The courts have been considering who, if anyone, is liable to a customer when CHAPS (Clearing House Automated Payment System) transfers go wrong. In July 2014, the Court of Appeal handed down its decision concerning accuracy of CHAPS payment requests in Tidal Energy Limited v Bank of Scotland.
The decision is favourable for banks as it determined that minor inaccuracies in the CHAPS request would not invalidate the bank mandate.
CHAPS (Clearing House Automated Payment System) is one of the most frequently used same day payment system for cleared funds. Its principal benefit is the speed of payment within 1.5 hours.
Tidal Energy, which was a customer of Bank of Scotland, made a CHAPS payment request for £217,000 to be sent from its account to a supplier. However, Tidal was the victim of fraud and had been given incorrect account details. The bank debited the funds from Tidal's account pursuant to the CHAPS request.
Tidal brought proceedings against the bank on the basis that the account name on the CHAPS mandate did not match the name of the recipient account and therefore funds should not have been taken from Tidal's account. Or, viewed another way, Tidal had named the correct beneficiary but used the wrong sort code and account number.
Both the High Court and Court of Appeal determined that an error in the name of the CHAPS form did not invalidate it. When the customer completes a CHAPS form, it contracts with the bank on the bank's accepted practices which only require verification of the sort code and account number. In fact there is no requirement to name the recipient at all.
Tomlinson LJ stated that "the hallmark of CHAPS is speed" which would be economically impossible if the recipient's name and other details had to be checked against the account details in all cases. Further, the recipient's details were not in the control of the bank sending the funds and such information is confidential between the payee and the recipient bank.
This is good news for banks and a reminder to customers to take care when completing CHAPS request forms. If an error is made on a CHAPS form, the payer should seek urgent relief in the form of a freezing order against the unintended recipient.