Chudley v Clydesdale Bank Plc (t/a Yorkshire Bank) – Case Summary

Chudley v Clydesdale Bank Plc (t/a Yorkshire Bank)

Court of Appeal

Citations: [2019] EWCA Civ 344; [2020] QB 284; [2019] 3 WLR 661; [2019] 2 All ER (Comm) 293; [2019] 1 Lloyd’s Rep 333; [2019] 1 CLC 323; [2019] CLY 620.


The claimants paid a money to an investment company to finance a property development scheme. They were not aware that the investment company had already signed a ‘letter of instruction’ with the defendant bank. The letter instructed the defendant to open a ‘segregated client account’. The company could not withdraw funds until a particular date without a solicitor’s undertaking. Any undertaking would specify that the funds would be used for project costs and repaid by a particular date.

The defendant failed to open the account. The claimant paid their money into a normal account that investment company held with the defendant. Before the date specified in the letter of instruction, the investment company withdrew money from that account. They did not provide a solicitor’s undertaking. They subsequently went into liquidation.

The claimants sued the defendant for breach of contract. They claimed that the letter was a binding contract, which they could sue under using the provisions of the Contracts (Rights of Third Parties) Act 1999. The defendant contended that the letter was not a contract, because there was a condition precedent to it becoming a binding agreement.


Section 1 of the Contracts (Rights of Third Parties) Act 1999 states that:

‘‘(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if— (a) the contract expressly provides that he may, or (b) subject to subsection (2), the term purports to confer a benefit on him.

(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.

  1. Was the letter of instruction a binding contract between the defendant and the investment company? If so, had the defendant breached the contract?
  2. Did any breach by the bank cause the claimant’s loss?
  3. Was any contract made for the claimants’ benefit? If so, did s.1(2) apply?
  4. Was the claimant sufficiently expressly identified in the contract?

The Court of Appeal held in favour of the claimants. The defendant had failed to discharge the burden of proving any condition precedent. Such a condition was not apparent on the face of the letter. The letter was therefore a binding contract. The defendant breached the contract by failing to open the account.

A contract to open a ‘segregated client account’ for a property scheme was clearly designed to benefit the scheme’s investors: it protected their money. There was no evidence of contrary intention. The reference to a ‘client account’ and the property scheme was an express identification of a class of people – investors in the scheme – of which the claimants were members. It did not matter that the claimants were unaware of the contract.

The defendant’s breach caused the claimants to lose money when the investment company withdrew money from the account without a solicitor’s undertaking. The burden was not on the claimant to demonstrate what would have happened to the money if the contract had not been breached. It was on the defendant to prove that they would have paid the money out anyway. They had failed to prove this. The defendant was therefore liable for that loss.

This Case is Authority For…

A party who argues that there is a condition precedent to a written agreement becoming a binding contract must establish two matters:

  1. That the written document does not contain the entire agreement; and
  2. That there was evidence that the parties had agreed on a condition to be fulfilled before the contract arose.

There is no need for third-partied to be aware of a contract to rely on the provisions of the Contracts (Rights of Third Parties) Act 1999.


The same contractual term may be relied on to establish both s.1(1)(b) and s.1(3) of the Contracts (Rights of Third Parties) Act 1999. The fact that s.1(3) requires the claimant to be ‘expressly’ identified does not stop the courts from interpreting the contract using the normal rules of construction. If the contract, properly interpreted, identifies the claimant, then s.1(3) is fulfilled.