The articles on our website have been following the way that the English courts have been trying to deal with the rising tide of diverted payment or Authorised Push Payment (APP) fraud. In any APP fraud, there are two banks involved: the Paying Bank that pays money to the fraudster and the Receiving Bank which holds an account for the fraudster.
Our last article concerned the duties owed by the Paying Bank and the operation of the Quincecare duty. This article relates to a recent case about the duties owed by the Receiving Bank.
In Tecnimont Arabia Limited v National Westminster Bank [2022] EWHC 1172, the Claimant was an Italian company based in Saudi Arabia. On 30 October 2018, as a result of an APP fraud, the Claimant instructed its Saudi bank to pay US$5 million to a dollar account held at NatWest in Brixton. That NatWest account was controlled by fraudster and effectively emptied by him.
The Claimant ran various arguments against the bank. First, there was an allegation that the bank owed a duty of care to the Claimant, but this claim was abandoned because the Claimant was never a customer of NatWest (the Receiving Bank). Rather, the Claimant was a customer of the Saudi British Bank (SABB, the Paying Bank).
Second, the Claimant ran a claim in “knowing receipt”. A claim in knowing receipt imposes a liability to account where the recipient knows of a breach of trust or breach of fiduciary duty or otherwise has a state of mind that makes it unconscionable for him to retain the benefit of the receipt. This claim was to all intents and purposes dropped at trial because the Claimant was unable to establish a key element of the claim: that the transferred property was trust property.
That left the Claimant arguing that the bank had been unjustly enriched when it received the US$5 million. It was this claim that was the subject of the trial. It was common ground that there are four matters to be considered when dealing with an unjust enrichment claim:
- Has the defendant been benefited, in the sense of being enriched?
- Was the enrichment at the expense of the claimant?
- Was the enrichment unjust?
- Are there any defences?
The bank accepted that it had been benefited. It contested the claim on the other three grounds. The second ground caused most ink to be spilled. It came down to a question of whether the substance of the dealings between the parties was sufficiently direct. This in turn involved a close analysis of the actual mechanism of the international transfer which went from SABB in Saudi via Citibank in the US to NatWest in London. The transfer like all transfers involved the adjustment of the balances of different banks, here between SABB and Citibank and then Citibank and NatWest. Each pair of banks will net off various balances owed in two directions. The net effect is that money is made available to a bank’s customer through an adjustment of balances and there was no single provider of funds.
The judge found that the bank was not therefore enriched at the expense of the claimant. However, the winning argument was highly technical and thin on authority; an appeal must be a possibility.
For completeness, the Judge also found for the bank on the other two grounds.
This case therefore confirms that the victims of APP frauds have very limited recourse and that the receiving banks are well protected from liability; they can concentrate on protecting their customers from fraud rather than investigating them.