Tidal Energy Ltd v Bank of Scotland Plc

A bank may debit a customer’s account after a CHAPS transfer where the payment has been processed in accordance with the identifiers ordinarily used by the CHAPS system: receiving bank, sort code and account number. The beneficiary’s name is not an additional identifier where the transfer form, read in its commercial context and against established banking practice, authorises processing in that way. Subject to express terms and any issue of unreasonableness, a customer using CHAPS contracts on the basis of the banking practice governing CHAPS transactions. The court should prefer a construction that gives effect to CHAPS’s purpose of rapid payment and avoids requiring the remitting bank to guarantee correspondence between a customer-entered name and an account controlled by another bank. The form was not an instruction to pay the receiving bank itself.

Tidal Energy Ltd instructed Bank of Scotland plc to make a CHAPS payment of £217,781.57 to Design Craft Ltd. It supplied a Barclays sort code and account number, but those identifiers belonged to an account in the name of Childfreedom Ltd. Barclays credited that account and the funds were withdrawn. Bank of Scotland debited Tidal’s account.

The High Court, sitting in the Mercantile Court, dismissed Tidal’s application for summary judgment, granted the bank’s cross-application and dismissed Tidal’s claim: [2013] EWHC 2780 (QB). Tidal appealed. The central issue was whether the transfer form authorised the debit when the payment reached an account matching the numerical banking details but not the named beneficiary, and whether banking practice formed part of the contractual context.

1. Appeal dismissed by the majority. The Master of the Rolls and Tomlinson LJ held that the bank was entitled to debit Tidal’s account. Floyd LJ dissented and would have allowed the appeal.
2. Construction of the mandate. The transfer form had to be construed objectively. The court had to consider the language used, the relevant background and business common sense. A customer using CHAPS was taken, subject to contrary express terms and any question of unreasonableness, to authorise execution in accordance with the usual banking practice governing CHAPS transactions. That practice could inform the meaning of the contract, even if the customer had not in fact discovered it.
3. Application to CHAPS. The accepted practice was to process and route CHAPS payments by sort code and account number, together with the relevant bank identifier, without checking the beneficiary’s name. This practice reflected CHAPS’s purpose of rapid payment, ordinarily within a maximum inward transmission time of 1.5 hours. Requiring the receiving bank to check the name would be economically impracticable, and requiring the remitting bank to guarantee correspondence between the name and account number would be commercially unreasonable. The Payment Services Regulation (SI 2009/209) and Directive 2007/64/EC added nothing material beyond the ordinary payer-payee structure of a payment transaction.
4. Result. Payment under the form was made when funds were credited to an account identified by the receiving bank, sort code and account number. The mismatch in account name therefore did not prevent the bank from debiting Tidal’s account. The form was not construed as an instruction to pay Barclays itself.
5. Dissent. Floyd LJ considered that the four identifiers stated on the form, including customer name, governed the authority to debit. On that view, payment required credit to an account matching all four identifiers, and private arrangements between banks could not reduce the customer’s protection. He would have granted Tidal summary judgment.

• Court of Appeal (Civil Division): The majority dismissed Tidal’s appeal and upheld the result below. Floyd LJ would have allowed the appeal.
• High Court of Justice, Queen’s Bench Division, Mercantile Court: HHJ Havelock-Allan QC dismissed Tidal’s application for summary judgment, granted the bank’s cross-application and dismissed Tidal’s claim: [2013] EWHC 2780 (QB).