BENEFICIARY BANKS FOUND NOT LIABLE FOR THE CONSEQUENCES OF INCORRECT BANK TRANSFERS

A recent decision of The Austrian Supreme Court (OGH 23.10.2014, 2 Ob 224/13z) considered the question of whether a beneficiary bank can be held liable for damages incurred as a result of incorrect transfers, which have been triggered by an incorrect account number in the payment order. Furthermore, in making its decision, the court weighed the beneficiary bank’s obligation to reconcile the recipient’s name with the corresponding account number.

Facts of the case

The plaintiff sought in 2010 to transfer seventeen thousand Euro from her account to a business partner´s account held at another bank. In the transfer order, the name of the recipient was given along with the beneficiary’s account number and sort code. Although the account number existed, it did not belong to the intended business partner. The transferred amount was credited to the above specified account, but the account owner remained unknown. The plaintiff made a claim for damages against the defendant bank, based on the assertion that the bank was under an obligation to reconcile the recipient´s name and account number provided.

Merits

In determining the merits of this case, the Austrian Supreme Court clarified that The Payment Services Act (Zahlungsdienstegesetz) was authoritative for all transfers, since coming into force on 1 February 2014. Accordingly, only the international bank account number (IBAN), as agreed between the customer and the bank, is decisive. The reconciliation of the beneficiary´s name with the corresponding account number is not obligatory.

Furthermore, the court in their decision, stated that the bank shall not be liable for errors or failure to execute the payment transaction, if the IBAN as specified by the customer is incorrect.

In substantiating their decision, the Austrian Supreme Court affirmed that according to the current law, the defendant bank does not have an obligation to reconcile the beneficiary’s name with the account number. Moreover, the defendant bank is not liable for any damages incurred by the plaintiff as a result of the transfer to an existing account as specified by the customer, but not associated with the envisaged recipient. In such a situation, the plaintiff´s only avenue for recourse is that of the law of obligations and unjust enrichment.