In this case a victim of authorised push payment (“APP”) fraud attempted to impose liability on the recipient bank, relying on the law of unjust enrichment. HHJ Bird of the High Court rejected the claim.
The claimant, a Saudi company, belongs to a global company group involved in construction of chemical and gas plants. The claimant had borrowed money from another subsidiary in the group in order to fund a project. In October 2018 the creditor company asked for repayment, and provided bank account details when asked. Two days later, however, an email purporting to come from a Finance Director but actually sent by a fraudster said it was now necessary to pay to a different bank account. The claimant duly paid $5 million to this account, which was held with NatWest in Brixton. By the time the claimant realised the fraud a few days later, the fraudster had withdrawn almost all the money in a series of 29 transfers.
The claimant attempted to recoup its losses by claiming against NatWest on two alternative bases, knowing receipt of trust property and unjust enrichment. The judge quickly dispensed with knowing receipt, as funds transferred in the ordinary course of banking are not subject to trust. Hence he focused his judgment on the claim of unjust enrichment, and considered the four criteria from Banque Financière v Parc [1999]:
- Has the Defendant benefited in the sense of being enriched?
- Was the enrichment at the claimant’s expense?
- Was the enrichment unjust? and
- Are there any defences?
Trust dies but mistrust blossoms.”
Sophocles
The claimant had little difficulty in settling questions one and three in its favour. The Defendant was enriched when it received the $5 million. The enrichment was unjust because the claimant had transferred the money by mistake, and on the facts they had not unreasonably run the risk of acting by mistake.
The second question, whether the enrichment was at the claimant’s expense, proved most contentious. The judge closely followed Investment Trust Companies v HMRC [2017], in which the Supreme Court brought a new, stricter approach to assessing this question. Whereas previously courts had looked at the “economic reality” of transactions, the Justices deemed this concept “too vague to provide certainty“, and instead emphasised the “transactional reality“. This makes the Defendant unlikely to have benefitted at the claimant’s expense unless the parties have dealt directly with each other, or through their agents and no one else, or the transactions are so closely co-ordinated as to be treated as one.
This approach can give counterintuitive results, as indeed happened in this case. There had been a series of transactions in which the Claimant instructed its bank, Saudi British Bank, which adjusted its balance with the intermediary, Citibank in the USA, which in turn adjusted its balance with NatWest. In the judge’s view, this gave sufficient indirectness to defeat the claim. There were three providers of funds, all independent actors and not mere agents, and so it was not possible to declare a single transaction. To rule otherwise might better reflect an ordinary, intuitive perception of bank transfers, but would rely on the vague idea of “economic reality” which the Supreme Court rejected.
The claim failed at this point, but the judge proceeded to the fourth and final question on defences. The main defence in unjust enrichment claims is “change of position“, where the Defendant’s position changes so as to make it inequitable or unconscionable to order restitution. In this case NatWest’s position clearly had changed, as the $5 million was almost entirely paid out upon the fraudster’s instructions, but the bank still needed to show that it could justly rely on the defence. This was a matter of the bank’s knowledge and its actions during the sequence of events.
The Claimant submitted that NatWest could not rely on the defence because its fraud detection system did not meet commercially acceptable standards; because the bank did not respond appropriately to an automated fraud alert; and because the bank was too slow to freeze the account when it discovered the fraud. The judge dismissed these points in turn. The bank’s systems, which are more attuned to preventing fraud against customers than fraud by customers, were in fact commercially acceptable. A bank employee had acted reasonably when responding to a fraud alert, aiming to avoid disruption to a customer whom he did not know was a fraudster. Another employee had also acted reasonably in focusing her immediate efforts on recovering the fraudulent transfers rather than freezing the account. Ultimately the bank was entitled to rely on the defence, and so the claim would have failed here if it had not already.
This serves as an interesting test case for victims of fraud, particularly APP fraud, who might consider suing the recipient bank. Unfortunately for such victims, this approach seems unlikely to succeed given the difficulty of establishing unjust enrichment.
Link: Tecnimont Arabia Ltd v National Westminster Bank Plc [2022] EWHC 1172 (Comm) (17 May 2022)
Expert Evidence prides itself on assisting throughout the legal process where required and is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.
Ask a question about Expert Witness services. We are here to help!
Disclaimer: The above case summary is derived from publicly available information and is not intended to be anything more than a statement of the author’s views on the salient factors of the case. It is not intended and should not be understood to be legal advice of any sort. All views are solely those of the author and no use of the summary should be made without statements being checked against the source of information. Expert Evidence Limited takes no responsibility for the views expressed. The copyright of the summary is owned by Expert Evidence Limited but may be used with written permission which may be forthcoming on application through the contact us page. This news item is not intended to imply or suggest that Expert Evidence Limited was involved in the case, only that it is considered an interesting legal development.
