Mistaken Payments Flashcards
What is a mistaken payment in banking law?
A mistaken payment occurs when funds are transferred in error due to technological issues, misinterpretation, or fraud.
What are the common causes of mistaken payments?
- Technological errors: Processing mistakes due to system malfunctions.
- Countermand errors: Payments made despite countermand instructions.
- Account errors: Transfers to the wrong account or recipient.
- Fraud: Involvement of a bank employee or third party.
What is the primary legal principle underlying the recovery of mistaken payments?
Restitutionary claims aim to restore the funds to the bank to prevent unjust enrichment of the recipient.
What does the case Barclays Bank Ltd v W.J. Simms, Sons & Cooke (Southern) Ltd [1980] establish?
- Mistaken payments made without a valid mandate can be recovered.
- The court reinforced that restitution applies under unjust enrichment principles.
What are the key distinctions between a mistake of fact and a mistake of law?
- Mistake of Fact: An error about a specific, identifiable fact directly affecting the payment.
- Mistake of Law: An incorrect interpretation of legal obligations leading to unnecessary payments.
Which case clarified the application of mistake of fact?
National Westminster Bank v Barclays Bank International & Anor [1975]: The mistake must relate to a specific fact, not general assumptions.
How has modern jurisprudence addressed mistakes of law in mistaken payments?
Recovery is allowed when a payment is made under an incorrect legal assumption, provided it avoids unjust enrichment (Barclays Bank Ltd v Simms (1980)).
What is the defence of change of position?
A recipient who has acted in good faith and relied on the mistaken payment, altering their position, may invoke this defence to prevent repayment.
What are the requirements for the change of position defence?
- Good faith: The recipient must have acted honestly, without knowing of the error.
- No wrongdoing: The recipient must not have engaged in fraud or contributed to the mistake.
Which case established the change of position defence?
Barclays Bank Ltd v W.J. Simms, Sons & Cooke (Southern) Ltd [1980].
What is the principle of good consideration in the context of mistaken payments?
Payments that discharge a legitimate debt are considered good consideration, preventing recovery by the bank.
What is the Liggett Doctrine?
If a mistaken payment discharges a customer’s debt, it is deemed equitable to treat the payment as valid, even if made in error.
Which case introduced the Liggett Doctrine?
B Liggett (Liverpool) Ltd v Barclays Bank Ltd [1928].
What did Lloyds Bank plc v Independent Insurance Company Ltd [2000] establish?
- Mistaken payments that satisfy a customer’s debt are non-recoverable.
- The Court of Appeal upheld the principle of good consideration.
How does the Liggett Doctrine apply in practical scenarios?
If a mistaken payment satisfies an outstanding invoice, the recipient can argue the debt has been extinguished, preventing recovery.
What is the significance of Crantrave Trust Ltd. Re (2000)?
The court ruled that payments lacking proper customer authority cannot be deemed valid, even if they discharge a debt.
What are the main limitations of recovering mistaken payments?
- Recovery may be barred by defences like change of position or good consideration.
- Payments made without explicit or implied customer authorisation complicate recovery.
What practical measures can banks take to prevent mistaken payments?
- Implement stringent controls to minimise errors.
- Regularly audit transactions for compliance.
- Provide thorough training to staff to prevent human errors.
What are some critical readings for further understanding mistaken payments?
- Ellinger, Chapter 12 on restitution.
- Anu Arora, Banking Law, Chapter 27.
- Ruth Pedley, Journal of International Banking Law (2001).
Summarise the principles of recovery and defences in mistaken payments.
- Recovery: Based on unjust enrichment; applies to mistakes of fact and law.
- Defences: Change of position and good consideration (Liggett Doctrine).
- Key Cases: Barclays Bank v Simms (1980), Lloyds Bank v Independent Insurance (2000).
What is the primary justification for recovering mistaken payments?
Preventing unjust enrichment ensures that recipients do not retain funds they are not entitled to.
What is the role of restitution in mistaken payments?
Restitution aims to restore the financial position of the payer by reclaiming funds transferred in error.
Can a recipient always rely on the change of position defence?
No, the defence is not available if the recipient acted dishonestly, contributed to the mistake, or did not materially change their position.
What distinguishes Barclays Bank v Simms [1980] from earlier cases?
It clearly articulated the principles of unjust enrichment and validated the change of position defence.