDV. The word cover in context means discharge: para 128.
(v) The Secretary of State secured the payment from UBS on the basis of a
representation that it would discharge the LDV debt; and by clause 6 of the
counter-indemnity LDV had given him the authority to demand the amount B
of its debt from any other person. Both of them must be taken to have
intended that such a payment would discharge LDVs liability to the
Secretary of State under the counter-indemnity: para 128.
(vi) Therefore UBS payment to the Secretary of State did discharge LDVs
liability to the Secretary of State under the counter-indemnity.
35 In their skeleton argument Mr Tager and Mr Jackson said that the
C
judge decided that UBS made its payment as agent for LDV. I do not think
he did. Nowhere does he mention the question of agency. As I read the
judgment he approached the question on the basis of the intention of the
relevant parties, objectively ascertained. However that may be, in opening
the appeal Mr Tager submitted that UBS was a stranger so far as the debt
owed by LDV to the Secretary of State was concerned; and that, in those
circumstances a payment by UBS could not have discharged LDVs debt D
unless it was made by UBS as agent for LDV. Agency, he said, was essential
if LDVs debt was to be discharged by UBS payment. If there were no
agency there could be no discharge. He submitted that:
(i) LDV did not see the letter of credit and had no involvement in its
drafting. They did not procure its issue. They cannot be treated as the
principal in a relationship of agency with UBS; E
(ii) The letter of credit was an autonomous transaction. In making
payment under the letter of credit UBS was doing no more than complying
with its own freestanding obligation to make a payment on presentation of
compliant documents. It cannot be regarded as having been in any sense the
agent of LDV;
(iii) The evidence adduced on behalf of the Secretary of State made it clear
F
that no one within BERR ever thought that payment by UBS would deprive
Mr Ibrahim of what they believed were his rights to subrogation under the
general law.
36 In support of the submission that a payment made by a third party
will only discharge a debtors debt if made as agent for the debtor, Mr Tager
relied on Simpson v Eggington (1855) 10 Exch 845. The treasurer of the
corporation of Licheld paid Mr Eggington, the corporations former clerk, G
a years salary thinking that he had the corporations authority to do so. In
fact he did not; and the corporation repudiated the payment and sacked
Mr Eggington. The new clerk sued for the money; and Mr Eggington said
that he could set o› his entitlement to a years salary. Parke B gave the
judgment of the court. He said, at p 847:
The general rule as to payment or satisfaction by a third person, not H
himself liable as a co-contractor or otherwise, has been fully considered in
the cases of Jones v Broadhurst (9 CB 193), Belshaw v Bush (11 CB 191),
and James v Isaacs (22 LJCP 73); and the result appears to be, that it is not
su–cient to discharge a debtor unless it is made by the third person, as

' 2013 The Incorporated Council of Law Reporting for England and Wales
 415
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Lewison LJ

A agent, for and on account of the debtor and with his prior authority or
subsequent ratication. (Emphasis added.)
37 The rst critical question, then, is whether the third party is himself
liable as a co-contractor or otherwise. If he is, then the general principle
stated by Parke B will not apply. The quotation from this judgment in
Mr Ibrahims skeleton argument omitted this crucial part of the principle.
B 38 In In re Rowe; Ex p Derenburg & Co [1904] 2 KB 483 Mr Rowe
owed money to Dehrenburg & Co. Rowes rm made a voluntary payment
of the amount of the debt. Dehrenburg & Co subsequently claimed to be
entitled to prove in Mr Rowes bankruptcy for the whole of the debt; and
their claim was upheld by this court. Vaughan Williams LJ said, at p 488:
The words in which Buckley J nds the facts are these: This is not a
C case in which a stranger comes and o›ers to the creditor a portion of the
debt due, and the creditor accepts it towards satisfaction of the amount
due, there being no communication with the debtor in the matter. It was
not tendered or accepted in reference to any part of the debt at all, but it
was o›ered and accepted as a voluntary payment made in consideration
of the fact that the creditor had incurred losses through the act of a person
D for whom Bewick, Moreing & Co held themselves to be on some moral
ground, at any rate not upon any legal ground, responsible. I think that
that conclusion of fact was perfectly right. This, as Buckley J points out,
was a payment with which Rowe, the debtor, had nothing to do and of
which he was quite ignorant. It did not purport to be made on his behalf.
It did not purport to be made on account of either the debt or the debtor.
It was a voluntary gift made by Bewick, Moreing & Co for the purpose of
E mitigating a loss for which they were not liable. I do not think that the
parties to this transaction intended, the one the payment to be made, the
other the payment to be accepted, for or on account of the debtor or of
the debt. (Emphasis added.)
39 In my judgment the crucial fact here is that the payment was a
voluntary payment; that is to say one for which the payer had no legal
F liability. Once again, the quotation from this judgment in Mr Ibrahims
skeleton argument omitted this crucial part of the principle. In addition the
payment was not made in reference to . . . the debt. Even where a
payment does discharge anothers debts the law may still decline to
recognise that any rights have accrued to the payer as a result of the
payment. Owen v Tate [1976] QB 402 is one example.
G 40 Where the payer has been compelled to pay the legal position is quite
di›erent. Many of the cases concern a case where A has paid a sum of
money equivalent to an amount that B was liable to pay, and subsequently
claims to be recouped by B. As claim to recoupment could only succeed if
his payment had discharged Bs liability. Even where the question of
discharge is not explicitly discussed in the cases, it is the fundamental
premise upon which recoupment rests.
H
41 In Exall v Partridge (1799) 8 Durn & E 308 Mr Exall left his carriage
with Mr Partridge, a coach-maker. Mr Partridge was the tenant by
assignment of his coach building works. His landlord distrained for rent and
seized Mr Exalls carriage. In order to get his carriage back Mr Exall paid
the landlord, and then claimed recoupment not only from Mr Partridge, but

' 2013 The Incorporated Council of Law Reporting for England and Wales
416
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Lewison LJ

also from the original tenants. His claim succeeded. Of the four judges who A
heard the case Lawrence J was the clearest on the question of discharge. He
said, at p 311:
here was a distress for rent, due from the three defendants; the notice
of distress expressed the rent to be due from them all; the money was paid
by the plainti› in satisfaction of a demand on all, and it was paid by
compulsion; therefore I am of opinion that this action may be maintained B
against the three defendants. The justice of the case indeed is, that the one
who must ultimately pay this money, should alone be answerable here:
but as all the three defendants were liable to the landlord for the rent in
the rst instance, and as by this payment made by the plainti›, all the
three were released from the demand of the rent, I think that this action
may be supported against all of them. C
42 This, it should be noted, was a case in which Mr Exall had no
contractual liability to pay. He himself was not liable to pay the rent.
Moreover his action in leaving his carriage with Mr Partridge was itself a
voluntary act. In addition the fact that Mr Exall left his carriage with
Mr Partridge was unknown to the other defendants who were nevertheless
held liable to pay. D
43 In Moule v Garrett (1872) LR 7 Ex 101 an original tenant was
compelled to pay damages for dilapidations. He successfully claimed
recoupment against the ultimate assignee in possession. Cockburn CJ,
at p 104, approved a statement in Leake on Contracts as follows:
Where the plainti› has been compelled by law to pay, or, being
compellable by law, has paid money which the defendant was ultimately E
liable to pay, so that the latter obtains the benet of the payment by the
discharge of his liability; under such circumstances the defendant is held
indebted to the plainti› in the amount. (Emphasis added.)
44 The words so that in the quotation are to some extent ambiguous.
They could mean in consequence of which (i e that would be the result) or
they could mean in circumstances in which (i e that could be the result). In F
context, I think that the former meaning is the correct one.
45 In Brooks Wharf and Bull Wharf Ltd v Goodman Bros [1937] 1 KB
534 Goodman Brothers deposited imported furs in Brooks bonded
warehouse. A number of them were stolen, without negligence on the part
of the warehousemen. As bonded warehousemen Brooks were compelled
to pay customs duties on the imported furs. They claimed recoupment from
Goodman Brothers. The claim succeeded. Lord Wright MR referred to the G
principle quoted by Cockburn CJ in Moule v Garrett LR 7 Ex 101 and said
that it had been applied in a great variety of circumstances and that it did
not depend on privity of contract. On the question of discharge he said,
at p 546:
The payment relieved the importer of his obligation. The plainti›s
H
were no doubt liable to pay the customs, but, as between themselves and
the defendants, the primary liability rested on the defendants. The
liability of the plainti›s as warehousemen was analogous to that of a
surety. It was imposed in order to facilitate the collection of duties in a
case like the present, where there might always be a question as to who

' 2013 The Incorporated Council of Law Reporting for England and Wales
 417
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Lewison LJ

A stood in the position of importer. The defendants as actual importers

have obtained the benet of the payment made by the plainti›s and they
are thus discharged from the duties which otherwise would have been
payable by them.
46 In Electricity Supply Nominees Ltd v Thorn EMI Retail Ltd (1991)
63 P & CR 143 Electricity Supply Nominees Ltd (ESN) had let property to
B Thorn on terms that required payment of a service charge. Thorn had sublet
the property to BT on similar terms. Because of the operation of Part II of the
Landlord and Tenant Act 1954 ESN had become simultaneously entitled to
enforce both the covenants in the head lease against Thorn and the
covenants in the sublease against BT. Thorn paid service charges due under
its lease. The question was whether it was entitled to recover the amount of
C the payment from BT. One step in the decision was whether Thorns
payment had discharged BTs liability to ESN. Fox LJ said, at p 148:
If a person makes a voluntary payment intending to discharge
anothers debt, he will only discharge the debt if he acts with that persons
authority or the latter subsequently raties the payment. Consequently if
the payee makes the payment without authority and does not obtain
D subsequent ratication he normally has no redress against the debtor.
The position where there is a payment under compulsion, however, is
di›erent.
47 He then referred to some of the cases I have mentioned. Fox LJ
concluded that Thorn paid under compulsion because it had no answer to
ESNs claim. Second (and importantly for present purposes) Thorns
E payment discharged BTs debt to ESN:
Secondly, it seems to me that the payment discharged BTs liability to
ESN. BT could have been sued direct by ESN for the full amount of the
charges and would have had no answer to the claim. The claim by ESN,
though it would have arisen by virtue of the underlease and not by virtue
of the headlease, would have been for exactly the same amount computed
F
in exactly the same way and in respect of the same services as the amount
recoverable by ESN from Thorn.
48 Sir Denys Buckley agreed with Fox LJ. Staughton LJ also agreed.
49 These authorities in my judgment justify the rst two of
Mr Goodalls propositions, namely: (i) payment by a third party to a
G
creditor under legal compulsion on account of a debt owed by a debtor will
automatically discharge the debtors debt; (ii) that is the case even if the legal
compulsion arises out of a contractual obligation voluntarily assumed by the
third party.
50 Where the case is one of payment under compulsion, questions of
agency, authority and ratication do not in my judgment arise.
51 Although the authorities on which Mr Tager relied in opening the
H appeal were cases dealing with voluntary payments, in the course of his reply
he accepted that UBS did pay the Secretary of State under compulsion.
Accordingly in my judgment the initial criticism of the judge in dealing (or
not dealing) with questions of agency were misplaced. But, Mr Tager said,
his acceptance that UBS paid under compulsion begged the question: what

' 2013 The Incorporated Council of Law Reporting for England and Wales
418
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Lewison LJ

was it that UBS was compelled to pay? Was it, to use Mr Goodalls A
language, on account of [the] debt?
52 Mr Tager submitted that the obligations of an issuing bank under a
letter of credit are autonomous. That is undoubtedly correct. In the rst
place UCP 600 makes that clear. Article 4a states:
A credit by its nature is a separate transaction from the sale or other
contract on which it may be based. Banks are in no way concerned with B
or bound by such contract, even if any reference whatsoever to it is
included in the credit. Consequently, the undertaking of a bank to
honour, to negotiate or to full any other obligation under a credit is not
subject to claims or defences by the applicant resulting from its
relationship with the issuing banks or the beneciary.
53 Article 5 states: Banks deal with documents and not with goods, C
services, or performance to which the documents may relate.
54 Article 7a states:
Provided that the stipulated documents are presented to the
nominated bank or to the issuing bank and that they constitute a
complying presentation, the issuing bank must honour if the credit is
available . . . D

55 Thus the obligation of an issuing bank under a letter of credit is to

honour the credit on presentation of compliant documents. The letter of
credit itself will specify what documents comply. Mr Tager referred us to
Lord Diplocks description of the autonomy principle in Commercial
Banking Co of Sydney Ltd v Jalsard Pty Ltd [1973] AC 279, 286:
E
The banker is not concerned as to whether the documents for which
the buyer has stipulated serve any useful purpose or as to why the
customer called for a tender of a document of a particular description.
56 Mr Tager took as his paradigm example a cross-border contract for
the sale of goods where the buyer arranges a letter of credit for an amount
equivalent to the price of the goods. He submitted that when the issuing F
bank honours the credit it is not paying the price of the goods. If, for
example, the buyer claims to have rescinded the contract on the ground of
misrepresentation by the seller, the bank must still pay. Whether the
payment is or is not payment of the price must depend on the terms of the
contract for sale. In principle I agree with this. If the buyer has rescinded
the contract for misrepresentation, the banks payment cannot discharge the
buyers debt, because there is no longer a debt to discharge. In the paradigm G
example the buyer will have arranged the letter of credit. But what is
important is not his intention in his capacity as applicant, but his intention in
his capacity of buyer.
57 In the paradigm case both seller and buyer will have contracted on
the footing that payment by documentary credit will be payment of the
price. As Benjamins Sale of Goods, 8th ed (2010) explains, at para 23-001: H
Through the tendering of commercial documents, a seller can provide
a signicant measure of proof that it has performed its obligations under a
contract. By contracting for payment against documents, as through a
collection as discussed in the previous chapter, a buyer gains such

' 2013 The Incorporated Council of Law Reporting for England and Wales
 419
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Lewison LJ

A protection against the risk of default by its seller. Equally, however, a

seller may be desirous of protection against default by the buyer. The
focus of this chapter is upon the introduction of a trusted party to assume
nancial obligations to the seller in respect of the price. Most commonly,
the parties contract for payment by documentary credit (or letter of
credit): this still a›ords the buyer the protection of payment against
documents but, in addition, provides the seller with protection against
B
buyer default by substituting one or more banks as the party to which the
seller looksindeed, primarily at least, is required to lookfor
payment.
58 In their article Subrogation and Bankers Autonomous
Undertakings (2000) 116 LQR 121, 136 McCormack and Ward state:
C When the issuer of a standby letter of credit duly pays the beneciary,
it is necessarily discharging (at least in part) its customers
obligationthis is the intention of all the parties and the legal e›ectbut
it is also discharging its own obligation which it owes, personally, to the
beneciary.
59 In other words the general view is that the seller looks to the letter of
D credit for payment of the price. Thus it is, I think, received wisdom that
when an issuing bank honours a letter of credit its payment will discharge
the obligation that gave rise to the need for the letter of credit.
60 It is, however, important to be clear about the scope of the autonomy
principle. Again Benjamins Sale of Goods, 8th ed explains, at para 23-070:
The principle of the autonomy of the credit insulates the operation of
E the credit from any matters extraneous to the credits own terms. In
consequence, rst, the credit is independent of disputes arising out of the
underlying contract between the applicant and the beneciary . . .
Secondly, the credit is also independent of the relationship between the
applicant and the issuing bank. Any rights the issuing bank may have
against the applicant do not prejudice the rights of the beneciary under
the credit. Thirdly, and conversely, the beneciarys rights are those
F
specied in the credit as communicated to it: the beneciary cannot avail
itself of the relationships between banks or between the applicant and the
issuing bank. (Emphasis added.)
61 It is clear, therefore, that the autonomy principle does not preclude
looking at the terms of the letter of credit to see what it is that the bank is
paying. In the present case the credit said that it was covering credit
G
facilities provided by yourselves to [LDV]. Thus LDV was the only
potential debtor identied in the terms of the letter of credit. The triggering
event was certication by the Secretary of State that the amount demanded
represents and covers the unpaid sums due to yourselves by [LDV]. The
judge said [2012] 1 BCLC 33, para 128:
It seems to me that the common or garden usage of the word cover in
H
this context is indeed discharge, rather than is su–cient to discharge. If
there were any extraneous material to suggest that the wording was
required for another reason, that might have been signicant. But I can
only rely on the evidence that is available. And that shows that the
Secretary of State was required, in order to make his claim against UBS,

' 2013 The Incorporated Council of Law Reporting for England and Wales
420
Ibrahim v Barclays Bank plc (CA) [2013] Ch
Lewison LJ

and for reasons that have not been explained in the seven days of the trial, A
to certify that the amount demanded represented and covered (meaning
discharged) the debt due from LDV Group to the Secretary of State.
62 I agree with this, and do not need to add much more. In addition to
certifying that the amount demanded covers the amount unpaid by LDV,
the certicate also had to say that the amount demanded represents that
amount. If it represents the amount unpaid by LDV it must follow, as I see B
it, that as between LDV and the Secretary of State it has the legal
consequences of a payment by LDV. Moreover, as Mr Goodall submitted,
the payment made by UBS was undoubtedly on account of LDVs debt in
the sense that it was referable to that debt and to nothing else. In my
judgment that is su–cient to bring the compulsion principle into play.
63 Mr Tager sought to characterise the credit as an insurance policy or C
as an indemnity akin to an insurance policy. But that, in my judgment,
would o›end the very autonomy principle on which he relied. An insurer or
indemnier is entitled to enquire into the real loss that the insured or
indemnied has su›ered; and is not obliged to pay more than that loss.
Under the letter of credit, UBS was not entitled to make any such enquiry.
Moreover the letter of credit does not refer to loss: it refers only to sums
due and unpaid. D
64 Mr Goodalls third proposition was that a payment to a creditor
made under an indemnity will discharge any liability to indemnify under an
equal or co-ordinate indemnity. That proposition is well supported by
authority: Caledonia North Sea Ltd v British Telecommunications plc
2002 SC (HL) 117, para 63, per Lord Mackay of Clashfern; para 92 per
Lord Ho›mann. Accordingly, in my judgment even if the credit were to be E
characterised as an indemnity, it could only be (at best from Mr Ibrahims
point of view) an indemnity co-ordinate with LDVs counter-indemnity. But
that would not help Mr Ibrahim; because of Mr Goodalls third proposition.
65 Another label that Mr Tager sought to attach to the letter of credit
was a sub-guarantee. If it were to be treated in that way, one would rst
have to ask: what primary liability is being guaranteed? The only answer, in
my judgment, is that it is the liability of LDV under the counter-indemnity to F
the Secretary of State, because that is the only liability referred to in the
credit itself. It was certainly not a guarantee of the Secretary of States own
guarantee of LDVs liability to Barclays. In that sense the letter of credit was
a guarantee (rather than a sub-guarantee) of LDVs liability. But if that were
the case, then the Secretary of State would be the creditor, LDV the principal
debtor, and UBS the guarantor. In such a case it is clear law that payment by G
the guarantor discharges the debt of the principal debtor, and gives rise to
rights by way of subrogation in the guarantor. But since we are concerned
only with discharge, and not with subrogation, that does not assist
Mr Ibrahim either. In my judgment these attempts to recharacterise the
credit do not carry Mr Ibrahim home.
66 Applying the principle as stated by Fox LJ in Electricity Supply
H
Nominees Ltd v Thorn EMI Retail Ltd 63 P & CR 143 to the present case:
(i) the Secretary of State could have sued LDV for the amount that he had
been required to pay to Barclays plus the other amounts that LDV was liable
to pay under the counter-indemnity; (ii) LDV would have had no answer to
the claim; (iii) the claim against UBS was for the same amount computed in

' 2013 The Incorporated Council of Law Reporting for England and Wales
 421
[2013] Ch Ibrahim v Barclays Bank plc (CA)
Lewison LJ

A the same way, and was in respect of the same action on the part of the
Secretary of State (i e payment to Barclays plus the other amounts
recoverable under the counter-indemnity).
67 In those circumstances I conclude, like the judge, that the payment
by UBS did discharge LDVs liability to the Secretary of State under the
counter-indemnity (as well as any liability that LDV might have had to the
Secretary of State under principles of subrogation). It follows in my
B
judgment that once UBS had paid the Secretary of State the guarantor
liabilities (as dened in the RA) had been paid and discharged in full; and the
Secretary of States rights under the RA came to an end. There was,
therefore, nothing for him to assign to Mr Ibrahim on 29 February 2012;
and no rights to which Mr Ibrahim has become entitled.
68 I would dismiss the appeal.
C
MCFARLANE LJ
69 I agree.

RIMER LJ
70 I also agree.

D Appeal dismissed with costs.

SUSAN DENNY, Barrister

' 2013 The Incorporated Council of Law Reporting for England and Wales