El Awadi v Bank of Credit and Commerce International SA Ltd – Case Summary

El Awadi v Bank of Credit and Commerce International SA Ltd

High Court

Citations: [1990] 1 QB 606; [1989] 3 WLR 220; [1989] 1 All ER 242; (1988) 138 NLJ Rep 298; (1989) 133 SJ 784; [1989] CLY 164.


The claimant bought £50,000 worth of traveller’s cheques in £100 increments from his bank. The purchase agreement stated at clause 3 that any claim for a refund of lost or stolen cheques was ‘subject to approval by the issuer’. The claimant left the cheques in a plastic bag in between the front seats of his car. They were stolen overnight.

The claimant claimed a refund from the bank. However, the bank refused to refund the cheques, arguing that the claimant had been grossly negligent. The claimant brought an action for breach of contract. He argued that the parties’ contract did not enable the bank to refuse a refund in this instance.

  1. How should clause 3 of the contract be construed?

The Court of Appeal held in favour of the claimant. Clause 3 required the bank to refund the cheques subject to a discretion which was only exercisable if the claimant was in breach of the contract’s express or implied terms. The claimant was not in breach of any express terms.

The court would not imply in fact a clause into the contract requiring the claimant to exercise reasonable care in safeguarding the cheques or to avoid gross negligence. People buy traveller’s cheques because they provide additional security against theft or loss. In those circumstances, it not obvious that the claimant would have agreed not to have this security. For the same reasons, there was also no grounds for implying such a term in law.

As such, the bank had no power to refuse a refund on these facts.

This Case is Authority For…

The court only implies a term in fact if an officious bystander observing the parties contracting would think it obvious that they would agree to a term if it were put to them.

The court will only imply a term in law if three conditions are met:

  1. The contract is one of a ‘defined type’;
  2. The term is ‘necessary’ incident of that kind of contract; and
  3. There is no express term of the contract excluding the term.