Restitution lawyers of Australia, be on notice

By Legal Eagle

There may be a whole string of cases coming your way?! In news today, it was reported that the Commonwealth Bank online banking has been thrown into chaos:

Turmoil has hit the Commonwealth Bank’s online banking system after it duplicated customer transactions.

The double-up, caused by an overnight processing error, has affected NetBank customers, the bank said this morning.  It is not yet known how many customers are affected.

Of course, banking errors are staple restitutionary fare, with Chase Manhattan Bank N.A. v Israel British Bank (London) Ltd [1981} Ch 105 being a particularly notable case. An amount of over US$2million was accidentally transferred to Israel British Bank twice, but before the mistake could be rectified, the IBB became insolvent. Doh! Controversially, Chase Manhattan was awarded a constructive trust (or arguably a resulting trust) over the wrongly transferred money, and thus it was a secured creditor in the insolvency. Whew. Lucky for them.

I read an amusing blog post the other day (found via the Restitution blog post website). The post recalled that card in Monopoly which states: “Bank error in your favour. Collect $200.” The author then goes on to note that it is very rarely that bank errors are in the consumer’s favour in real life. {This is why the defence of good faith change of position to a restitutionary claim is an awesome thing.)

I wonder how many claims there will be coming from this debacle. Imagine all the amounts credited or debited twice…


  1. Posted November 25, 2008 at 8:17 pm | Permalink

    Personally, I don’t have an internet-enabled bank account. But then I’ve been programming for 3 decades and have been involved in diagnosing a very nasty hack or two.
    That way, if there are any transactions associated with internet access, it is trivial to say “nope… your problem”.
    Got rid of my credit card two decades ago for similar reasons (as well as removing temptation).
    Glad this became public… tip of the iceberg.

  2. Posted November 26, 2008 at 10:16 am | Permalink

    I am actually an affected customer – there was an accidental double payment into my account, it seems. What’s more I unknowingly transferred some money to another bank account I have (at another bank) and have used some of it. So, in theory, I fall right in the middle of the “good faith change of position” principle. I spoke to the CBA today when I noticed that my account with them was suddenly several hundred dollars in the red.

    They seem to be treating it like a debt I have to them, but we didn’t debate the finer points of whether they are actually entitled to the whole amount from me. We also did not discuss the ins and outs of whether they are actually entitled to arbitrarily withdraw hundreds of dollars from my account without my knowledge or consent. That is particularly interesting given that I have been with them since I was a kid, so to my recollection I have no written agreement with them which I have entered into as an adult.

  3. Posted November 26, 2008 at 10:18 am | Permalink

    Dave, you realise that Visa at least (and probably Mastercard) give you a fairly high degree of protection against credit card fraud? You are pretty safe so long as you keep track of charges on your credit card – if you get defrauded (and not by your own idiocy) then Visa will reverse the charges and pursue the supposed beneficiary of the payment.

  4. Posted November 26, 2008 at 10:19 am | Permalink

    Check the wording of the contract you have with them (you know, that glossy thing they send out periodically that everyone throws in the bin). They will have written in there large clauses about bank errors and the results in your accounts. You will need a good lawyer if you are going to try to wriggle out of them.

  5. Posted November 26, 2008 at 10:38 am | Permalink

    Luckily I am a (reasonable) lawyer, albeit not in banking law. But I do enjoy a fight, especially against organisations like banks and phone companies who habitually overstep the line. My best results have included a free mobile phone from B Mobile based on misrepresentation (signed up for a contract, only to find minimal reception at my house), and a number of successful skirmishes with Telstra (my bete noir).

    As I say, I have never signed a contract with CBA that I can recall. The mere act of mailing someone a document in respect of a pre-existing commercial relationship does not automatically make that document into a binding agreement. It would be a surprising result if I could be bound by a document I have never even read. It would also be very interesting to see how a court would define the terms of the agreement I have with the Bank at present.

    Another legal question (LE, you are a restitution junky): what defines a “voluntary” payment as opposed to a payment under a mistake of fact or law for the purposes of the doctrine of unjust enrichment? Would a computer glitch amount to a “mistake of fact”, or is it in fact “voluntary” in some sense (i.e. there was never any “fact” which led CBA to believe it was required to make the extra payment)?

  6. Posted November 26, 2008 at 11:00 am | Permalink

    Banks will often roll when the customer in question is a lawyer, although I don’t know whether the CBA will on this one – it depends how much they stand to lose overall.

    Lawyers routinely get attornment clauses removed from instruments of mortgage (I did), negotiate different fee arrangements on particular accounts, or are able to modify ‘boilerplate’ contracts to an often remarkable degree. One fairly senior banking official admitted to me years ago that most people simply do not appreciate their power to negotiate. Even people who are otherwise wealthy or well informed tend to just accept the piece of paper the bank gives them.

    Not lawyers – or, rather, not this lawyer.

  7. Posted November 26, 2008 at 11:11 am | Permalink

    Interesting. As I say, I do not believe I have entered into any written agreement with them as an adult, but presumably a court would have to find some way in which to govern the relationship and might well find a way to impose the bank’s standard conditions I suppose.

    Reading those conditions (for the first time 🙂 ) I found this clause to be interesting:

    You will not be responsible for any loss resulting from an unauthorised transaction where:

    the same transaction was incorrectly debited more than once to your account; or

    the loss results from any conduct expressly authorised by us.

    One might argue that those clauses represent a waiver of their common law rights in some respects.

    On the meaning of “irreversible” – what if I spend $50 purchasing something that I would not otherwise have spend as a result of good faith reliance on a mistaken payment of $50, but I also happen to have $1000000 in cash that I am not using. Obviously in a practical sense I could easily give back a ‘different’ $50, but at the same time I would not have spent the $50 but for my reliance. Is this ‘irreversible’ in the relevant sense (assuming good faith)?

  8. Posted November 26, 2008 at 11:29 am | Permalink

    Teehee… I’m thinking of those early common law cases where ‘rescission’ meant returning not just $50, but the very same notes 🙂

    Obviously, equity put a stop to that.

  9. Posted November 26, 2008 at 4:39 pm | Permalink

    Therefore it doesn’t matter whether it is the exact same $50, as long as you have the funds to repay the value of $50

    Even if I had those funds already from a separate source? I had always understood that a person’s other assets were irrelevant so long as there had been a detrimental change of position. E.g. in my example, I would arguably be $50 less liquid than I was previously, so it shouldn’t (in principle) matter that I might also have other money available to me. Is that assumption incorrect?

    It’s an interesting area of law. Tracing sounds even more fun…

  10. Posted November 27, 2008 at 7:09 pm | Permalink

    The contracts are normally phrased such that use of the account constitutes acceptance of the contract related to the account. You may have signed nothing – but you still have a contract.

  11. Posted November 27, 2008 at 9:47 pm | Permalink

    A version of ‘acceptance by conduct’.

  12. Posted December 1, 2008 at 6:47 am | Permalink

    Once again, you cannot accept something you have never seen. The terms of a document which I have never read or seen are not capable of acceptance without some additional step.

    In practice I am sure a lot would depend on whether I had to click “I agree” or similar on a terms of service statement when Netbank was first activated (I can’t recall).

  13. Posted December 1, 2008 at 3:43 pm | Permalink

    In the ticket cases, where printed terms and conditions were effective it was because they were drawn to the attention of the person before they bought the ticket. This was indeed the case in Shoe Lane Parking – the car park operator could not rely on terms and conditions which were not brought to the attention of the customer at the time of purchase of the ticket.

    The fact that they couldn’t back out after they had purchased the ticket did not mean that they were bound by terms and consitions which they had not seen. Parker v South Eastern Railway (1877) 2 CPD 416 is an example of the opposite – where a person was aware of the existence of specific terms printed on a ticket but did not bother to read them, they were bound – but they would not have been if the terms had not been (in effect) drawn to their attention by being printed on the ticket. This contrasts with cases where a parties have been prevented from relying on exclusionary or other onerous terms which they have not brought to the attention of the other party to a contract.

    In Olley v Marlborough Court Hotel [1949] 1 KB 532, a condition which was brought to the attention of one party by the other after the contract was formed was ineffective.

    I think in this situation a lot would hinge on the “red hand”/”red ink” principle – if the Bank wants to rely on an exclusion clause of some kind, it must have sufficiently drawn it to my attention (before formation). Given that I had to google to find the t&c now, I think they’d struggle to show that. Their other option would be to show that there was a variation or new agreement when I (for instance) signed up for Netbank – I think that’s probably more likely, although I have no recollection of agreeing to any terms and conditions at the time.

    Personally, I think that offer and acceptance can be applied to any contractual scenario. One must simply have a flexible understanding of what those terms mean, which (as you suggest) hardly ever involves two parties saying:

    A: “I offer X in exchange for Y“.
    B: “I accept”.

  14. John Greenfield
    Posted December 2, 2008 at 6:25 am | Permalink

    I hope this is not OT, but can any of you lawyer types make an accurate estimate of what % of legal academics think Australia is doomed for the fourth world unless we get a Bill of Rights?

  15. Posted December 2, 2008 at 9:40 am | Permalink

    Thing is, realistically speaking, there’s often no choice to reject or accept an offer because of the bargaining strength of one of the parties. If you want to open up a bank account, you have to accept terms of a certain type (and all the banks have similar kinds of terms). You could try and renegotiate, but it depends how much they want your business.

    It’s a very interesting issue, isn’t it? I’ve often pondered whether there would be some way to legislate a more equal bargaining position – somehow to require CBA and Telstra and other monopoly/oligopoly industries to negotiate terms and conditions in good faith. It’s very hard to come up with a model that would work – in the end, you can’t force the Bank to negotiate if they don’t want to, but they have the borderline coercive power that everyone really does need a bank account behind them.

  16. Posted December 2, 2008 at 9:43 am | Permalink

    I hope this is not OT, but can any of you lawyer types make an accurate estimate of what % of legal academics think Australia is doomed for the fourth world unless we get a Bill of Rights?

    I am told that there was a very acrimonious AGM of the South Australian Bar recently where this issue was debated.

    I would guess that a majority of lawyers would be pro a bill of rights, but that a significant and vocal minority would be anti.

    My view is that in some ways we are already a second (perhaps not “fourth”) world country when it comes to our civil institutions. We are virtually the only western democracy without some sort of rights statute (I don’t count the HREOC legislation, which is very limited indeed).

    However I think there are clear signs that a statutory bill of rights is on Labor’s radar and might well be introduced in the next year or so.

  17. John Wilson
    Posted October 22, 2009 at 7:13 pm | Permalink

    Hi All,
    I am not a lawyer, so my comments are “layman logical”.
    It appears to me that the banking industry, as an example, believes it is above the law and government.
    If they hurt they cry to the government to dig them out of the mud.
    If a customer is hurt forget it.
    I had a small shelf company incorporated and was the only director.
    My son, in another state, took the opportunity to purchase goods and services in the name of my company. He did not have the authority.
    I asked the bank why it did not do a company search. They checked and found it had not been done. I then said had they done that they should have asked for a director’s authority as he had no authority. They had not done that. Had they done that then it would seem logical they should have contacted their client (me) to let me know what my son was doing.
    I was asked what I expected. An apology; investigations of my son’s activities, or compensation.
    I said all of that.
    I was then contacted by the bank’s legal section and told that the contacting solicitor was to be the person undertaking the investigation for alleged fraud.
    I never heard anymore so at 18 months 2 years I contacted the local bank manager to see how the investigation was going. She could not say but would contact head office and ask on my behalf.
    I received a call from one of the bank’s lawyers demanding what right did I think that I should ask my manager. All contact was through him.
    I told him to back off and stop trying to intimidate me. It would not work.
    I said that he or a representative should have been liaising with me to keep me informed.
    I then asked how far the investigation had progressed. He said that it had not started. The bank was waiting on me for my out of pocket expenses. I said “bulldust”, a nice layman’s reply to legal argument. My personal costs were a separate issue and would be dealt with later. The longer the bank delayed investigations then the less likely they would recover any funds… His arrogance and bullying stance implied to me that the bank had no intention of investigating or compensating me, so I lodged a complaint with the banking Ombudsman. I am a 77 year old and I believe the bank will delay hoping my death will resolve their problem. There are other issues resulting from their Failure of Duty of Care or a practice of due diligence. Banks have a habit of changing the type of account and notifying the customer after it has been changed without consultation. This I believe is also a breach of contract. The obscene fees and charges I have listed. I do not have a problem of banks seeking reimbursement for administrative additional work. But I firmly believe they have used this process as a revenue generator far beyond the administrative costs. I and also the Government auditor have costed some of these charges as up to 92 times the administrative cost agreed to by the government.
    When banking was done manually banking transfers were estimated as 2 days. Under certain circumstances the bank could also expedite this for a small fee.
    Today banks have a complex computer system whereby there are no human hands to process the transaction. They make the excuse that it costs extra. Rubbish. The process is automated. If you purchase something using a credit or saving card the money immediately leaves your account and will show on your account balance. I recently spoke to a person I had made a purchase from and jokingly said you now can celebrate having my money. He laughed and said don’t you believe it. It takes 5 working days before that money will go into my account. Why the delay? They could do it faster when the transaction was done manually. I can only assume that the banks hold the money for short term investment. While it might not return a large amount from my money, if enough clients contribute it becomes a substantial amount. The same applies where an item is shown as 95 cents and you hand over $1, there is no change. The same applies if it is above 95 cents and you hand over the $1 there is no change. The 5+ or minus will be deducted from your account, so don’t they just charge $1. It is purely an advertising gimmick.
    You might argue they will round it down when it is below 95 cents. How often you have seen anything below the “5 cents”, seldom I would say.
    While my comments may not quite technical relate to your comment it will demonstrate the legal system using a colander to provide justice. Being full of holes it leaks badly, leaving the richest will win against those most vulnerable.
    Hmmh. Today must represent a bad day as this is my second comment for the day castigating the system. Blame it on injustices I have encountered. I am usually an easy going sort of guy except where I see victims and injustices.

One Trackback

  1. By Skepticlawyer » Show me the money on March 7, 2011 at 8:24 am

    […] of unjust enrichment law is electronic banking and the mistakes which arise therein. Seriously! I’ve spoken before about the paradigm case, Chase Manhattan Bank N.A. v Israel British Bank (London) Ltd [1981] […]

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