CASE ALERT:

Translink Limited vs Standard

Chartered Bank (U) Limited:
The duty of care by a bank in
an online transaction
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Case Alert – Banks have no duty to reverse
online payments made by a customer.
Translink Limited v Standard Chartered Bank (U) Limited, High Court Civil Suit No 415 of 2019
Andrew Munanura and James Samuel Zeere
26 April 2023
Introduction:
The introduction of digital banking has increased the level
of control customers have over their transactions. This has
altered the nature of duties banks have to their customers.
Previously, a transaction would be initiated by a customer with
the assistance of a teller in a banking hall. In this era of digital
banking, a customer now initiates and completes a transaction
using digital means with little or no intervention from the bank.
Effectively, the traditional duty of a bank to review a customer’s
instruction to establish its veracity and potentially detect fraud
is becoming obsolete. Consequently, the risk of failure to
detect fraud or errors in digital transactions is being assumed
by the customer.
In Translink Limited v Standard Chartered Bank (U) Limited,
High Court Civil Suit No 415 of 2019, the officials of Translink
(U) Limited made a payment using the bank’s digital payment
platform under the impression that they were making a payment
to a third-party supplier in London with whom they were dealing.
Within less than an hour, the customer realized that they had
made the payment to the wrong person and contacted the
bank requesting them to reverse the transaction. The bank
then initiated a request for reversal which they sent through to
its correspondent bank in New York. Unfortunately, the online
payment initiated by the customer had already been completed.
The customer sued the bank in negligence and breach of
contract alleging that the bank failed to reverse the transaction
hence causing it loss. The customer argued that it was not
possible that the online payment had been completed in less
than a minute as alleged by the bank and that the bank had in
any event failed to effect the instruction to reverse the payment
leading to financial loss. The bank on the other hand argued
that by the time the instruction to reverse the payment was
made, the payment had already been completed and that in the
circumstances the bank had no duty to reverse the payment.
2
The Court’s findings:
When is a bank said to discharge its duty in a digital transaction?
A bank is said to have discharged its duty in a digital transaction
when it successfully proves that the payment has been paid out
according to the customer’s instruction. The rationale here is
that in online transactions, payments are in the direct control
of the customer and are, in some instances, effected as soon as
the customer directs the system to pay.
The bank only has a duty to countermand a transaction
if it has not yet been paid out as instructed by the customer.
After the payment has been made, that duty ceases to exist
because at that point, the funds are no longer in its control.
When the payment as instructed by the customer is made to
the intended beneficiary, , the funds fall to the credit and control
of the intended beneficiary such that they can only be utilised
with the instruction or consent of the intended beneficiary .
When is money in a digital transaction said to be out of the
control of the paying bank or its corresponding processing bank?
In a digital transaction, money is said to be out of the control of
the paying bank as soon as it is credited onto the beneficiary’s
account named by the customer in the payment instruction.
In this case therefore, the bank could not be held liable for
negligence for loss of funds occasioned to the customer
because they did not reverse the transaction. Any attempts
by the bank to recover the money, in such circumstances,
can only be said to be exercised out of an abundance
of concern rather than performance of a duty.
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Will a bank be held liable for consequential loss suffered in a digital
transaction by a customer when it fails to recover the money or
honour a countermand instruction?
A claim for consequential loss does not arise in such a
case because the payment has been made according to
the instruction initiated by the customer and the funds
are no longer in control of the bank.
For the broader banking and financial services industry,
the Court’s decision is timely given the exponential growth
in digital transactions as it clarifies the duty of banks faced
with mistaken or fraudulent digital payment instructions
from customers.
Key industry and practice takeaways:
• a bank’s duty of care in digital transactions is being
approached differently from a bank’s duty of care in traditional
over-the-counter transactions. This distinction arises because
the bank’s control over the movement of funds in digital
transactions is extremely limited since such transactions
are automated and happen instantly;
• this decision demonstrates that the courts acknowledge
the unique and instant nature of digital transactions and
the need to re-evaluate the principles governing liability or
attribution for loss suffered because of a mistake or fraud
in the digital payment instruction;
• to avert liability, a bank must demonstrate that the customer’s
payment instruction was instant and as a result, the money
was out of the control of the bank and the corresponding
bank (i.e., the bank that processed the payment) at the time
the customer issued a countermand instruction;
• a bank should always keep a record of all correspondences
with the customer in relation to the countermand instruction
in the event of a mistaken payment to avoid any allegation that
there was a delay in processing the countermand instruction.
Such correspondence will demonstrate that reasonable efforts
were made by the bank to recover the funds;
• Banks are also advised to insist on written requests for
countermand instructions as this ordinarily forms the basis
for generation of a SWIFT message to the beneficiary bank to
try and reverse the payment;
• financial institutions ought to review their terms and
conditions to respond to the unique nature of digital
banking. In this case the bank’s terms and conditions
for digital banking expressly provided that the bank had no
duty to countermand a digital payment and it could not be
held liable for instances where it tries to countermand the
payment and is unsuccessful; and
• for customers used to digital transactions, any countermand
instruction in case of an accidental or mistaken payment
must be sent urgently so that it is received by the paying bank
before the payment is credited onto the mistaken beneficiary
account. This is a matter of evidence which, unfortunately,
the customer is not privy to as the audit trail of the digital
transaction can only be accessed by the paying bank.
Therefore, it is imperative that any mistaken instructions are
recalled immediately/as soon as they are realized to avoid
loss of funds to unintended beneficiaries.

Authors
Andrew Munanura James Samuel Zeere
Partner, S&L Advocates Senior Associate, S&L Advocates
amunanura@sladvocates.ug jszeere@sladvocates.ug

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