NatWest successfully defends fraudulent payment claim

Adam Kramer QC and Anthony Pavlovich acted for National Westminster Bank plc (‘NatWest’) in its successful defence of a claim by Tecnimont Arabia Ltd (‘TAL’). TAL was tricked into making a $5 million payment to a fraudster’s account at NatWest. It sought to hold NatWest responsible for failing to freeze the account until nearly all the funds had been dissipated.  Suing the recipient bank was unusual. Cases on fraudulent payments have generally involved claims against the paying bank (for example, the Quincecare line of cases).

TAL’s main argument was that NatWest had been unjustly enriched as the recipient of the payment. The judge’s analysis of this argument helps to develop the law of unjust enrichment.  NatWest denied that any enrichment had been at TAL’s expense. HHJ Bird (sitting as a judge of the High Court) agreed, so the claim failed. The payment had passed through the international banking system, whereas the law required a more direct payment from TAL to NatWest (following the old Agip line of cases and the more recent ITC decision of the Supreme Court about the ‘at the expense of’ requirement).

The judge also considered whether NatWest had a defence of change of position in good faith, because it had paid out the money on its customer’s instructions (cf Niru Battery).  Contrary to TAL’s arguments, the judge held that the fundamental question was whether it would be unjust to deny restitution to TAL. That would depend on the circumstances at the time when the money was paid out.

TAL argued that NatWest had three opportunities to freeze the funds, but the judge did not accept that any of them would have made it unjust to deny TAL’s claim:

The first opportunity was when one of NatWest’s anti-fraud systems generated an alert. The purpose of that system, however, was to detect possible fraud against not by the customer.  TAL argued that NatWest should also have had real-time systems to detect fraud by the customer. The judge held that NatWest’s systems followed industry standards and were plainly adequate.

The second opportunity was when a member of NatWest’s fraud team reviewed another alert from the same system. TAL argued that he had failed to follow the correct procedure. The judge, however, found that he had acted in good faith, and would not have detected the fraud even if he had followed the correct procedure (which as before was aimed at detecting fraud against the customer).  The judge also held that a failure to follow procedure was far from enough to make NatWest liable.

The third opportunity was after TAL’s bank had notified NatWest that the payment was the result of a fraud.  A number of NatWest employees then acted on the notification and froze the account by the end of the day. TAL said they should have acted sooner. The judge held that the delay was relatively short.  It was also rational for the employees to focus on recovering the funds that had already been paid away rather than on freezing the much smaller sum that remained. Thus, even if it was theoretically possible to freeze the account sooner, the delay was not unjust.

TAL also relied on the principle of knowing receipt. That part of the claim failed at the outset because the funds were not trust property.

TAL did not seek permission to appeal.

Adam and Anthony were instructed by Steven Mills of TLT LLP. The full judgment is available here.