Facts of the Tecnimont case
In October 2018, Tecnimont, a Saudi engineering business, fell victim to an APP fraud and was duped into sending $5 million to a NatWest bank account (“Account”) after the email account of a senior employee was hacked by a fraudster.
The transfer was an offshore transfer in US dollars from Saudi British Bank SJSC in Saudi Arabia (“SABB”), via another bank in the US as SABB’s intermediary bank, to the Bank in London, communicated using SWIFT messages. The transfer (like all transfers) involved the adjustment of the balances of different banks between SABB and its intermediary bank and then the intermediary bank and the Bank.
The fraudster, who had control of the Account, then arranged for the majority of the funds to be paid out over the course of the following two days. The transfers did trigger a number of the Bank’s KYC and fraud alerts which were acted upon by the Bank’s employees in accordance with internal protocols.
Once the fraud was discovered, Tecnimont was able to recover some of the funds, but the majority were lost. Tecnimont sought restitution of the lost sums from the Bank, bringing a claim based on unjust enrichment.
Tecnimont had also brought a claim for knowing receipt which was not actively pursued. This was ultimately dismissed by the court on the basis that the transferred property was not trust property, and so there can be no liability for knowing receipt.
Was the enrichment at the expense of Tecnimont?
Elements (b), (c) and (d) above were all in dispute in this matter but the real battleground between the parties was whether the enrichment was at Tecnimont’s expense (element (b)). The court found that it was not.
The starting point is to bear in mind that the purpose of the “at the expense of” element is to check that there has been a “transfer of value” in the sense that a defendant has received a benefit from the claimant and the claimant has suffered a loss or detriment through the provision of that benefit. The aim of unjust enrichment remedies is to correct defective “transfer of value”. It was recognised that there are four ways in which the necessary “at the expense of” element of a claim might be established. However, most commonly, a “transfer of value” of this type arises in one of two situations: (i) when the claimant and the defendant deal directly with one another; and (ii) when they deal with one another’s property.
In deciding this point the court needed to consider whether the transaction was or should be treated as a ‘direct transfer’ in order to establish whether Tecnimont and the Bank had direct dealings. The Judge found that Tecnimont and the Bank did not have direct dealings, as there was no direct transfer between SABB and the Bank. The parties did not deal directly with the other’s property. The real question was then whether the transaction should be seen as a single scheme or transaction on the basis that it would be unrealistic to treat them in any other way. The Judge held that in this case it would be wrong to treat the international inter-bank transactions as forming a single scheme or transaction in order for it to be a direct transfer. The court found it necessary (and realistic) to treat individual transactions separately.
Was the enrichment unjust?
The court went on to look at whether the enrichment was unjust (element (c)). The Judge had no doubt that Tecnimont’s employees at every stage believed that they were acting on a true instruction from a senior employee to pay the money to a bank account held with the Bank. The Judge was therefore satisfied that the enrichment was unjust.
Were there any defences available to the Bank?
Tecnimont accepted that the Bank would generally be entitled to benefit from the defences of change of position or ministerial receipt but submitted that the defences were only available where the change of position (or ministerial receipt) was carried out in good faith. The Judge held that the Bank would have a complete defence to Tecnimont’s claim as the Bank’s conduct at no stage was such that it would be unjust to permit it to rely on the defence of change of position. The Judge went on to say that the Bank had in place adequate and properly designed systems to deal with frauds on and by its customers.
It is unusual in APP fraud matters to see a customer bring a claim against the receiving bank. In our experience, the customer will look to its own bank. This decision will therefore give some comfort to banks who may fear being held accountable on both fronts.
With an increasing number of APP fraud cases, claimants continue to try and push boundaries of the available remedies. This becomes particularly acute where claimants believe that a bank was ‘put on inquiry’.
The recent decisions from the English court have tended to be in favour of providing certainty for banks and to confine their boundaries of their legal liabilities, particularly in relation to the Quincecare duty, which is often used by claimants to pursue claims in APP Fraud situation. Please click here for our recent publications on Quincecare duty.
Please click here for a copy of the judgment.