Momm v Barclays Bank International Ltd; Momm (trading as Delbrueck & Company ) v Barclays Bank International Ltd

May 27. Kerr J. read the following judgment. The plaintiffs are a German banking partnership with offices in Cologne and Hamburg. They claim £120,000 from the defendants on the ground that on June 27, 1974, this sum was wrongfully debited from their account at the defendants' branch at 168, Fenchurch Street, in the city of London. The defendants deny liability and say that the case raises an important issue of banking law following upon the computerisation of customers' accounts. It arises out of the failure of another German bank, Bankhaus I. D. Herstatt K.G.a.A., who also had an account at the same branch.

On June 24, 1974, the plaintiffs and Herstatt concluded a contract for a normal currency exchange transaction wherby the plaintiffs agreed to transfer to Herstatt a quantity of Deutschmarks against the transfer by Herstatt to the plaintiffs of £120,000 in sterling. Both transfers were on the basis of “value June 26, 1974.” This meant that the payments had to be made on that date. Herstatt designated an account at a Hamburg bank to which the Deutschmarks were to be credited and the plaintiffs designated their account at the defendants' branch to which the sterling was to be credited. The plaintiffs may have known from previous transactions that Herstatt also had an account at this branch, but they did not of course know, nor were they concerned, whether the payment would be made by a transfer from that account or in some other way.

On the following day, Herstatt instructed the branch by telex to make certain payments, including this one, “value June 26.” They instructed the defendants to pay two sums of £10,000 and £5,000 respectively into two accounts which Herstatt had with other London banks, and they also instructed them to transfer £120,000 from their account to the plaintiffs' account at the same branch. The latter payment was accordingly an “in-house” payment, as it was called in the evidence, whereas the others were “out-house” payments.

In order to follow what happened next it is necessary to refer to two background matters. The first concerns Herstatt's account at this branch. The second concerns the procedure within the so-called inward sterling transfer department of the branch, and no doubt also at other branches of the defendants, for “in-house” and “out-house” payments.

Herstatt had no overdraft facilities on this account. In the case of “external” accounts, as this was, the Bank of England imposes stringent restrictions on the grant of overdraft facilities for more than 24 hours, though in practice these may be interpreted somewhat elastically, particularly if the account-holder is a bank. But from about November 1973 the defendants' “International Division,” which is in the same building as this branch, had given instructions that no overdraft facilities were to be granted to Herstatt because their financial position had become somewhat suspect. However, overdraft positions nevertheless arose on Herstatt's account for a day or two from time to time, in particular in December 1973 when the debit balance exceeded £50,000 on two occasions and £40,000 on another, and again in May 1974 when it was about £19,000. Whenever this happened the branch drew Herstatt's attention to the position by telephone or telex, and the matter was soon put right. No payment orders from Herstatt were ever refused; nor was there ever any occasion, as happened in the present case, when a payment order was first carried out but subsequently reversed.

The procedure for dealing with payment orders of the...