Lancore Services Ltd v Barclays Bank Plc [ChD]
| Jurisdiction | England & Wales |
| Judge | HH Judge Hodge |
| Judgment Date | 25 June 2008 |
| Date | 25 June 2008 |
| Court | Chancery Division |
Chancery Division (Manchester District Registry).
HH Judge Hodge QC.
Stephen Cogley and Peter Ferrer (instructed by Pannone LLP, Manchester) for the claimant.
Andrew Sutcliffe QC and Jonathan Davies-Jones (instructed by DLA Piper UK LLP, Manchester) for the defendant.
The following cases were referred to in the judgment:
BICC plc v Burndy CorporationELR [1985] Ch 232.
Cine Bes Filmcilik ve Yapimcilik AS v United International PicturesUNK [2003] EWCA Civ 1669; [2004] 1 CLC 401.
Costello v Chief Constable of DerbyshireUNK [2001] EWCA Civ 381; [2001] 1 WLR 1437.
Elsey v JG Collins Insurance Agencies LtdUNK (1978) 83 DLR (3d) 1.
Esanda Finance Corporation Ltd v PlessnigUNK [1989] ALJ 238.
Euro London Appointments Ltd v Claessens International LtdUNK [2006] EWCA Civ 385.
Export Credits Guarantee Department v Universal Oil Products CoWLR [1983] 1 WLR 399.
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) LtdELR [1974] AC 689.
Group Josi Re v Walbrook Insurance Co Ltd [1995] CLC 1532.
Jobson v JohnsonWLR [1989] 1 WLR 1026.
Lordsvale Finance plc v Bank of Zambia [1996] CLC 1849; [1996] QB 752.
M & J Polymers Ltd v Imerys Minerals LtdUNK [2008] EWHC 344 (Comm); [2008] 1 CLC 276.
Mahonia Ltd v JP Morgan Chase BankUNK [2003] EWHC 1927 (Comm); [2003] 2 Ll Rep 911; [2004] EWHC 1938 (Comm).
Neste Oy v Lloyds Bank plc (The Tiiskeri)UNK [1983] 2 Ll Rep 658.
Office of Fair Trading v Abbey National plcUNK [2008] EWHC 875 (Comm).
Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] CLC 124; [1994] 1 WLR 161.
Philips Hong Kong Ltd v AG of Hong KongUNK (1993) 61 BLR 49.
R v VUNK [2002] EWCA Crim 108.
Robophone Facilities Ltd v BlankWLR [1966] 1 WLR 1428.
Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade)ELR [1983] 2 AC 694.
Shiloh Spinners Ltd v HardingELR [1973] AC 691.
Stone & Rolls Ltd v Moore StephensUNK [2007] EWHC 1826 (Comm).
Webb v Chief Constable of MerseysideELR [2000] QB 427.
Wisniewski v Central Manchester Health AuthorityUNK [1998] PIQR P324.
Contract — Banking — Card payments — Penalties — System for processing credit and debit card payments — Whether merchant acquirer which had received payments from card issuer could lawfully withhold those payments from merchant which had been engaged in unauthorised third party card processing — Bank reasonably suspected that payment details submitted by merchant related to illegal selling of prescription drugs on internet — Card payments submitted by merchant for payments by cardholders to third parties — Bank entitled to terminate agreement and to suspend then withhold payment in accordance with its terms and conditions — Withholding provisions did not infringe law against penalties — Bank not unjustly enriched.
This was a claim against the defendant bank (Barclays) in respect of card payments said to be due to the claimant (Lancore) which had been withheld by Barclays.
Lancore, as the merchant, had entered into a merchant services agreement (MSA) with Barclays as the merchant acquirer. The Visa and Mastercard Scheme Rules set out the framework under which Barclays had to conduct itself when acting as a merchant acquirer. The Scheme Rules prohibited “aggregation” (sometimes referred to as “laundering”) which occurred when a merchant which had entered into an MSA processed card transactions for the supply of goods or the provision of services by a third party who had not entered into an MSA. Aggregation could be a cloak for transactions which were illegal, or of a sort which a merchant acquirer would not wish to be associated with. The Scheme Rules also prohibited the processing of payment data in respect of illegal transactions. Barclays own Merchant Terms and Conditions reflected both its own interest in prohibiting aggregation and illegal transactions, and the prohibitions in the Scheme Rules. Under the Terms and Conditions in force at the relevant time Barclays was only obliged to process transactions where the goods or services supplied had been supplied by the merchant; the merchant was prohibited from sending payment details in respect of any transactions where it had not itself supplied the goods; and Barclays was entitled to withhold or claw back payments which resulted from transactions where the supplier had not supplied the goods or services or where the transaction was illegal.
Lancore was incorporated in March 2005 principally as a cheque payment processing business and for a few months, using its banking facilities with Barclays, Lancore carried on the business of providing payment processing facilities in respect of low-value cheques drawn in favour of mail order companies principally providing horoscopes and lottery services. In August 2005, Lancore approached Barclays to obtain a merchant service facility to enable it to process credit and debit card payments from mail order sales in five different currencies. On its application the business was described as the sale of kitchenware by mail order/telephone order. Lancore separately confirmed that it owned the goods to be sold. Lancore's application was accepted, subject to providing a security deposit.
In the meantime Lancore had decided to diversify into e-commerce and use its own merchant facility to offer an online multi-currency payment processing service for third party merchants trading via the internet. Lancore's case was that it had told Barclays what it intended to do and Barclays had said that Lancore could go ahead with the processing of transactions for third parties over the internet. Barclays' case was that it would not sanction a merchant facility to someone who was acting as a payment processor or fulfilment house for others and did not inform Lancore that it could use its merchant facility to provide any type of fulfilment service; as far as Barclays was concerned Lancore's proposed new venture was something quite separate from its existing business, and would be subject to its own separate approval processes; no such approval was given.
Lancore's merchant service facility began operating in December 2005. When Barclays ceased payments to Lancore's bank account, in accordance with instructions given in February 2006, it had processed almost 67,000 payments, totalling some US$4.9m and 1.156m Euros. When Barclays suspended payments it was holding some $2.035m and 314,000 Euros for Lancore. Barclays had concluded that Lancore was engaged in unauthorised third party processing or laundering. Lancore ultimately accepted that it had been involved in processing transactions for third parties but asserted that Barclays had been aware of what Lancore had been doing and that Barclays' standard Merchant Terms and Conditions had been varied either by contractual agreement or by some form of estoppel. Barclays gave notice that Lancore's merchant account was terminated. Lancore issued proceedings to recover the suspended payments.
Held, dismissing the claim:
1. Barclays did not represent to or assure Lancore that Barclays would accept and process transactions originating from other e-commerce businesses. Nor did it agree to Lancore acting as a payment processor or fulfilment house, let alone one involving the sale of pharmaceutical or adult products. When Lancore began to submit payment data to Barclays, Lancore's directors knew that virtually all the payment data related to the sale of prescription medicines by third parties to cardholders. The directors of Lancore knew that Barclays had not given its approval to the processing of card payments otherwise than pursuant to its existing merchant facility, which they all appreciated was for the sale of kitchenware by mail and telephone order only; and they also appreciated Barclay's requirement that Lancore should own such goods at the point of sale. Lancore never had title to the goods at the point of sale. There was never any agreed variation to Barclays' Merchant Terms and Conditions. Barclays was not estopped from relying upon the Merchant Terms and Conditions according to their tenor.
2. On the evidence, when Barclays suspended payments to Lancore's bank account and terminated Lancore's merchant agreement, it reasonably suspected within condition 3.12(c) of Barclays Merchant Terms and Conditions that the payment details that Lancore had been submitting to Barclays were both for illegal transactions, and for card payments by cardholders to third party merchants who were engaged in selling prescription drugs over the internet without prescription.
3. On the evidence virtually all of the transactions which Lancore was processing on behalf of others were illegal transactions in prescription drugs.
4. Condition 4.1 of the Merchant Terms and Conditions conferred upon the merchant acquirer a right, where a merchant had sent information about a transaction which was not a “card payment” but which had been processed as one, to charge the card payment back to the merchant, or to refuse to pay it. Lancore was engaged in third party processing and was sending Barclays payment details otherwise than for payments by cardholders for goods or services provided by Lancore itself. Lancore was therefore in breach of condition 3.12(a). That condition had not been varied by agreement, and Barclays was not estopped from relying on it, and Barclays was accordingly entitled to terminate the MSA by giving Lancore immediate notice which it did. Lancore's claim for damages for premature termination of the MSA therefore failed.
5. Having exercised its right to withhold payment during the subsistence of the MSA, Barclays was entitled to rely upon condition 3.12(c) to continue to withhold payment, notwithstanding the MSA's termination.
6. There was no inconsistency in holding that Barclays' obligation to pay its merchant (under condition 2.1) only extended to card payments for goods or services supplied by the merchant...
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Lancore Services Ltd v Barclays Bank Plc
...(save for a payment order in paragraph 1 to which no further reference is necessary) the judge dismissed the claimant's claim (see [2008] 1 CLC 1039). The claimant/appellant, Lancore Services Limited (Lancore), seeks by its appeal to make good its dismissed claim to recover judgment against......