Paying the wrong chap--is that a 2 or a 3?

Paying the wrong chap--is that a 2 or a 3?

Customers must acknowledge banking practice and protect themselves against making electronic payments to the wrong person.

Tidal Energy Ltd v Bank of Scotland plc [2014] EWCA Civ 1107

A divided Court of Appeal (Civil Division) upheld the trial judge and agreed that the respondent (the bank) did not breach its contractual duties to the appellant (the customer) by effecting a CHAPS payment in circum-stances where the payee's sort code and account number, as supplied by the customer, did not correspond to the payee's name. The customer and the bank were taken to have contracted on the basis of existing banking practice whereby CHAPS payments are made using a payee's sort code and account number alone.

What was the background?


CHAPS, the Clearing House Automated Payments System, is the payments system operated by CHAPS Clearing Company Limited. The rules of the scheme govern dealings between banks rather than the rela-tionship between banks and customers. The hallmark of CHAPS is the short time-scale for processing pay-ments, 1.5 hours on a 'straight-through' basis (ie without manual checks).

Since at least 2007 a majority of UK clearing banks have processed electronic payments, including CHAPS payments, using the payee's sort code (or bank identifier code) and account number. The payee's name or account name is ignored. The practice is reflected in the Payment Council's guidance note 'Payment Ser-vices Regulations--Industry Best Practice'. It states that payments executed via CHAPS are processed on sort code and account number, referred to as the 'unique identifier'.

The misdirected payment

On 31 January 2012 the customer issued, and the bank processed, instructions to make a payment through CHAPS to one of the customer's suppliers, Design Craft Ltd (the intended recipient). The sort code and ac-count number supplied belonged to a different company, Childfreedom Ltd (the actual recipient). The receiv-ing bank was Barclays Bank (the receiving bank).

Notwithstanding the different names, the bank (as the remitting bank) and the receiving bank processed

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