Business depends on the movement of money, and millions of payments between businesses are processed electronically each day. Occasionally, however, money will be sent to the wrong place.
There could be a simple error in typing a bank account number or a misunderstanding leading to the wrong account being used. Perhaps a business has paid in advance for a proposed contract which did not proceed.
Where the recipient of the money was not legally entitled to receive it, they would benefit from a windfall at the expense of the paying party if they were able to keep it. This is known as unjust enrichment.
The starting position is that the courts will protect against unjust enrichment, and will allow the paying party to recover the money. For example, a bank which pays £1m into a customer’s account in error is entitled to claim against that customer for the return of the money. It will not matter that the customer was not at fault in any way.
In many cases, the error will be acknowledged, and the money will be returned by the recipient voluntarily. But what happens if the recipient refuses? Can they ever keep the money?
Potential defences to a claim for repayment
In some circumstances, the recipient may be able to avoid having to make repayment. For example:
- There may be a defence available for the recipient where they change their position to their detriment as a result of the payment. This could be buying something with the windfall which they would not have bought without it. However, this does not mean that the recipient can rush off to spend money to avoid paying it back. This change of position defence only applies where the recipient is acting in good faith. They will not be acting in good faith if they spend the money believing (or having a suspicion that) it was paid in error, or that they were not otherwise entitled to it.
- The recipient may also avoid having to pay the money back if they can show they relied on a statement that they were entitled to the money such that it would be unfair to have to pay it back.
- A delay of six years or more in seeking to recover the payment may also mean that the recipient will not be obliged to repay it.
- Prevention is indeed better than cure. Robust systems to check whether payments and account details are correct before making payments are essential, particularly for high value payments.
- Maintain adequate insurance cover. If covered, notify your insurer as soon as possible.
- Complaints about non-payment may be a trigger to investigate whether payments have been misdirected.
- If you realise a payment has been made by mistake, notify your bank as soon as possible – it may be possible to stop or recover the payment before it reaches the recipient.
- If the money has already been received, notify the recipient as soon as possible in clear terms and request repayment.
- If a payment has been made to an incorrect account with an unknown owner, it may be necessary to make a court application to compel the recipient’s bank to disclose the name of the account holder.