Unjust enrichment claim against receiving payment service provider relating to an ‘APP’ fraud can continue to trial

Terna Energy Trading DOO v Revolut Ltd [2024] EWHC 1419 (Comm), involved a novel claim whereby unjust enrichment is advanced as a primary cause of action in a claim concerning an APP fraud. The decision was made on the basis that an unjust enrichment claim against a receiving PSP was arguable on the facts and should therefore proceed to trial.

Background

The claimant, Terna Energy Training DOO (“Terna”), a Serbian company which sells energy on domestic and international markets, was allegedly the victim of an APP fraud in 2022. It had instructed its own bank to pay €700,000 to a bank account in the name of Zdena Fashions Ltd (“Zdena”) held with the defendant, Revolut. Anti-money laundering automated checks initially froze the funds, but they were ultimately paid into Zdena’s account. This account was then promptly drained of the funds by the fraudsters.

Terna brought a claim against Revolut for unjust enrichment. It argued that Revolut was enriched at Terna’s expense by the €700,000 payment into Zdena’s account because the payment amounted to a transfer of legal and beneficial title to the funds.

Revolut’s interim application

Revolut submitted two arguments in support of its application for reverse summary judgment or strike out of the claim: first, that it had not been enriched by the transaction; and second, that even if it had received a benefit by virtue of the payment into the Zdena account, that benefit had not been at Terna’s expense.

Enrichment

Revolut argued that the payment did not enrich it as the €700,000 payment from Terna was immediately offset by a €700,000 liability to Zdena, and the net benefit to Revolut was therefore nil. It accepted that while it legally and beneficially owns any funds it receives, it does so ministerially, as its customers’ agent, and therefore has the defence of ministerial receipt. 

Revolut also submitted that its status as an Electronic Money Institution, rather than a traditional bank, meant that the funds were segregated pursuant to the Electronic Money Regulations 2011 and could not lawfully be accessed by Revolut for its own use.

At Terna’s expense

Revolut argued that even if it had been enriched by the transaction, such enrichment had not occurred at Terna’s expense, because:

1. the funds had not flowed directly from Terna to Revolut, and had been mixed with other funds during the international payment process; and
2. there was no requisite indirect transfer of value, as there was no agency relationship between Terna and Revolut, nor was there a single scheme of coordinated transactions, and the proceeds were not traceable at common law.

It also submitted that Revolut was merely Zdena’s agent and should therefore be disregarded in favour of Zdena.

High Court decision

The High Court disagreed with Revolut’s first submission, deciding instead that it had been enriched by the transaction as it had merely credited Zdena for the funds without actually transferring them. In line with case law, Revolut – acting as agent – remains liable to the paying party (here, Terna). The Judge clarified that in this sense, Electronic Money Institutions are in the same position as ordinary banks.

As to Revolut’s second argument, the court considered the High Court’s decision in Tecnimont Arabia Ltd v National Westminster Bank [2023] Bus LR 106, in which it applied the Supreme Court’s test to establish whether a defendant has been unjustly enriched at the expense of a claimant in Investment Trust Companies v HMRC [2018] AC 275.

The High Court disagreed with the application of Investment Trust Companies in Tecnimont, deciding instead that there was a “classic” agency relationship between Terna and Revolut, focussing on the sole transaction intended by Terna – namely, the transfer of funds from its own bank account to Zdena’s Revolut account. The court went further in finding that, regardless of whether there is a perceived agency relationship or a series of co-ordinated transactions, “either way it involves an enrichment of the claimant at the expense of the respondent by indirect transfer sufficient in principle to satisfy the doctrine of unjust enrichment… which can be determined only at trial.”

Comment

The question of when the matter will go to trial remains uncertain: Revolut has been granted permission to appeal the High Court’s decision, so it may be some time yet before further clarification is received in this unsettled area of the law.

This case is yet another example of victims of APP frauds looking to use the existing legal framework to seek redress from paying and receiving PSPs. As flagged in our recent article for the Solicitors Journal, other recent attempts to do the same have had mixed results. The courts are grappling with the application of established legal principles to this area, attempts to expand existing duties (for example, the Quincecare duty) and the potential establishment of new obligations (the ‘retrieval duty’).

The Supreme Court made it clear in a decision last year (Philipp v Barclays Bank UK PLC [2023] UKSC 25) that the issues arising in APP fraud cases need to be addressed by Parliament. This issue is on the agenda of the new Labour Government which, according to reports, may seek to allocate some responsibility for APP frauds on big tech and social media companies – for example, where the fraud originates on their platforms.

Practical guidance for affected individuals and businesses

In the event an APP fraud is perpetrated against you or your business, the key first step is to notify your bank as soon as possible upon discovery of the fraud (or even suspicion of a possible fraud). It is possible that steps could be taken to stop payments or to reimburse losses, depending on the circumstances.

The responses of the paying and/or receiving bank and the degree of recovery will dictate next steps, but if there is a loss and the bank(s) refuse to reimburse, it may be necessary to take legal advice on possible redress available based on the banks’ duties. It is advisable to act swiftly should you decide to pursue a claim.

To discuss the issues raised, contact Duran Ross.