Responding to mistaken payment


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A bank was held liable for monies lost on a mistaken payment. When it received the payment, it became aware of the alleged mistake but failed to take swift action and to raise all relevant enquiries before allowing a customer to withdraw the funds.

In Jones v Churcher and Abbey National [2009] EWHC 722 (QB) the claimant made a CHAPS transfer from his account at Lloyds to the first defendant’s account at Abbey National. The following day the claimant realised that he had made a mistake and that he should not have paid the first defendant, who had no entitlement to be paid. Thereafter both the claimant and Lloyds repeatedly alerted Abbey and requested the return of the funds. After 12 days had elapsed, and Abbey had asked the first defendant for permission to repay the funds, the first defendant had paid most of the money to a third party, and it was never recovered.

The court held that both the first defendant and the bank were liable for restitution to the claimant for the mistaken payment. Neither defendant could rely on the defence of “change of position in good faith”.

The first defendant had paid the money when she knew that she should not have received it, or at least had failed to make adequate enquiry. Abbey had not acted in good faith because it had actual knowledge that Lloyds was asking for the money back, and delayed taking action, despite being told of the error. Steps should have been taken to ring-fence the money pending further enquiry.

The court accepted that that would potentially amount to a breach of mandate, but the court suggested that banks should not be coy about proffering or asking for an indemnity and that the remitting bank should ask the payer for a counter-indemnity if and when he reports the mistake.

The court also dismissed Abbey’s defence of “ministerial receipt”, which applies to a party who merely handles a mistaken payment, on the basis that the customer, rather than the bank, receives the money.

Comment: The suggested arrangement of an indemnity and a counter-indemnity is clearly something that should be explored in this type of situation, but if the payer is unable to give security for his bank’s counter-indemnity, the arrangement is unlikely to be possible.

Paul Howcroft, Partner, Fladgate LLP (phowcroft@fladgate.com)

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