CHAPS payment to account with wrong name – Court of Appeal finds that the paying customer was bound by the CHAPS rules, and could not claim the amount paid away from the paying bank.

Tidal Energy Limited –v- Bank of Scotland [2014] EWCA Civ 1107

In this case, Tidal claimed to have been defrauded into thinking that its client Design Craft had an Account with No. X at Barclays bank with Sort Code Y. Tidal requested Bank of Scotland to pay an amount to Design Craft at Account No. X at Sort Code Y.  Bank of Scotland paid Barclays using precisely the details given.

Barclays paid the amount into Account No. X at Sort Code Y. However, the name of the account holder was Child Freedom not Design Craft.

But under the CHAPS rules, the name of the payee was not required to be used by the receiving bank when directing payment.

Tidal sought a declaration against Bank of Scotland that Bank of Scotland was not entitled to debit Tidal’s account with the amount of the cheque.

The claim failed essentially because by instructing Bank of Scotland to make a CHAPS payment Tidal agreed that the payment was to be made in accordance with the CHAPS rules, even though Tidal was not aware of the detail of the CHAPS rules, and in particular the rule that the name of the payee of the payment was not used in directing the payment to its destination account. The court relied on the dictum in Hare v Henty (1861) 10 C.B.N.S. that a man who asked the bank to make a payment in accordance with its standard practices is bound by the standard usage of the bank.

The case is the first reported case on a misdirected CHAPS payment. The decision is of significance because the customer was bound by the CHAPS rules even though there had not been incorporated into the contract between the customer and the bank and the customer did not know of the terms of the rules.

Raymond Cox QC acted for Bank of Scotland. A copy of the judgment can be found here.