Chase Manhattan Bank NA v Israel-British Bank (London) Ltd
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 is a landmark case in English trusts law focusing on the doctrine of constructive trusts. The ruling established that a trust can arise to safeguard funds transferred due to an error, providing a proprietary remedy. This case plays a crucial role in distinguishing whether claims based on unjust enrichment should be addressed through personal or proprietary remedies.
Concerning conflict of laws, the court determined that the substantive law of New York governs whether the payer maintains an equitable interest in mistakenly transferred funds, categorizing this as a matter of substantive rather than procedural law.
The judgment has been subject to extensive and authoritative critique within both academic circles and judicial opinions.
Facts
Chase Manhattan was instructed to transfer $2 million to Israel-British Bank but erroneously made a duplicate payment. After Israel-British Bank became insolvent—subsequent to the conviction of its managing director Yehoshua Ben-Zion for embezzling £20 million—Chase sought restitution for the mistaken payment. Instead of filing a claim as a creditor in the liquidation process, Chase contended that the duplicated funds were held on trust, allowing it to assert a proprietary claim and thus priority over other creditors.
Israel-British Bank had knowledge of the duplicate payment prior to entering liquidation.
Judgment
Goulding J ruled in favor of Chase Manhattan, holding that the entire amount could be recovered because the recipient held the money on trust from the moment it was received. He stated:
Criticism
This ruling has attracted significant and sustained scholarly and judicial criticism.
In Westdeutsche Landesbank Girozentrale v Islington LBC, Lord Browne-Wilkinson expressed reservations about the legal reasoning, disagreeing with the notion that an equitable interest in money can be retained absent any prior equitable right. He also questioned how the conscience of the recipient could be affected if they were unaware of any mistake. Nonetheless, he upheld the decision’s outcome on different grounds. This obiter dictum was heavily criticized by Peter Birks, who argued that unjust enrichment claims should give rise to proprietary remedies regardless of whether the recipient’s conscience is engaged.
Lord Millett also voiced disapproval, contending that the case was incorrectly decided—not due to lack of notice by the transferee—but because the claimant did not possess a proprietary interest capable of being protected.
Much of the criticism focuses on the assumption that English law applied to establish the proprietary interest. However, both parties agreed that New York law governed this issue.