Tidal Energy Ltd v Bank of Scotland Plc

A CHAPS payment is completed when the receiving bank matches the specified account number and sort code, credits that account and sends an acknowledgment of receipt. The beneficiary’s name does not form part of the identifier used to route the payment where ordinary CHAPS practice relies on straight-through processing. A paying bank’s duty is to comply with its customer’s instruction as properly construed and in accordance with normal banking practice. Where the customer supplies the wrong account number and sort code, the bank is entitled to debit the customer’s account if it has faithfully executed the mandate and was not responsible for any transmission error.

The claimant instructed the defendant bank to pay £217,781.57 to Designcraft Ltd through CHAPS, identifying a Barclays account by its account number and sort code. The account in fact belonged to Childfreedom Ltd, following an alleged fraud by an unidentified third party. Barclays credited the designated account and issued an acknowledgment, after which most of the money was withdrawn.

The claimant sought re-crediting of its account, arguing that payment was incomplete because Barclays was not authorised to accept money for Designcraft. The parties made cross-applications for summary judgment. The court decided the issue finally on the assumed facts.

1. Judgment for the defendant. The claimant’s application for summary judgment was dismissed. The court determined the issue finally under CPR 24.2(b).
2. The proper starting point was to identify what the bank was authorised to do and then ask whether, as the claimant’s agent, it had complied with that instruction. The instruction was to make a CHAPS transfer to the beneficiary using the specified account number and sort code.
3. The evidence established that CHAPS operates through straight-through processing. The receiving bank routes and credits a payment by reference to the account number and sort code, not the beneficiary’s name. Manual checking of beneficiary names would prevent CHAPS payments being made within its characteristic short timescale. The beneficiary-name field existed principally for anti-money-laundering and counter-terrorism purposes.
4. Where the receiving bank can match the account number and sort code to one of its accounts, it is expected to credit that account and send an LAK, or its modern equivalent, acknowledging acceptance. Payment is complete at that point. Here Barclays credited the specified account and sent the acknowledgment, so the payment was completed even though the account holder was not Designcraft.
5. The cited authorities concerning payment by bank transfer did not establish that a separate authorised acceptance by the named payee was required in these circumstances. Authorities involving different payment mechanisms, failed transfers or express lack of authority did not alter the conclusion.
6. The bank had faithfully discharged its mandate. The claimant had supplied the wrong account number and sort code, and there was no evidence of negligence or an error in transmission for which the bank was responsible. The court expressed no view on whether recovery might be possible against Barclays.