The duty to reverse online transactions by financial institutions revisited. | The African Exponent.
Stemming from the cardinal duty bankers owe to customers, to wit accepting and executing customers’ instructions, the duty has kept taking turns and twists with the ever-oscillating legal positions as to the extent of liability the bankers have in the event an online transaction fully authorized by the customer isn’t usefully reversed.
In this article, JSE`s Senior legal writer and researcher Simon Nyakoojo dissects the recent Ugandan High decision regarding the reversal of online transactions and the key takeaway points.
I will begin with the brief facts.
Case: Translink Limited v Standard Chartered Bank (U) Limited, High Court Civil Suit No 415 of 2019 before Rwakakooko J.
The brief facts of this case are quite clear that because of the existing Bank-customer relationship that existed between the parties, the plaintiffs sued the defendant bank for failure to carry out countermand instructions in a timely manner resulting in a loss of money and hence a breach of contract citing negligence on the part of the banker.
The court, while resolving issues before it rotated around negligence and breach of contract, in my understanding, the following observations can be safely discerned from the judgement:
• In their business, banks make contractual undertakings to their customers to, among other things, manage and safeguard the money and manage transactions with respect to that money as instructed by the customer.
• This creates a duty of care that is always exercised within the law and reasonable limits; thus, bankers are expected not to inadvertently cause loss or damage to their customers.
• The banks always carry out this cardinal duty in a manner that protects themselves and the customers or others from fraud.
• The customers are expected to initiate countermand instructions before the money reaches the beneficiary’s accounts. With the unreasonable delay in countermanding instructions, the bank will not have any remedy, though it is expected to take necessary steps to try and effect the countermand instructions.
• Recall messages should be made to the banks sooner, and the banks must act on the same immediately before monies reasonably get to the beneficiary’s accounts.
• Once a customer has instructed the bank to make payment, and it does so, the money credited belongs to the beneficiary and has to be kept at the beneficiary’s benefit such that reversal of the same remains possible with the beneficiary’s consent.
I believe the aforementioned observations from the judgement are a proper reflection of the law. Visiting the liability on the banker who reasonably undertakes their duty to honour customers’ instructions would be improper.
The decision also shows that customers in this digital era are always 100% in control of their bank accounts; therefore, they should be vigilant. In case of the need for a reversal of online payments, such countermand instructions must be immediate to enable the banks successfully reverse the funds.