Payment under mistake PDF

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Summary

• Common payment mistakes include:
• Bank pays a cheque overlooking a stop order
• Bank pays a cheque mistakenly believing there are sufficient funds available
• Person mistakenly pays an invoice twice
• Person making an internet payment mistakenly enters incorrect account nu...

Description

• LAW OF FINANCIAL INSTITUTIONS AND SECURITIES BLO3405 •

Payment under mistake

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Common payment mistakes include:

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Bank pays a cheque overlooking a stop order

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Bank pays a cheque mistakenly believing there are sufficient funds available

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Person mistakenly pays an invoice twice

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Person making an internet payment mistakenly enters incorrect account number of payee

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Payment under mistake

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Elements of the cause of action:

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Essential that payment would not have been made but for the mistake, that is, the mistake caused the payment

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Must be the payer’s mistake (including an agent)

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The payer need not be negligent

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Voluntary payments cannot be recovered

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Payment under mistake

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Defences

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Goff J in Barclay’s Bank Ltd v WJ Simms (1980) summarised the action and defences:

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(p338)

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Further, the defence of estoppel will fail if there is some fault on the part of the defendant

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And where the payee knowingly receives funds exploiting the mistake, may be a constructive trust for the payer: Barnes v Addy (1874)

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Payment under mistake

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Payment orders

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A bank that pays a under mistake may want to recover the money from the payee

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3 main situations:

1. Bank pays a customer’s order in the mistaken belief there are sufficient funds – payment not recoverable 2. Bank pays a payment order after authority has been withdrawn – recoverable 3. Where one or more cheque signatures are forged – right to recover •

Consumer protection

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1. Australian Consumer Law

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(a) Background

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In March 2010, the first part of the Australian Consumer Law (‘ACL’) was passed ( under amendments to the ASIC Act 2001 and the Australian Competition and Consumer Act 2010).

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The ACL introduced a single, national consumer law that included new provisions relating to unfair contract terms from 1 July 2010.

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Parallel regulatory responsibilities

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Regulation of Financial Service Providers

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The ASIC Act 2001 contains provisions that deal with four separate, though sometimes overlapping areas in relation to financial services:

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Consumer protection

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6 consumer protection initiatives discussed below:

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Unfair contract terms

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Responsible lending requirements

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Consumer warranties

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Code of Banking Practice

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EFT Code of Conduct

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Financial Ombudsman service

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Consumer protection

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1.Unfair contract terms

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Pt 2-3 of the Australian Consumer Law voids certain ‘unfair terms’ of a standard form consumer contract

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The ASIC Act 2001 (Cth) contains similar provisions relating to contracts of financial products and services

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Definitions:

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A ‘consumer contract’ is one where thee acquisition of the goods or services is for personal, domestic or household use and consumption: ACL s23(3)

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Consumer protection

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A term is ‘unfair’ if it:

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Cause a significant imbalance in parties rights/obligations

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Not reasonably necessary to protect the legitimate interests of stronger party

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Would cause detriment to a party

(See ACL s 24 ) •

Under the ACL, ‘services’ include:

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Contract between banker and customer

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Any contract for or in relation to lending money

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Therefore most banking disputes can be brought under the ACL

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Consumer protection

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According to the ACL a term is ‘transparent’ relevant to determining if a term is unfair if:

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Expressed in reasonably plain language

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Legible

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Presented clearly

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Readily available to affected parties

(see ACL s24(3)) •

Consumer protection

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2.Responsible lending

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National Consumer Credit Protection Act 2009 (Cth) requires those engaging in credit activity to obtain a license: s 29

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Aim is to promote responsible lending by:

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Providing a credit guide containing information about obligations under the Act

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Requiring licensee (bank) to verify the consumer’s intentions and financial situation

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Prohibiting unsuitable contracts

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Consumer protection

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3.Consumer warranties

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ACL s 60 provides that if a person in trade or commerce supplies services to a consumer, there is a guarantee that these are provided with due care and skill

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A person acquires a service as a consumer if the amount paid is less than $40k and the services are acquired for personal, domestic or household use

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Consumer protection

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4. Code of Banking Practice

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The CBP is a voluntary code of conduct for banks when dealing with individuals and small business

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The CBP is divided into 8 parts

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Consumer protection

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Application of CBP

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The code will apply to a bank whenever it provides a ‘banking service’ to an individual or small business

(see s 42.1 Code of Banking Practice) •

If there is an inconsistency, the E-payments Code takes precedence over the CBP: s 41.7

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Consumer protection

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General obligations

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Section 3.1 of the CBP makes a commitment to:

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Improve standards of practice and service

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Promote better informed decisions about banking services

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Provide information about customer rights and obligations

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Consumer protection

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Disclosure

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Part D of the CBP requires disclosure in relation to bank fees, charges and interest rates. In particular a bank must provide on request:

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Copies of documents

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Information about the cost of credit and the operation of accounts

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Special information for low income and disadvantaged persons

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Consumer protection

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General principles of conduct

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Part E of the CBP is concerned with ‘banking services practices’ and ensuring that customers are notified about application fees, variation of terms and conditions, rules of privacy and confidentiality, statements of account, operation of joint accounts and that proper process is followed in the provision of credit

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Consumer protection

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Guarantees

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Guarantors of loans are provided with a number of protections under the CBP: s 31

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Basically they must be provided with certain pre contractual information relating to the loan and limitations on liability and enforcement of the guarantee:

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Consumer protection

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Closing the account

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Under s 33 CBP, a bank:

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Must close an account in credit account on request

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May close an account by giving notice

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May charge a reasonable amount for the cost of closure

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Consumer protection

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Dispute resolution

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Under the CBP banks must have both internal and external dispute resolution processes.

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Internal processes must comply with ASIC standards: s 37.3

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Banks are also members of the FOS

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Consumer protection

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5. E –payments code

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The e payments code is a voluntary code but excludes small business. However small businesses are covered by the CBP so can take complaints about transactions to the FOS.

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As a result small business have better protection than consumers for unauthorized transactions: see R v Johnson (2006)

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Consumer protection

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Disclosure requirements

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Chapter B of the E payments code requires EFT providers to provide disclosure of terms and conditions of use, fees and charges, description of the available transactions on the EFT facility, and how to make a complaint, report loss or query a statement of account

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Consumer protection

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Liability for unauthorized transactions

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Under the E -payments code cl 10, the account holder has no liability for losses when for example:

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Caused by fraudulent or negligent conduct of others

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Caused by the same transaction debited more than once

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Resulting from a cancelled, faulty, forged or expired device, identifier or pass code

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Consumer protection

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Clause 11 then applies when cl 10 does not so that the account holder is liable where:

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The user contributed to the loss through fraud or mishandling passcodes

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The holder has left the card in the ATM

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The user contributes to loss by unreasonably delaying reporting a loss, misuse

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In all cases the subscriber has the burden of proof

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Consumer protection

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Mistaken payments

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Tyree points out that the E paymnets code treatment of mistaken payments is worse than no treatment at all. Therefore mistaken payments are best dealt with under common law (see above)

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Consumer protection

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6. Financial ombudsman service

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The FOS is a dispute resolution service available to consumers, dealing with claims up to $500k

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The most important types of dispute are those relating to the provision of a financial service or the provision of a guarantee or security

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Consumer protection

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Remedies

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The FOS may order the financial services provider to take the following actions:

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Payment of money

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Forgive or vary debt obligations

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Release securities

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Repay, waive or vary fees

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Vary terms of credit contract where financial hardship...