Background
Following the Supreme Court’s decision in Philipp v Barclays Bank UK plc, victims of banking fraud have been looking for creative ways to take action against banks/payment providers to recover lost monies. Phillippa Ellis, David Moore and Claudia Richardson from our Business Crime and Investigations team discuss the recent case of Terna Energy v Revolut. In this case, Terna Energy had allegedly been deceived into making a payment of €700,000 pursuant to a fraudulent invoice, with the funds being processed via Revolut. Although the payment was initially frozen, Revolut eventually released the funds to the alleged scammers. Terna Energy claimed that Revolut failed to investigate the reasons behind the payment and sought to recover the monies via a claim of unjust enrichment.
The key elements of unjust enrichment are that the receiving party must be enriched at the expense of the payer, and it must be unjust for the receiving party to retain the money. If these elements are proven, the receiving party is liable to repay the money even if it has been transferred to a third party.
Historically, unjust enrichment claims against banks were seen as nearly impossible unless there were very unusual circumstances. This was because, particularly with international payments, the receiving bank is usually part of a long chain of transfers. It is challenging to prove the bank was ‘enriched at the expense of the payer’, rather than the previous bank in the chain. Moreover, even if this hurdle is overcome, banks can argue they were not enriched by the payment since they receive the money on behalf of a customer and have a corresponding immediate liability to pay out to that customer.
In the Terna case, the Payment Service Provider (PSP), Revolut, sought a ‘reverse summary judgment’ or strike out of Terna’s case, arguing it had not been enriched, or if it had, the enrichment was not at Terna’s expense. If successful in that application, Terna’s case would have been dismissed.
Court’s Decision
Importantly, the High Court rejected Revolut’s application, focusing on two key issues:
1. Was the PSP Enriched?
- The court analysed the transaction, noting that the PSP’s account was credited while the claimant’s account was debited.
- The PSP argued it was not enriched because the credit was offset by its obligation to Zdena Fashions Ltd (the account holder).
- Though the court rejected the distinction between the PSP’s role as an ‘electronic money institution’ and a traditional bank, concluding the PSP could still be enriched.
2. Was the Enrichment at the Claimant’s Expense?
- The present case was viewed as a classic agency situation or a series of coordinated transactions.
- The court therefore decided that the claim should be resolved at a full trial to thoroughly examine the facts, differing from the approach in a similar case, Tecnimont Arabia Ltd v National Westminster Bank plc.
In conclusion, the High Court ruled against the PSP’s application for reverse summary judgment or strike out. By rejecting Revolut’s application, the court was allowing the claim of unjust enrichment to proceed to trial; that doesn’t necessarily mean Terna will be successful in its claim, though the court considered there were sufficient grounds for allowing the case to be properly argued. This decision underscores the importance of detailed judicial examination in cases of complex financial fraud.
Comment
This case is an interesting development as victims of fraud grapple with the legal landscape, particularly in the light of Philipp v Barclays, which added a layer of difficulty to pursuing ‘sending’ banks where monies have been sent as a result of fraud. Various types of claims against receiving banks are now being tried, and this is the first recent example of a claim in unjust enrichment. We will have to see how the court approaches the issues, if it reaches trial. It is also notable that Revolut has been granted permission to appeal. For now, it is a case of ‘watch this space’, whilst judicial guidance of this notoriously treacherous area is much needed.
If you or your business have been subject to banking fraud, have uncovered financial misconduct in your business or are facing investigation, we can assist you. Our Business Crime & Investigations team are happy to assist you with any query you may have.
