A bank was not liable for the liquidation of a company simply because it was in breach of the banking contract with its customer when it was late in processing a payment.
Global Travel Agency Ltd ("Global") issued flight tickets on behalf of airlines and paid the International Air Transport Association ("IATA") for those tickets by monthly direct debit. On 17 January 2011 Global's payment to IATA was dishonoured by Lloyds TSB Bank plc (the "Bank") but, after special authorisation was given on 19 January 2011, the payment was made on 20 January 2011. Global was placed into creditors' voluntary liquidation on 23 February 2011 and its former director brought a claim against the Bank for breach of contract in making the payment late which, he argued, caused the liquidation of Global.
The Bank was not in breach of contract for not honouring the direct debit payment of 17 January 2011 because it would have caused Global's overdraft limit to be significantly exceeded. While the Bank was in breach of contract for making the payment on 20 January 2011, as senior staff authorised the payment before 3pm on 19 January 2011, the liquidation of Global was too remote. Bank staff could not have foreseen IATA withdrawing ticket facilities as a result of the late payment and, at best, if the payment had been made on 19 January 2011 it would have merely delayed liquidation by three months.
Lenders will welcome the decision as common sense and take confidence that, when defending claims for breach of contract for non-payment of direct debits, they can rely on their agreed lending limits with borrowers.