The High Court’s recent decision in Terna Energy Trading doo (“Terna“) v Revolut Ltd (“Revolut“) [2024] EWHC 1419 (Comm) provides an interesting legal development within the evolving issue of Authorised Push Payment (‘APP’) fraud. This article will focus on the above case, wherein the Defendant made an application for reverse summary judgment.
This case further develops the common law position on APP fraud following the decision in, the Supreme Court case of Philipp v Barclays Bank UK plc [2023] UKSC 25. In that case the Supreme Court severely narrowed the scope to bring a claim against a customer’s own bank when they have been victim of APP Fraud. Since that case, we have seen an increase in victims bringing claims against the fraudster’s banks.
It is important to note that this judgment did not rule on the legal merits of the claims against Revolut but whether or not Revolut had (1) been unjustly enriched and whether (2) they had done so at the expense of the Claimant. Revolut only had to get the court to answer no on one of the above points to successfully obtain reverse summary judgment.
Background of Terna v Revolut:
Terna (a Serbian Incorporated Company) instructed its bank to pay €700,000 to an account held with Revolut by a third party in the name of Zdena Fashions Ltd (“Zdena”), mistakenly believing that it was paying an invoice from one of its energy suppliers.
The fraudsters used email intercept to appear as the energy supplier. Terna instructed their Serbian bank to make the payment without further question, a clear example of APP fraud. Once the funds arrived in the fraudsters’ account they were quickly dissipated away. Terna argued that Revolut had been enriched by the payment at their expense as this amounted to a transfer of legal and beneficial title to the funds.
The Court’s Decision
The First Argument
The Court rejected Revolut’s first argument that it had not been unjustly enriched and held that it had been enriched by the transfer.
This argument was predicated on the fact that Revolut credited Zdena’s account with the same sum, balancing the incoming credit. In this matter the High Court was bound by a number of decisions of higher courts including Kerrison v Glyn, Mills, Currie & Co [1911] 81 LJKB 465 which confirmed that a bank becoming the debtor of a customer (being the standard relationship between a bank and customer when a bank transfer is made) is not an answer to an unjust enrichment claim. A possible defence was identified if it is proven that the bank has paid the money in accordance with the customer’s instructions and without notice of the payer’s claim, but that was not to be decided at this claim.
The Court also held that there was no relevant distinction between an electronic money institution (EMI) such as Revolut and an ordinary bank and so the funds were held not to be segregated. Revolut also admitted to becoming the beneficial owner of the funds when they were transferred in its own Defence.
The Second Argument
The Court similarly rejected Revolut’s second argument that it had not been enriched at the Terna’s expense and held that their enrichment was in fact at Terna’s expense.
In reaching this decision the High Court considered the principles laid down by the Supreme Court in Investment Trust Companies v HMRC [2017] UKSC 29 which divided cases on unjust enrichment into two broad categories.
Firstly, there are more typical cases in which the parties have dealt directly with one another or with one another’s property, and alternatively there are more unusual cases where the parties have not dealt directly, but the defendant has received a benefit from the claimant at the claimant’s expense. This case did not involve any direct transfer (as the transfers made its way through a series of banks via the SWIFT Messaging service) and so the case fell within the latter category.
The Court noted that Investment Trust Companies v HMRC states that indirect transfers may be treated as if they were direct transfers either as a result of agency or because they are a “set of coordinated transactions”. In this case, the Court decided both that there was an agency relationship and that the series of transactions between the claimant, the agent, and the defendant were equivalent to a transaction directly between the claimant and the defendant.
Consequently, the Court distinguished the case of Tecnimont Arabia Ltd v National Westminster Bank plc [2022] EWHC 1172 (Comm), which also involved a claim against a receiving bank in the context of an APP fraud. In Tecnimont, it was decided that to treat APP fraud transfers as “direct” would fail to recognise the established manner in which international bank transfers are made.
Our Comments and Summary
This decision represents an important development to unjust enrichment claims against banks and electronic money institutions in the context of APP fraud.
Revolut has been granted permission to appeal the High Court’s decision, but it remains uncertain as to whether the matter will go to trial. As shown with the contrasting authorities in this article, there is a degree of legal uncertainty currently existing this area which a Court of Appeal judgment may clarify.
As detailed in our article 11 months ago, the Supreme Court had made it clear in Philipp v Barclays Bank UK plc [2023] UKSC 25 that the grey areas regarding APP fraud need to be addressed by Parliament. Further legislation would be a welcome step in consumer protection.
If you have found yourself victim to APP fraud or your business is party to a potential APP claim and you need advice or assistance then please contact us to speak to a member of our Dispute Resolution Team.
