HOW THE BANKS GOT AWAY WITHOUT PAYING COURT FEES (FOR A WHILE)

The judgment of Master Matthews in Santander UK plc -v- The Royal Bank of Scotland plc [2015] EWHC 2560 (Ch) is an important review of the Norwich Pharmacal principles. However that is not what catches the eye.  For a while banks have been making applications, on a very shaky legal basis and without paying appropriate court fees.

“…the Bank had been making applications by using the Part 23 procedure, as if within existing proceedings, when of course there were none. This was an irregularity, and had caused some difficulty for the court and the court staff (because there is no case file within which to place the application notice and supporting material). Although the judge did not mention this, it also deprived the court system of considerable revenue, because the fee paid on a Part 23 application is much less than that paid on the issue of a claim form. Mr Justice Birss said that in future an applicant in this position “would be well advised to bring its first application(s) as claims under Part 7 or Part 8 as appropriate…”

THE JUDGMENT

Master Matthews :
  • In January 2014 I was asked to deal with three paper applications made by Santander UK plc (“the Bank”) for Norwich Pharmacal orders, one against each of three separate financial institutions respectively. The solicitors’ references were: 218247.000331/ARP/TEG, 218247.000302/ARP/TEG, and 218247.000269/ARP/TEG. The orders sought were for information about the customers of other banks to whom payments had been made by the Bank in error. The information sought in each case was:
(i) the full name of the account holder or holders;
(ii) the address, or the addresses if more than one account holder;
(iii) the email address or addresses of the account holder or holders;
(iv) the telephone number, or telephone numbers if more than one account holder;
(v) the full date of birth of the account holder or holders.
  • In broad terms, the principal fact alleged was the same in each case. The Bank had made a payment to another bank (the “recipient bank”) for the account of that bank’s customer (the “third party”), mistakenly thinking that it had its own customer’s instruction and authority to make it, whereas in fact it did not. The underlying facts in each case however were of various permutations. Either (i) the customer had instructed the Bank to make a payment and the Bank made it twice, so once with authority and once without, or (ii) the customer had previously authorised a payment and then validly cancelled the authority before payment was made, but despite being informed of the cancellation the Bank nevertheless made the payment, or (iii) the Bank made a payment to an account other than that authorised by its customer, or (iv) the Bank’s customer died before his or her instruction to pay was implemented.
  • In all cases the Bank was unable to debit its customer’s account, and the payee neither returned the sum paid nor consented to his or her details being passed by the recipient bank back to the Bank. Although the Bank knew to which recipient bank the payment had been made, and the branch sort code and account numbers concerned, it did not know the identity of the third parties, the recipient bank’s customers. The purpose of the application was to obtain this information.
  • On the paper applications before me I took the view, which was passed to the Bank’s solicitors, that the Norwich Pharmacal jurisdiction enabled the court to order that the defendant (ie the recipient bank) disclose information to the claimant (ie the Bank) to identify a third party (ie the recipient bank’s own customer) whose wrongdoing or alleged wrongdoing was facilitated by the defendant or in which the defendant was innocently mixed up.
  • However, I declined to make the orders sought, in each case on the same generic grounds. These were that:
1) There was no evidence of any wrongdoing by the third party before the money arrived in his or her bank account; the cause of action by the Bank against the third party, would be in restitution (unjust enrichment), arising only after the payment was received, because on the evidence the Bank paid the money by its own mistake, not induced or contributed to by the third party; and a claim in restitution (unjust enrichment) did not involve a wrongdoing for the purposes of the Norwich Pharmacal jurisdiction.
2) Even if (contrary to the view in (1) above), the third party was guilty of a wrong within the Norwich Pharmacal jurisdiction, that could only be refusing to pay back the money once received and demand made for its return, because it was not legally wrong in itself passively to receive the money into the third party’s own bank account, and yet:

i. there was no evidence supplied in any of the cases of a refusal by the third party to pay (indeed there was no evidence of any response at all); and

ii. the respondent (recipient bank) had not facilitated the non-repayment of the money by the third party to the Bank, and neither was it ‘mixed up’ in that non-repayment; indeed, its part in the story was over before there was any question of the third party doing ‘wrong’ by refusing to return the money.

  • In addition, I said that, even if it had been right to make a Norwich Pharmacal order, I saw no basis on the evidence provided for ordering the supply of any more than the name and address of the third party. Disclosure of telephone numbers, email address and dates of birth would be going too far.
  • I concluded by saying that if the Bank wished to persist in the applications, there would have to be a hearing, on notice to the defendant. At the time, I heard no more about these applications.
  • However, on 31 July 2014, Mr Justice Birss delivered judgment in further Norwich Pharmacal applications made by the Bank against a variety of other banks and building societies: Santander UK plc v National Westminster Bank and others [2014] EWHC 2626 (Ch). These cases had been referred to him by the then acting chief master, Master Bragge. The judge made the orders sought, and restated certain principles which should apply to cases of this kind. In our legal system, the law is developed by the judges. My appreciation of this judgment is that, as I attempt to explain below, it represents a significant extension of the earlier law.
  • However that may be, following that decision the solicitors for the Bank has asked for reconsideration of earlier applications which were refused. These include those under consideration here. I have therefore looked again at these applications in the light of this judgment.
  • In what follows, it is important to bear in mind that applications of this kind are commonly not opposed. The recipient bank has no interest in the matter beyond not wishing to commit any breach of its duty of confidence to its customer, the third party, and does not want to spend money on legal costs which it cannot recover. So it generally writes a letter to say that it does not consent to the order sought, but does not actively oppose it either. Ex hypothesi the third party does not know about the application and therefore does not (cannot) oppose either. The argument addressed to the court will be from the applicant only.
  • The first point on which I refused the grant the order sought was that the claim in restitution (unjust enrichment) was not a wrong for the purposes of the Norwich Pharmacal jurisdiction. In the Santander case, however, counsel submitted to Mr Justice Birss that it was, and cited in support the decision of the Court of Appeal in Bankers Trust v Shapira [1980] 1 WLR 1274. The judge considered that decision, and held that a claim in restitution was a wrong capable of justifying a Norwich Pharmacal order.
  • However, the judge’s attention seemed not to have been drawn to the two significant differences between Bankers Trust v Shapira and the case before him (and now me). The first is that Bankers Trust was a case of seeking to trace and claim funds in which the claimant said it had an equitable proprietary interest. This is a far more potent claim than one to a mere debt. It survives insolvency, and it grows with the asset itself. The Court of Appeal accordingly laid stress on the importance of trying to get back the actual property before it disappeared completely. But the case before Mr Justice Birss was one for repayment of a sum of money, a claim in personam. In my respectful view, Bankers Trust v Shapira is not an authority for the proposition that a mere claim in restitution or unjust enrichment can justify a Norwich Pharmacal order. And I am not aware of any other authority on the point.
  • On principle, and as the judge himself remarked (at [29]), this is an exceptional jurisdiction. It involves a serious invasion of privacy and a burden on persons (banks) who have in some way become involved in the affairs of others. It ought therefore to be reserved for exceptional cases. A debt or restitution claim of the kind sought to be made here does not arise out of fraudulent, dangerous or even deliberate acts of the putative defendant. For myself, I do not consider that a claim in debt or restitution of this kind is sufficiently exceptional to justify this invasion of privacy.
  • The second difference between the Bankers Trust case and the case before the judge is about when the wrong was committed. In the former case the argument was that the defendants had committed a wrong (fraud) at the outset and the respondent bank had become involved in it only afterwards, thereby facilitating the disposal of the proceeds of the fraud. In the case before the judge, however, the only “wrong” committed by the third party was to refuse to pay the money back when that was demanded. Not having induced the payment, and not knowing it was coming, it was not in any legal or moral sense wrong of the third party merely to receive it.
  • The justification given by the House of Lords for ordering disclosure in the Norwich Pharmacal case was that, as Lord Reid expressed it, of “a person [ie the recipient bank] getting mixed up in the tortious acts of others [ie the third parties] so as to facilitate their wrongdoing…” ([1974] AC 133, 175; emphasis supplied). In the case itself, the infringement was the act of importing the patented compound, and Customs & Excise were necessarily involved in that. A lawful importation of those goods would have to be submitted to them for clearance, and indeed it was. That was how the defendants knew who the wrongdoers (the importers) were.
  • However, even if a claim in restitution could be a sufficient “wrong” so as to justify a Norwich Pharmacal order in theory, in practice it can never happen that the recipient bank in the present kind of case has facilitated the “wrong” of the third party in refusing to return the money mistakenly paid. This is because the bank does nothing to enable the third party to refuse to pay the money. It may be said that, without the bank account having been provided, the mistaken payment could not have been made. Strictly, that is true. But the bank did not facilitate the mistake, even if it made it possible for the payment to be made to its customer. More importantly, the mistaken payment is not the relevant wrong. The wrong is refusing to pay back the money when asked. The bank does nothing to facilitate that.
  • For these reasons, which so far as I can see were not considered by the judge during argument or in his judgment, I respectfully consider that the judge’s decision on the applicability of the Norwich Pharmacal jurisdiction to the facts of these cases is flawed (although of course I accept that the judge might still have reached the same conclusion even if he had considered these matters). That notwithstanding, since a High Court judge has after hearing argument, albeit only on one side, reached the conclusion that restitution is a sufficient wrong, and that the recipient bank hassufficiently facilitated the commission of the wrong, for the purposes of this jurisdiction, I consider that it is my duty to follow that decision, so that the courts speak with one voice on points of principle, unless and until a different view is reached at High Court judge level or above.
  • It is for this reason that I have subsequently allowed applications for Norwich Pharmacal orders on similar facts. However, in such cases, in the exercise of my discretion I have not ordered the recipient banks to disclose information other than their own customer’s (the third party’s) name and address. As indicated above, the Bank would like in addition details of email addresses, telephone numbers and dates of birth. In the Santandercase, Mr Justice Birss expressly refused to order that the date of birth should be disclosed, as “unduly intrusive and unnecessary” (at [44]). But he did order the disclosure of telephone number and email addresses as well (at [45]).
  • As the judge himself said, “Norwich Pharmacal orders are exceptional and the jurisdiction is only exercised when the court is satisfied that it is necessary” (at [29]). The judge also said that “these orders are sought by Santander when it has no other option. It emphasises that it is seeking the minimum information it needs…” (at [41]). The Bank is seeking to make a claim for recovery of a mistaken payment when it has exhausted all other possibilities. But for the launch of legal proceedings the Bank needs only the name and postal address of the putative defendant. (In practice most claims today are served by post and not by personal service or through solicitors.) The Bank does not need telephone numbers or email addresses in order to commence proceedings. Indeed, except where the court makes an order for service by an alternative means, a claimant cannotuse these details to serve proceedings.
  • Therefore such information cannot be justified by exigency. It is not necessary. In the rare case where proceedings served by post are returned undelivered, the Bank can if appropriate make a further application for other information and to serve by an alternative means. Since the Bank would have to apply to court for the latter order, it will add nothing of any weight that it needs also to apply for the former. I note that Mr Justice Birss in the Santander case did order the disclosure of the telephone number and email address of the third party, saying that, in view of the Bank’s limited right to use it, this information was “proportionate” (at [45]). I respectfully comment only that the test is not proportionality but necessity, and in my judgment this information fails that test. In the cases before me, the Bank in the evidence filed complains that it cannot “initiate proceedings against the account holder without knowing their name and address”, which is right, but then asks for the further details as well, which in my judgment is not.
  • A point which was not dealt with in the evidence in the present applications is the position of the bank’s own customer. One might have thought that it would form part of the express terms of contract between the customer and the Bank that the customer had an obligation to assist the Bank when it made a payment which turned out to be without authority. And one might have thought that in many, perhaps even most, cases of mistaken payment, the customer knows who he wanted to pay, and could supply that information to the Bank. In the cases before Mr Justice Birss, he mentioned the possibility that the customer knew the intended payee (at [9](ii), (vii)), but did not say what evidence there was as to the contractual position between the customer and the Bank. In the cases before me there was no statement in evidence that the customer had no obligation to assist the bank in recovering mistaken payments. Indeed there was no evidence as to whether the customer had even been asked. Without that evidence it seems to me to be very difficult, even impossible, to say that the bank is unable to launch proceedings for recovery of the mistaken payment without the order.
  • Mr Justice Birss further pointed out that the Bank had been making applications by using the Part 23 procedure, as if within existing proceedings, when of course there were none. This was an irregularity, and had caused some difficulty for the court and the court staff (because there is no case file within which to place the application notice and supporting material). Although the judge did not mention this, it also deprived the court system of considerable revenue, because the fee paid on a Part 23 application is much less than that paid on the issue of a claim form. Mr Justice Birss said that in future an applicant in this position “would be well advised to bring its first application(s) as claims under Part 7 or Part 8 as appropriate…” (at [52]). He also required a restriction to be inserted in the order on the use to which the Bank could put the information.
  • Revisiting the applications originally before me in January 2014, and applying the principles stated above, I reach this conclusion. If the applications that I previously refused are renewed, and the evidence deals with the matters referred to in para 21 above as well as the other matters already discussed, then assuming I was satisfied that it was otherwise proper to make the order, I would make an order for the disclosure in each case by the recipient bank concerned of the name and contact address of the third party, but not the telephone number, email address, or date of birth. I would also require an undertaking by the Bank in terms such as “Not, without the permission of the court, to use any documents or information obtained as a result of this order, except for the purpose of enforcing its legal rights in connection with the mistaken payment [specifically referred to in the evidence]”. I would not require or allow the Bank to use the information for the purpose generally of tracing the third party, because that would go too far. In theory, at least, it would allow the Bank to trace him or her for the purpose of trying to sell him insurance. The undertaking I have suggested is wide enough to allow the Bank to use the information for the purpose of tracing the account holder, so far as this was to enable the bank to enforce its legal rights against him or her.
  • There are a number of fresh Norwich Pharmacal applications awaiting my decision. I will deal with them on the basis of the principles set out in this judgment. Finally, I add that, in accordance with the view also expressed by Mr Justice Birss, in future cases I would expect the claim to be made by claim form, and not by part 23 application notice.

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