Tecnimont v NatWest: a fraud victim’s claim against the fraudster’s bank

The recent High Court case of Tecnimont Arabia Limited v National Westminster Bank PLC [2022] EWHC 1172 (Comm) (“Tecnimont”and“NatWest” respectively) considered the scope of a recipient bank’s liability for financial losses suffered by a victim of authorised push payment (“APP”) fraud to non-customers. The High Court dismissed the claim for knowing receipt and unjust enrichment and held that the recipient bank was not unjustly enriched at the expense of the victim.

What is APP fraud?

APP fraud involves the victim being deceived by a fraudster into instructing their bank to transfer money from their account into an account controlled by the fraudster. The latest figures by UK Finance have indicated a 39% increase in APP fraud from 2020 to 2021, equating to at least £583m in 2021.

Tecnimont v NatWest

In October 2018, as a result of deception from a fraudster, Tecnimont, a company which operates in Saudi Arabia, instructed its bank to pay US$5 million to a US dollar account held at NatWest in London in the name of a third party, Asecna Limited, rather than to an Italian entity in its group. The fraudster had gained unauthorised access to Tecnimont’s Italian entity’s email system through a phishing email and sent emails which appeared to originate from the Group Finance Vice President instructing Tecnimont to send the funds to the Asecna Limited account controlled by the fraudster. Despite various internal alerts being triggered, NatWest actioned requests made by the fraudster to arrange for the majority of the funds to be paid out of the account over the course of the following two days. Once the fraud was discovered some funds were able to be recovered, but the majority were lost.

Tecnimont, as a victim of APP fraud, brought a claim against the receiving bank, NatWest, for knowing receipt and unjust enrichment to recover its financial losses. NatWest denied that any enrichment had been at Tecnimont’s expense. It alternatively disputed that if it was held that there had been unjust enrichment at the expense of Tecnimont then NatWest had a defence that it had changed its position in good faith.

The claim for knowing receipt was dismissed by the High Court and the court held that the transferred property was not trust property.

In relation to the claim for unjust enrichment, the High Court was required to consider four factors, namely whether:

1. NatWest has benefited, in the sense of being enriched;
2. the enrichment was at the expense of Tecnimont;
3. the enrichment was unjust; and
4. NatWest could rely on any defences.

The High Court held that:

1.  NatWest had been enriched by the funds received;
2. NatWest had not been enriched at the expense of Tecnimont, as Tecnimont had not dealt directly with NatWest and the parties did not deal directly with each other’s property. This was because the funds were transferred by electronic means from Tecnimont’s bank to NatWest via an intermediary bank in New York; and
3. the enrichment was unjust. The enrichment resulted from a payment made under a mistake of fact induced by the fraud of a third party.

The High Court therefore decided that Tecnimont had failed to meet the legal test for unjust enrichment. In any event, the High Court held that even if such test was met, NatWest would have been able to rely on the defence of change of position on the basis that it operated adequate and properly designed systems to deal with frauds on, and by, its customers.

Commentary

The case shows that a victim of APP fraud may not only look to their own bank and the fraudster, but may also be able to bring a claim against the fraudster’s bank to recover their financial losses. However, the decision also highlights the legal and evidential hurdles that victims of APP fraud would have to overcome to successfully pin liability on fraudsters’ banks for failing to prevent their losses.

Although the decision confirms that banks have limited exposure to such liability, it also provides scope for a successful claim of unjust enrichment by a victim of APP fraud against a fraudster’s bank where (i) the victim’s bank transacted directly with the recipient bank, i.e. the fraudster’s bank is considered to have been enriched at the expense of the victim of APP fraud; and (ii) the conduct of the recipient bank is such that it is unable to rely on the change of position defence or any other defence e.g. the fraudster’s bank did not have adequate internal procedures and protocols in place to identify and/or prevent the APP fraud, or did not properly follow such procedures or protocols if they did.

With the number of victims of APP fraud increasing, and consequently an increasing number of APP fraud cases, it will be interesting to see how this area of law develops both for banks and potential victims of fraud who seek to recover their financial losses.

If you wish to discuss any of the issues outlined in this article, then please contact Emily Broadrick, Andrew Kinnison or another member of the Litigation and Dispute Resolution Team.

For more information on claims by victims of fraud against their own bank, please click here for our recent legal update on the “Quincecare duty of care”.