Santander Bank in Britain has been given the right to identify and pursue the beneficiaries of erroneous payments of up to £12,000 – even though the errors were made as a result of Santander’s own failings.
Hundreds of such errors occur each month and Santander has set up a Refunds and Recoveries team to deal with them. Typical errors include duplicate payments, the selection of an incorrect mandate and the insertion of an incorrect account number. In some cases the bank is stymied when trying to get money back from customers of other banks because the beneficiaries – whose names and details are unknown to Santander – are protected by the other banks’ confidentiality.
Now the High Court has ruled that Santander can force the banks to reveal the details of mistaken beneficiaries by issuing an order usually used to reveal wrongdoers – a Norwich Pharmacal order – even though wrongdoing may not have occurred in these cases.
The unwitting beneficiaries can now have their names, addresses, emails and telephone numbers revealed to Santander which can use them to retrieve the money. Mr Justice Birss in the High Court Chancery Division has concluded that privacy rights are trumped by property rights.
The order is made against someone who was “mixed up” in the wrongdoing (innocently or otherwise) but who would have no obligation to reveal the wrongdoer. Once the possessor is identified, the money can then be discovered by “equitable tracing” (TRACING RULES: pdf) – following it into bank accounts and assets to make a claim on it as being held on trust.
Cases in the past have included Bankers Trust v Shapira  1 WLR 1274 where a £1m fraud was alleged and an order issued to reveal details of the apparent wrongdoer’s account. On that occasion Waller LJ said: “Clearly it is undesirable that an order such as this should be lightly made.”
Santander has made paper applications for 85 Norwich Pharmacal Orders since it started doing so in 2013 and another 250 are expected this year. However the case before Mr Justice Birss (Santander UK v National Westminster Bank and others  EWHC 2626 (Ch)) was intended as a full open court hearing to establish principles for their use and iron out inconsistencies – and publicly establish that Norwich Pharmacal orders are valid for such cases rather than serious fraud.
The case concerned eight examples of erroneous transfers being made by Santander ranging from £550 to £12,000. The bank argued that, prima facie, it had a right to retrieve the money under the equitable doctrine of unjust enrichment on the basis of mistaken payment. Broadly this means that the person who made the mistake would be due the money because a reasonable person aware of the mistake would accept s/he had no right to it. A court would use its equitable juridiction to put the matter right not least since “It is not obvious what the beneficiary’s defence would be.”
Famously there is a “change of position” defence if the beneficiary was unaware of the error and spent the money – on consumables rather than on items such as jewellery that retain value. However, it was for the beneficiary to make such defences once legal action is instituted, said Birss. He said:
“Although the evidence does not establish with certainty that the beneficiary bank [ie bank of the customer who received the money in error] has in every case actually informed the beneficiary himself or herself, it is a reasonable inference that that has happened and so it is a reasonable inference that the beneficiary has neglected or refused to repay the money or otherwise engage with the matter.”
Furthermore “the beneficiary bank clearly knows or should know the identity of the beneficiary and is mixed up in the unjust enrichment sufficiently to justify an order. After all the money was paid into an account at the beneficiary bank”.
For good measure Birss threw in property rights under the European Convention on Human Rights Article 1 Protocol 1 balanced against rights to privacy. He considered that providing Santander with the name, address, telephone number and email address of the beneficiary was proportionate subject to Santander’s “limited right to use it”. The order is limited to the name(s) of the holder of the account into which the money was paid. Dates of birth will not be provided and: “The claimant’s right to use the information provided is limited to the purpose explain in the application. It can be used to further the claim to recover the money paid by mistake but for no other reason.”
Birss concluded: “The Norwich Pharmacal jurisdiction is a useful and important remedy available from the court to enable justice to be done. It is potentially intrusive and the balancing of the parties’ rights and interests is not always straightforward. In the eight live applications before me, Santander has a proper claim to disclosure from the beneficiary banks of the identities of the beneficiaries of the mistaken payments.”
Although this case seems to be a sort of tidying up exercise, justifying practice that had already occurred, albeit in paper cases handled by lesser judicial figures, it has nevertheless extended what was conceived as a “strong order” used in limited and serious circumstances to rather minor issues. Not least it allows Santander and other banks seeking the order to put right the results of their own incompetence or accidental error rather than dealing with serious matters of fraud.
Birss J has not required any evidence of wrongdoing in these cases, such as beneficiaries of mistakes wilfully holding on to money they know is not theirs. Instead he has said “it is a reasonable inference” that the beneficiary knows the situation and “a reasonable inference” that they are refusing payment.
This “reasonable inference” will act as a template for all such cases because there is no one to rebut it. The recipients of mistaken payments who, in some cases may not even have noticed them, will be condemned in absentia as wrongdoers in order to facilitate the clearing up of banks’ failings. There is no one to speak on their behalf because the respondents in these cases are other banks who pay lip-service to confidentiality but in reality have no reason to resist Norwich Pharmacal orders. Indeed, they will benefit when they send out mistaken payments themselves. “In these cases the beneficiary bank does not consent but does not oppose the applications and so the application is unlikely to be contested,” as Birss noted.
It is not clear from the case whether Santander is a particularly egregious offender when it comes to making mistaken transfers. Its lawyer gave this example: “May 2014 Santander sent 8.5 million Faster Payment transfers and there were 603 Santander errors relating to those payments in the same period.” A proportionately tiny number and not all those 603 will require Norwich Pharmacal orders (in some cases the bank already knows where the money went).
Nevertheless the idea that hard-pressed Chancery masters and judges are busying themselves day in and day out helping to put right bank errors is worrying. This is the process explained in court:
“If the details are not provided [by the "beneficiary bank"] then Santander can either write off the loss or take some other step to identify the beneficiary. Santander’s policy is that if the loss is less than a certain sum (which they regard as confidential) it will be written off but values more than that are transferred to the bank’s solicitors to progress an application for a Norwich Pharmacal order. Santander do not approach the court unless it has no other way of contacting the beneficiary. Santander’s external solicitors contact the beneficiary bank. The beneficiary bank generally adopts the position that it does not consent to nor does it oppose the making of a Norwich Pharmacal order. An application for a Norwich Pharmacal order is made to the court. If it is granted it is then served on the beneficiary bank, which then complies with the order and reveals the identity of the beneficiary. The beneficiary bank also confirms its costs of complying with the order, which are paid by Santander.”
In other words the result of the orders is a foregone conclusion. The beneficiary’s banks are adopting attitudes – that they respect confidentiality – but in reality couldn’t care less whether they hand over the details. The law courts are resorted to in order to make them do what they want to do anyway. From this case we can see that Santander finds the Norwich Pharmacal option worthwhile to retrieve sums as low as £550. Birss has set the bar rather low for the banks, put the state’s courts at their service for rather small sums and hence allowed them to avoid the costs of their errors. That means they have less of an incentive to sort out their systems in the first place.
Lord Reid in Norwich Pharmacal: “But that does not mean, as the Appellants contend, that discovery will be ordered against anyone who can give information as to the identity of a wrongdoer. There is absolutely no authority for that. A person injured in a road accident might know that a bystander had taken the number of the car which ran him down and have no other means of tracing the driver. Or a person might know that a particular person is in possession of a libellous letter which he has good reason to believe defames him but the author of which he cannot discover. I am satisfied that it would not be proper in either case to order discovery in order that the person who has suffered damage might be able to find and sue the wrongdoer. Neither authority, principle nor public policy would justify that.
“So discovery to find the identity of a wrongdoer is available against anyone against whom the plaintiff has a cause of action in relation to the same wrong. It is not available against a person who las no other connection with the wrong than that he was a spectator or has some document relating to it in his possession. But the Respondents are in an intermediate position. Their conduct was entirely innocent; it was in extecution of their statutory duty. But without certain action on their part the infringements could never have been committed. Does this involvement in the matter make a difference?” (Para 9 and 10)
Lord Cross of Chelsea: In the course of the argument fears were exposed that to order disclosure of names in circumstances such as exist in this case might be the ” thin end of the wedge “, that we might be opening the door to ” fishing requests ” by would-be plaintiffs who want to collect evidence or to requests for names made to persons who had no relevant connection with the person to be sued or with the events giving rise to the alleged cause of action but just happened to know the name. I think that these fears are groundless. In the first place, there is a clear distinction between simply asking for the name of a person whom you wish to make a defendant and asking for evidence. This case has nothing to do with the collection of evidence.
Secondly, although in any case which was on all fours with this case or any subsequent case which may be decided the Commissioners or any other person who was asked for a name would no doubt give it without putting the applicant to the expense of obtaining an order of the Court; in any case in which there was the least doubt as to whether disclosure should be made the person to whom the request was made would be fully justified in saying that he would only make it under an order of the Court. Then the Court would have to decide whether in all the circumstances it was right to make an order. In so deciding it would no doubt consider such matters as the strength of the applicant’s case against the unknown alleged wrongdoer, the relation subsisting between the alleged wrongdoer and the respondent, whether the information could be obtained from another source, and whether the giving of the information would put the respondent to trouble which could not be compensated by the payment of all expenses by the applicant. The full costs of the respondent of the application and any expense incurred in providing the information would have to be borne by the applicant.” (Para 100)
Lord Kilbrandon: “The most attractive way to state an acceptable principle, intellectually at least, may be as follows. The dispute between the plaintiff and the defendants is of a peculiar character. The plaintiff is demanding what he conceives to be his right, but that right in so far as it has patrimonial substance is not truly opposed to any interest of the defendants ; he is demanding access to a court of law, in order that he may establish that third parties are unlawfully causing him damage. If he is successful, the defendants will not be the losers, except in so far as they may have been put to a little clerical trouble. If it be objected that their disclosures under pressure may discourage future customers, the answer is that they should be having no business with wrongdoers. Nor is their position easily distinguishable from that of the recipient of a sub-poena, which, in total disregard of his probable loss of time and money, forces him to attend the court for the very same purpose as that for which discovery is ordered, namely, to assist a private citizen to justify a claim in law. The policy of the administration of justice demands this service from him.” (Para 110)
See also: Golden Eye (International) Ltd & Ors v Telefónica UK Ltd & Anor  EWCA Civ 1740