Tidal Energy Ltd v Bank of Scotland Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Floyd,Lord Justice Tomlinson,Master of the Rolls |
| Judgment Date | 31 July 2014 |
| Neutral Citation | [2014] EWCA Civ 1107 |
| Docket Number | Case No: A3 2013 2871 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 2014 |
[2014] EWCA Civ 1107
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BRISTOL DISTRICT REGISTRY
MERCANTILE COURT
HIS HONOUR JUDGE HAVELOCK-ALLAN QC
Royal Courts of Justice
Strand, London, WC2A 2LL
The Master of the Rolls
Lord Justice Tomlinson
and
Lord Justice Floyd
Case No: A3 2013 2871
Guy Adams (instructed by Capital Law LLP) for the Appellant
Raymond Cox QC and Neil Levy (instructed by Foot Anstey LLP) for the Respondent
Hearing date: 23 June 2014
Introduction
A customer gives its bank ("the remitting bank") instructions to pay one of its suppliers using the clearing houses automated payment system ("CHAPS"). The instructions include the correct name of the supplier whom the customer wishes to pay. However, the instructions also include numerical data (account number and sort code) which the customer believes, wrongly, to be the bank account of the supplier at another bank ("the receiving bank"). In fact, although there is an account corresponding to those numerical data at the receiving bank, it is in the name of, and belongs to, a third party, apparently unconnected with the supplier or the customer. The receiving bank does not check the name on the account to confirm that it corresponds to the name of the supplier, because it is not banking practice to do so. Once the amount of the transfer is credited to the third party's account, it is withdrawn. Is the remitting bank entitled in these circumstances to debit the customer's account with the amount transferred? That is the issue which arises on this appeal. It raises a short point of construction of the instructions which the customer gave to the remitting bank on the bank's standard transfer form.
By his judgment dated 13 September 2013 and resulting order, HHJ Havelock-Allan QC dismissed the application of the customer, Tidal Energy Limited ("Tidal"), for summary judgment against its bank, Bank of Scotland plc ("the bank"), for wrongly debiting its account in the circumstances I have outlined. Instead, he entered summary judgment for the bank on the bank's cross-application, and dismissed Tidal's claim. Tidal appeals from that judgment and order with the permission of Lewison LJ, granted on the papers.
Mr Guy Adams argued the case for Tidal. Mr Raymond Cox QC with Mr Neil Levy responded on behalf of the bank.
The relevant facts can be shortly stated. Tidal had an obligation to pay one of its suppliers, Design Craft Limited ("Design Craft"), the sum of £217,781.57. It appears that someone purporting to represent Design Craft had spoken to someone at Tidal and supplied banking details (sort code, account number and bank name). Tidal had a business bank account at the bank's branch at One Kingsway, Cardiff. On 31 January 2012 Tidal completed the bank's CHAPS transfer form ("the transfer form"), wishing by this means to pay its supplier.
The transfer form was headed " Your request to make a CHAPS transfer". In section 1 the form required the customer to insert what it described as " Details of the CHAPS transfer". It informed the customer that all requests received by 3 pm will normally be made on the same business day. Section 1 of the transfer form contained a series of boxes in which the customer must fill in details of the transfer. These included the date that the transfer was to be processed, the amount of the transfer in figures and in words, and further boxes entitled " Sending (remitter) sort code", " Sending (remitter) account number", " Account number to be charged (if different)", " Sending (remitter) name", " Payment reference (if known)", and " Payment details (if any)". Tidal provided the relevant mandatory details, and gave its supplier's invoice number in the optional " payment details (if any)" box.
There followed four boxes, still within section 1 of the transfer form, giving details of the destination of the transfer. These boxes were entitled " Receiving (beneficiary) sort code", " Receiving (beneficiary) bank and branch", " Receiving (beneficiary) customer account number" and " Receiving (beneficiary) customer name". Tidal filled in the first three of these boxes with the banking information with which it had been supplied, purportedly by Design Craft. These identified the receiving (beneficiary) bank as Barclays (but did not specify a branch). In the fourth box Tidal inserted the name of the intended recipient of its funds, namely Design Craft Ltd.
Section 2 of the transfer form was headed " Your confirmation". There followed a statement, which Tidal was required to confirm with appropriate signatures, as follows:
"You are hereby authorised to effect these instructions, either by transmission through the Clearing House Automated Payments System or by such other method as you may in your sole discretion decide.
I/We agree that no responsibility is to attach to you for any loss caused by delays, interruptions or errors in transmission of payment, which are not directly due to the negligence or default of your own officers or servants.
Please debit the payment from my/our account number detailed in Section 1.
Neither this instruction for a CHAPS transfer nor your acceptance of it shall be enforceable by the payee or any other third party …"
The statement in section 2 of the transfer form went on to point out that any personal information relating to individuals named in the form might be processed for purposes related to, for example, anti-money laundering and anti-terrorism laws, and might be transferred outside the jurisdiction. Two authorised signatories signed and dated the section 2 statement on behalf of Tidal.
The second page of the transfer form contains terms and conditions mainly concerned with the timing of the payment, cancellation and amendments. These made clear that the bank could only undertake to comply with an amendment or cancellation of the instruction if it was received by 3pm on the business day before the agreed date for payment. Clause 4, of these terms, on which some reliance was placed by Mr Cox, stated that if the bank refused to execute a CHAPS transfer they would inform the customer " within the maximum execution time for a payment transaction of this type".
The bank received Tidal's instruction at 09.38 on 31 January 2012. At 15.20 their processing team initiated the transfer through CHAPS by sending the funds from the bank's account at the Bank of England to the account of the receiving bank at the Bank of England. A daily activity form and Form MT03 (which was a record of the payment instruction) were immediately generated. All of the payee information on the transfer form (receiving customer's account number at Barclays, sort code of Barclays, receiving customer's name and the invoice number in respect of which the payment was being made) was reproduced in both documents. As soon as Barclays established that the account number and sort code were theirs, they sent an acknowledgment of receipt back to the bank using the SWIFT messaging system. Barclays made a credit entry in the account corresponding to the account number and sort code. It was an account in the name of Childfreedom Limited, not Design Craft. On the same day, the bank made a debit entry on Tidal's account.
On 6 February 2012 Tidal telephoned the bank to say that it had been induced by fraud to provide the account details in the transfer form. The bank communicated this information to Barclays. The bank now understands that by close of business on 6 February 2012 the Barclays customer had withdrawn £217,000 from the account.
The evidence before the judge included a witness statement from Neil Johnson, an employee of the bank in its electronic payments team. This witness statement had been made in response to a CPR Part 18 request concerning the banking practice relied upon by the bank, namely that it was not banking practice to check customer names when executing CHAPS transfers. Mr Johnson explained that it was normal banking practice for banks to process payments through CHAPS on the basis of bank account number and sort code only and not on the basis of the name of the payee. It was not practicable to scrutinise every payment: CHAPS transfers were treated on a straight through basis, because the objective of CHAPS was to achieve speed of credit. Although it was his experience that, as a matter of normal banking practice, beneficiary name is not used " as a primary means by which a payment is routed through the CHAPS system", he explained the requirement to provide the name of the beneficiary by saying that certain provisions of the Financial Action Task Force Recommendations required members of CHAPS, for anti-money laundering and counter-terrorist purposes, to include the beneficiary name when making payments via wire transfers, including CHAPS. Mr Johnson also made the point that the CHAPS scheme rules merely regulated the obligations of CHAPS scheme members between themselves – they did not " articulate how the Bank should transact with its customers".
The evidence also included a witness statement of Ms Alexia Thomas, Tidal's solicitor, which drew attention to the fact that, at least in a previous version of the CHAPS scheme rules, there was provision for each member bank to have a repair sort code number. Payments received which could not be applied due to " insufficient or incorrect beneficiary details" were amongst those to be returned to this code. She also drew attention to the...
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