Nigel's Eyes

20240409 English court considers Authorised Push Payment fraud.

The case of CCP GRADUATE SCHOOL LIMITED v NATIONAL WESTMINSTER BANK PLC and SANTANDER UK PLC will make its way around financial crime risk and compliance circles all over the world because it's about Authorised Push Payment fraud. But, horses should be held because the decision handed down on 26th March and since published is not what many will assume from the headlines that are likely to say "APP fraud case dismissed." Was it? Yes. But not on the facts.

There is a long and detailed judgment here:

I will draw attention to only those points that I consider the most important. The hearing was before a type of Judge called "a Master."

I used to enjoy appearing before the Master. They were rough, tough and very, very hot on the Rules and Practice of the Court. If you think compliance is hard, try conducting litigation in the High Court where the White Book is a massive multi-volume work in small print on very thin paper. Fall foul of the Rules and your case is very likely to be dismissed before anyone actually considers the facts or law.

In this case, the Master was determining technical matters: 1 - was the case statute barred 2 - was there any realistic prospect of success and 3 - could defects be remedied by amending the claim?

First, the facts.

"Mr Pathirana, who is the Claimant's sole director, gave instructions to the First Defendant to make fifteen payments, in aggregate amounting to GBP415,909.67 from a bank account with the First Defendant (the 'Natwest Account') to a bank account held with the Second defendant (the 'Santander Account') ('the Payments')."

Fourteen of those payments were made online. The final one was made, via CHAPS, by him attending the bank in person.

But they were not the only payments. He also made further payments from his personal, non-company, account to the Santander account. (para 6)

I question two things: why were some payments made from the company's directors' personal account and exactly what were the payments for as they appear (it is not clear from the judgment) to be to a new payee or new account for an existing connection.

The claim is, at its heart, that NatWest should not have given effect to the legitimate instructions of its customer. The judge says he doesn't fully understand the claim against Santander which, in theory, should be simpler to make (because of its duty to know its customer) but on very dodgy legal grounds as to e.g. duty of care.

The claim can be summarised as that the payments were made by a mistake, albeit one caused by fraud. The director thought he was making payments to a particular company but the account was - in effect - an account opened by criminals through a fraud on Santander.

The banks defended on the grounds that the claim was statute barred.

The statute of limitations point also raises questions about the plaintiff: the payments were made up until and including 12 October 2016. The plaintiff notified NatWest that he thought he had been defrauded on 22nd Oct 2016. The claim was issued on 18th October 2022 i.e. four days before the limitation period expired. The bank said that the active date should be 12 October and the Master agreed that the claim is out of time. So that part of the Judgment has nothing to do with the fraud at all.

A question about the claimant.Why wait until less than a week before the expiry of a six-year period before getting the claim on foot?

Next, the Master considered whether, if the case were not struck out for time would it succeed on the Quincecare Duty as clarified in Phillip v Barlcays. He did not consider the merits: he said it would be struck out because the case was not properly pleaded and was defective as a matter of law. So, again, the dismissal had nothing to do with the fraud.

The company says that it both NatWest and Santander were on notice but did not investigate. Lloyds Bank, however, which received and restrained some of the money that went into Santander and out again did contact the company and some money was recovered.

Why. the claimant (not unreasonably) asks, could Lloyds which was not a party to the original transactions work it out when NatWest and Santander did not. The Master says "yes you could have amended and fixed the problems, but it's too late now."

Again, that has nothing to do with the fraud.

It's a summary judgment i.e. can be appealed to a High Court Judge - it is not appealed to the Court of Appeal.

There's a lot more in the case.These things grabbed my attention.

We're a long way, still, from a civil court finding a bank negligent or reckless as to moneys paid in these circumstances.