Santa, Scrooge, and overactive ATMs

Scrooge and Santa graphic novel coverYesterday, as Scrooge announced a take-away budget, Santa produced give-away bank machines. Bank of Ireland experienced “an unforeseen technical issue” with its computers. This meant that some of its customers were able to make ATM withdrawals of amounts greater than their available funds or credit. However, the bank said that all money withdrawn by customers in excess of their balances yesterday will have to be repaid, and that ATMs are working normally now.

The bank’s first port of call to enforce their repayments will be the terms and conditions of the contracts they have with their customers. For example, clause 3.2 and clause 10 of the Terms & Conditions relating to Personal Current Accounts in the Standard Current Account Terms & Conditions (PDF) allow the bank to recover unauthorised overdrafts incurred “without the bank’s prior written agreement”; and clause 2.9 of the Terms and Conditions of Use relating to ATM Cards and Laser Cards in the same Standard Terms and Conditions permits the bank to restore an account to the state it would have been in had “an incorrectly executed transation not taken place”. However, reliance on these terms and conditions may be displaced if the term is unfair having regard to the European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995 (SI No 27 of 1995), or if a strict interpretation of the relevant terms excluded their applicability (for example, the argument might run that the terms and conditions apply to the ordinary running of the account and not to these kinds of extraordinary circumstances where the bank simply allowed the transactions to go ahead with the risk that some customers at least would not have the relevant available funds).

Even if the contract doesn’t apply, there may a non-contractual claim to restitution of the over-payments on the grounds that the customers were unjustly enriched. As I have had occasion to remark on this blog, a bank error in your favour is not a gift from God; neither is it a gift from Santa, despite the time of year. The starting point for a restitution claim in these circumstances is that many such payments are mistaken payments (see Nolan v Enniscorthy UDC (1955) 89 ILTR 12; National Bank v O’Connor & Bowmaker (1969) 103 ILTR 73 (Budd J); Barclays Bank v Simms [1980] QB 677 (Goff J); Australia and New Zealand Banking v Westpac Banking (1987-1988) 164 CLR 662, [1988] HCA 17 (21 April 1988); David Securities v Commonwealth Bank of Australia (1992) 175 CLR 353, [1992] HCA 48 (7 October 1992); Kleinwort Benson v Lincoln City Council [1999] 2 AC 349, [1998] UKHL 38 (29 Oct 1998); Dextra Bank & Trust Company Ltd v Bank of Jamaica (Jamaica) [2001] UKPC 50 (26 November 2001); Fielding v Royal Bank of Scotland [2004] EWCA Civ 64 (11 February 2004); Donal Rigney Ltd v Empresa De Construcoes Amandio Carvalho SA [2009] IEHC 572 (27 November 2009); Deutsche Bank Ag v Vik [2010] EWHC 551 (Comm) (19 March 2010)). So, the question is whether the bank is mistaken in making these payments. On the one hand, they knew that the central computer was down, and decided to allow the ATMs to operate in offline mode without reference to the central computer, so how could they be mistaken generally? On the other hand, since they had no way of checking balances in respect of each individual customer, they could argue that they (or at least their ATMs) made mistakes when making the overpayments.

Update: A similar way of putting the same enquiry is to ask whether the bank made mistakes about a state of present fact, or whether they made mispredictions about future events (seethe cases above, especially Kleinwort Benson and Dextra Bank; see also Royal Bank of Ireland v Pentony [1941] IR 523 (SC) and Deutsche Morgan Grenfell v Inland Revenue [2007] 1 AC 558, [2006] UKHL 49 (25 October 2006)). If they made a mistake about the way the computers were operating, then that is mistake about present facts, and gives rise to a cause of action. On the other hand, if they made a misprediction about the way the computers would operate in the future, then that is a misprediction about future events and does not give rise to a cause of action.

Assuming that the bank has causes of action against overpaid customers, the customers might claim that they have defences. First, they could claim that the bank made the payments at all events, accepting the risk that the payments might be mistaken or invalid (see the cases above, especially O’Connor, Simms, David Securities, Kleinwort Benson, and Deutsche Morgan Grenfell). There are fine questions of degree as to the bank’s knowledge and acceptance of the risk they were taking. In principle, however, if they were negligent in creating the circumstances of the overpayments, this negligence does not preclude their reliance on any mistake (see again the above cases; and see also Kelly v Solari (1841) 9 M&W 54, 152 ER 24, [1841] EngR 1087 (18 November 1841) (PDF), Banque Financière de la Cité v Parc (Battersea) Ltd [1999] AC 221, [1998] UKHL 7 (26 February 1998); Derby v Scottish Equitable [2001] EWCA Civ 369 (16 March 2001)) though of course it might found a counter-claim by the customers in the tort of neglience. But any such negligence might be relevant in that it may provide the factual foundation for the finding that they assumed the risk of overpayment.

Some customers might be able to argue that they received the overpayments in good faith, and in reliance on those receipts, expended the money (as well as the above cases, especially Derby, see also Murphy v AG [1982] IR 241 (SC); National Bank of New Zealand v Waitaki International Processing [1999] 2 NZLR 211 (NZ CA)). This will be difficult to sustain for many of the customers who had knowledge of the bank’s computer problems. However, just as there are degrees of knowledge on the part of the bank as to whether they had assumed risk, there are questions of degrees of knowledge on the part of the customers as to their good faith. And there must be some customers who did not know about these issues, and whose withdrawals were indeed in good faith. They might therefore able to rely on this defence of change of position.

All of this means that the route to reclaiming overpayments from customers is not entirely straightforward. In doing so, the bank, briefly Santa, will no doubt be cast as Scrooge.

Update: that last paragraph was quoted in a piece by Paul Cullen in the Irish Times: Bank of Ireland to waive penalty on customers who overdrew ATM accounts