Tayeb v HSBC Bank Plc and another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Colman |
| Judgment Date | 05 July 2004 |
| Neutral Citation | [2004] EWHC 1529 (Comm) |
| Docket Number | Case No: 2002 FOLIO 1215 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 05 July 2004 |
[2004] EWHC 1529 (Comm)
Queen's Bench Division (Commercial Court).
Colman J.
Nicholas Elliott QC and Michael Lazarus (instructed by Farrer & Co) for the Claimant.
Jeremy Cousins QC and Mr Stephen Eyre (instructed by Messrs DG Solicitors) for the Defendant.
The following cases were referred to in the judgment of Colman J:
Awilco of Oslo A/S v Fulvia SpA di Navigazione of Cagliari (The Chikuma)WLR [1981] 1 WLR 314.
Bank of Scotland v A LtdWLR [2001] 1 WLR 751.
Crantrave Ltd v Lloyds Bank plcELR [2000] QB 917.
Eyles v EllisENR (1827) 4 Bing 112.
Heinl v Jyske Bank (Gibraltar) Ltd [1999] Ll Rep (B) 511.
Mahonia Ltd v JP Morgan Chase BankUNK [2003] 2 Ll Rep 911.
Momm v Barclays Bank International LtdELR [1977] 1 QB 790.
Royal Brunei Airlines v TanELR [1995] 2 AC 378.
Royal Products Ltd v Midland BankUNK [1981] 2 Ll Rep 194.
Selangor United Rubber Estates Ltd v Cradock (No. 3)WLR [1968] 1 WLR 1555.
Sutherland v Royal Bank of Scotland (1997) 6 Bank LR 162.
TSB (Scotland) v Welwyn Hatfield DC (1993) 2 Bank LR 267.
United Trading Corp SA v Allied Arab Bank LtdUNK [1985] 2 Ll Rep 554.
Banking — Money laundering — Operation of Clearing House Automated Payment System (CHAPS) — Settled banking practice — Whether bank entitled to reverse CHAPS transfer — Criminal Justice Act 1988, s. 93A-93D.
This was a claim against a bank in respect of an amount transferred into the claimant's account by the Clearing House Automated Payment System (CHAPS) and then re-transferred by the bank on the basis that it risked committing an offence under the Criminal Justice Act 1988 Act if the money was not re-transferred and also the risk of being held liable as a constructive trustee if the funds were the product of a fraudulent transaction.
The claimant owned a database of internet domain names for Libya which he was negotiating to sell to a Libyan corporation (‘GPTC’). In anticipation of finalisation of negotiations and completion of the sale he opened an instant saver account at HSBC's branch in Derby. On 21 September 2000 GPTC caused Barclays Bank, Westminster branch, to transfer by CHAPS to the claimant's account at HSBC, Derby some £944,114.27, then the sterling equivalent of US$1.5 million which was the consideration for the sale of the data base. That sum arrived automatically that day at HSBC, Derby, at 13.57. The HSBC District Service Centre at Birmingham then authenticated the sort code and customer account number and, having done so, at 14.03 HSBC activated the logical acknowledgement (‘LAK’) which had the effect of informing Barclays Westminster that the transfer had been received and credited to the claimant's account. The claimant thereafter completed the transaction and handed over the database.
HSBC Derby was suspicious of the nature of the transaction and later that day imposed a “marker” on the account which prevented the claimant drawing on it and on the following day after meeting the claimant and seeking an explanation of the transfer HSBC Derby caused the £944,114.27 to be re-transferred by CHAPS to Barclays Westminster without the claimant's consent.
The claimant claimed against the bank in debt in respect of the money transferred to his account by CHAPS; alternatively he claimed that the bank was in breach of its contract with him in removing the money from his account and transferring it back to Barclays. The bank maintained that its suspicions justified its conduct and that ordinary banking practice entitled it to act as it did.
The primary underlying issue was whether the CHAPS transfer to HSBC followed by its authentication and logical acknowledgement (LAK) and the crediting of the amount to the claimant's account created a debt due from HSBC to the Claimant or, whether, as the bank contended, it remained throughout in sufficient control of the fund to be entitled to cancel the transfer and re-transfer those funds to Barclays.
The claimant submitted that from the moment when HSBC completed the electronic processing of the payment of £944,114.23 by sending the LAK and carrying out authentication verification on or before 13.57 on 21 September 2000, it became indebted in that amount to the claimant and that no subsequent event released it from that indebtedness. The bank submitted that there was nothing about the CHAPS system and no term of the banker/customer relationship which required the bank to accept money transmitted via CHAPS about which there is a genuine suspicion. Further, no debt could be created in favour of a customer unless and until the bank decided to accept a payment as such and represented that it did so.
Held, giving judgment for the claimant in debt:
1. The CHAPS rules made specific provision for the return of unapplied transfers and for applied transfers made in error (r. 8). The rules made no other specific provision for the reversal of credit entries following authentication. There must therefore be the very strong implication that following application to the customer's account, in the absence of error, the banking practice relating to CHAPS transfers was that they were ordinarily irreversible. There was an appropriate analogy with the practice in relation to documentary credits where at the time of presentation of documents, the bank with cogent evidence of fraud could decline to make payment. The same exception was likely to apply in respect of illegal transactions. (United Trading Corp v Allied Arab Bank LtdUNK[1985] 2 Ll Rep 554 and Mahonia Ltd v JP Morgan Chase BankUNK[2003] 2 Ll Rep 911 considered.)
2. There was no unavoidable inconsistency between compliance with the requirements of the 1988 Act, as amended in 1993, and the finality of a CHAPS transfer, subject only to the exceptions specified in the rules. In particular, if a bank had advance warning of a transfer about to be made by CHAPS as to which it already entertained suspicions, it could report the matter to the National Criminal Intelligence Service in advance, or it could withhold authentication while it informed NCIS or, having credited the customers' account following authentication, it could report the matter to NCIS and wait for directions. If it feared that a transfer out of the customer's account was imminent it could temporarily freeze the account and inform NCIS, but with due regard to the dangers of tipping off. However the CHAPS rules could not be ignored by the transferee bank by reference to some overriding concept of banking practice designed to achieve disengagement of the bank from a transfer of funds as to which it justifiably entertained suspicions unless there was cogent evidence of a settled banking practice to that effect.
3. The bank's entitlement to decline to accept a transfer was not in the nature of an option exercisable according to the bank's perception of what was commercially desirable but the consequence of the operation of the terms of the account contract with its customer. When in the present case the claimant opened an account which, in accordance with the terms of the account, was available for receiving incoming CHAPS transfers, HSBC engaged that it would accept into his account all CHAPS transfers which complied with the CHAPS rules and which were otherwise in accordance with the terms of the account. It would not be open to HSBC to justify non-acceptance of the transfer on the grounds that its mere suspicion rendered acceptance illegal per se by reference to the provisions of the 1988 Act.
4. Once the claimant's account had been credited, following authentication and the transmission of the LAK, HSBC became indebted to the claimant in respect of the transfer. The effect of the imposition of the marker later that day was not such as to disengage HSBC from its pre-existing indebtedness. The imposition of the marker did not cancel the debt due to the claimant nor did it reverse the account entries on the bank's computer. It simply had the effect of postponing for an indefinite period the time when the bank would respond to an instruction from the claimant for payment out of the account. But the credit balance and the debt remained intact.
5. The proposition that by reason of its justifiable suspicions, the bank retained an overriding discretion to reverse the transfer into the account after the 12 noon deadline on the next banking day on the basis of banking practice had not been established on the evidence. Any such practice would not only be fundamentally inconsistent with the bases of the contract with its customer and with the CHAPS rules, but would go well beyond what was reasonably required either for compliance with the criminal law or for the reasonable protection of the bank against the risk of liability as a constructive trustee.
6. The transfer by CHAPS of the sum of £944,114.23 to HSBC had by 14.03 on 21 September 2000 created a valid credit on the claimant's account and a subsisting debt in that amount due from HSBC to the claimant and that amount was payable with interest to the claimant.
Colman J:
1. This case raises for decision for the first time issues of great importance in relation to the operation of money transfers by means of CHAPS — the Clearing House Automated Payment System. In particular, it is concerned with the manner in which a bank should respond to CHAPS transfers into a customer's account when it suspects that the money is the proceeds of fraud or the transfer is for the purpose of money laundering and where the bank is therefore concerned that it may be at risk of committing an offence under section 93A of the Criminal Justice Act 1988 or may sustain liability as constructive trustee.
2. The Claimant had a Tunisian passport and he had no permanent address in England. He did have various members of his family who lived in Derby. He has a degree in architecture and a profession as an architect but his business interests also lie substantially in the field of...
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