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Court backs bank on error

After hearing about a sequence of coincidences and mistakes, the Court of Appeal has ruled that NatWest can take back the money it credited to the wrong customer - well, most of it.

It isn’t very often that a bank makes a mistake in favour of its customer. But three years ago, NatWest accidentally credited the bank account of Somer International UK Ltd with the sterling equivalent of $76,708.57. Because of a remarkable coincidence, Somer International didn’t notice the error. But when NatWest spotted the mistake, it wanted its money back. Lawyers for Somer International argued that the company could keep the money. The Court of Appeal recently ruled that the company had to repay all but $21,616.14.

Somer International, a computer equipment exporter, had notified its bank branch that it was expecting to receive between $70,000 and $78,000 from a customer called Mentor, an African distributor to which the company had extended a considerable amount of credit.

In April 1997, the bank received the $76,708 payment from a company called Moffett Engineering. It was to be credited to a company called Somer Sundstrand.

NatWest got its wires crossed and told Somer International that the expected funds had arrived. The MD of Somer International contacted Mentor to let it know that he had received the money. “Have you?” said the contact at Mentor. “Okay.”

The problem was that, under the impression Mentor was a good paying customer, Somer International then shipped more than #13,000 worth of additional stock to it. Not until February 1998 did NatWest realise it had made an error, by which point Mentor had gone out of business.

Somer International argued that, because of the bank’s error and the collapse of the debtor, it had lost the opportunity to recover the debt, and so could keep all the money. The Court of Appeal rejected this line of argument, but did allow Somer to keep the dollar equivalent of the #13,000-worth of goods that it shipped in the belief that Mentor had made the original payment.

National Westminster Bank Ltd v Somer International UK Ltd, The Independent Law Report, 26 June 2001.

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