L|ectron|c 8ank|ng

wbot ote some of tbe feototes ooJ lssoes of electtoolc bookloq ooJ bow
bove leqol ptloclples beeo otlllseJ lo tesolvloq tbe ptoblems ossocloteJ
wltb lt?

ntroduct|on

1he advancemenL ln Lechnologlcal developmenLs ln lnformaLlon
Lechnology has revoluLlonlsed Lhe way banks LradlLlonally conducL Lhelr
buslnesses and Lhe ways ln whlch consumers perform Lhelr banklng
acLlvlLles LlecLronlc banklng can be deflned as #slmply tbe ose of
electtoolc meoos to ttoosfet fooJs Jltectly ftom ooe occooot to oootbet
totbet tboo by cbeck ot cosb
1
1oday elecLronlc banklng has become one
of Lhe maln avenues for banks Lo dellver Lhelr producLs and servlces
LlecLronlc banklng allows banks Lo lower operaLlonal cosLs and for
cusLomers Lo perform a wlde range of banklng LransacLlons elecLronlcally
vla Lhe banks webslLe anyLlme and anywhere
2
1he rellance on
Lechnology for provldlng Lhe servlces wlLh Lhe necessary securlLy and Lhe
cross border naLure of LransacLlons lnvolve addlLlonal rlsks for banks and
cusLomers and new challenges for banklng regulaLors and supervlsors
3

1hls paper addresses some of Lhe legal problems resulLlng from Lhe
developmenL of elecLronlc banklng and how Lhey are currenLly belng
addressed by dlscusslng Lhe followlng feaLures and lssue LlecLronlc
paymenLs boLh domesLlc and lnLernaLlonal CredlL Cards and MlsLaken
lnLerneL paymenLs

L|ectron|c payments

n elecLronlc banklng elecLronlc paymenLs are consldered Lo be Lhe mosL
lmporLanL aspecL LlecLronlc paymenL also known as LlecLronlc lunds
1ransfer aL olnL of Sale (Ll1CS) enables consumers Lo make paymenLs
Lo parLlclpaLlng merchanLs uslng a deblL card and pln number
4
n
lnLernaLlonal or domesLlc Lransfers Lhere lsn'L an acLual Lransfer of funds
raLher lL ls an agreemenL beLween Lwo lnsLlLuLlons Lo Lransfer funds by
way of credlLs or deblLs belng glven
3
When Lhere ls a credlL Lransfer
lnLernaLlonal or domesLlc Lhe payer lnsLrucLs Lransferrlng bank Lo credlL

Rhett Naitin,Bonkinq onJ Iinonce (Lawbook.Co,

st
eu, 8).

Ibiu.

Anuiea Schaechtei, 'INF Policy Biscussion Papei', Inteinational Nonetaiy Funu

.

Alan Tyiee, Bonkinq low in Austrolio,

th
eu (8).

Royol ProJucts ltJ v HiJlonJ Bonk ltJ |98j Llyou's Rep 9; Bovey v Bonk of
New ZeolonJ |j NZLR anu Furopeon Bonk ltJ v Citibonk ltJ |j
NSWCA .

Lhe accounL of Lhe payee aL Lhe recelvlng bank n Lhe case of a deblL
Lransfer Lhe payee lnsLrucLs Lransferrlng bank Lo make Lhe paymenL

nternat|ona| payments

-owadays lnLernaLlonal paymenLs are made by LesLed Lelex and Lhe
message sysLem of Lhe SocleLy for Worldwlde nLerbank llnanclal
1elecommunlcaLlons (SWl1) nLernaLlonal paymenLs are usually credlL
Lransfers where Lhe Lransferor bank recelves lLs lnsLrucLlons from Lhe
payer (whlch always provldes for a desLlnaLlon) n a slmple paymenLs
arrangemenL beLween Lhe banks whlch malnLaln a 'senlor' relaLlonshlp
Lhe Lransferrlng bank (1) advlses Lhe recelvlng bank (8) Lo credlL Lhe
accounL of Lhe payee 8 does so and obLalns relmbursemenL elLher by Lhe
credlL of lLs accounLs held wlLh 1 or by deblLlng Lhe accounL whlch 1
malnLalns wlLh 8 n Lhese slmple paymenL arrangemenL Lhe Lwo banks
malnLaln a oostto and vostto accounL
6
n slLuaLlons where Lhe
arrangemenL beLween banks does noL malnLaln a 'senlor' relaLlonshlp
anoLher form of seLLlemenL wlll be used lnvolvlng one or more
correspondenL banks

n a paymenL LransacLlon Lhe Llme aL whlch a paymenL ls compleLed may
be lmporLanL Cenerally ln a sale of goods conLracL Llme ls noL generally
'of Lhe essence' for Lhe compleLlon of a LransacLlon unless Lhe conLracL
expllclLly says so
7
Powever paymenL may be of Lhe essence ln Lhe
compleLlon of a CharLerparLy AgreemenL
8
1herefore Lhe preclse Llme of
paymenL may depend on Lhe lnsLrumenL concerned and Lhe acLual or
osLenslble auLhorlLy of Lhe recelvlng flnanclal lnsLlLuLlon
9


1he general prlnclples Lo declde wheLher paymenL ls compleLe ln any
paymenL sysLem are

O aymenL ls normally compleLe when Lhe recelvlng lnsLlLuLlon
makes declslon Lo uncondlLlonally credlL Lhe accounL of Lhe
credlLor/payee n Lhe case of ,omm v 8otcloys 8ook lotetootloool
10
Lhe Lransfer was compleLe when Lhe bank declded Lo credlL Lhe
payee's accounL and lnlLlaLed Lhe compuLer process for so dolng
11

O aymenL wlll noL be noL compleLe unless credlLor/payee has
uncondlLlonal rlghL Lo Lhe funds
12

Alan Tyiee, Bonkinq low in Austrolio,

th
eu (8).

Sale of uoous Act 9 (NSW) s.

8
HorJorf Peocb onJ Co ltJ v Attico Seo Corriers Corp of liberio {Tbe loconico) |9j
AC 8.
9
Tenox Steomsbip Co ltJ v Brimnes |9j QB 99.

|9j QB 9.

Ibiu.

A,S Awilco of 0slo v Iulvio SpA Ji Noviqozione of Coqliori {Tbe Cbikumo) |98j
WLR .

O aymenL may noL be compleLe lf Lhe payer acLs ouLslde Lhe Lerms
of Lhe payer/payee conLracL
13
1hls ls an exLenslon of Lhe prlnclple
LhaL paymenL cannoL be compleLe lf Lhe recelvlng bank has no
auLhorlLy Lo recelve Lhe paymenL
14



omest|c payment

omesLlc paymenLs are mosLly smaller and more volumlnous relaLlve Lo
lnLernaLlonal paymenLs aymenLs Lend Lo be 'baLched' or handled ln an
auLomaLlc way due Lo Lhe overwhelmlng number of domesLlc paymenLs
made each day 1hese paymenLs are governed by lnLerbank agreemenLs
known as clearlng rules (AusLrallan aymenLs and Clearlng AssoclaLlon) n
a domesLlc paymenL relaLlonshlp beLween Lhe parLles ls Lhe same as lL ls
for lnLernaLlonal paymenLs where Lhe paylng bank ls sLlll Lhe agenL of Lhe
payer and Lhe recelvlng bank ls Lhe agenL of Lhe payee
13


8ulk paymenLs use elLher dlrecL credlLs or dlrecL deblLs Cenerally an
lnsLlLuLlon maklng many slmllar paymenLs wlll use dlrecL credlLs n cases
of bulk paymenL Lhe payee musL auLhorlze Lhe reclplenL bank Lo recelve
paymenL on hls or her behalf
16
AuLhorlsaLlon may be lnferred from Lhe
facL LhaL Lhe payee glves accounL deLalls Lo Lhe payer
17
n pracLlce dlrecL
credlL parLlclpanLs wlll requlre a wrlLLen auLhorlzaLlon from Lhe payees n
cases of dlrecL deblL lndlvldual payers are glvlng anoLher parLy
auLhorlzaLlon Lo operaLe on Lhe payer's accounL

n cases of lndlvldual paymenLs Lhey can be made by Ll1CS (uslng a
deblL card and -) and vla nLerneL banklng faclllLles 1he auLhenLlcaLlon
by deblL card and - may be forged and used ln an unauLhorlzed manner
1hls maybe someLlmes dlfflculL Lo deLermlne and ls now dealL wlLh by Lhe
LlecLronlc lunds 1ransfer Code of ConducL
18


Where paymenLs are made uslng Lhe lnLerneL banklng faclllLles problems
arlse when cusLomers make errors when enLerlng Lhe accounL number of
Lhe payee as an elecLronlc Lransfer ls processed solely on Lhe basls of Lhe
accounL number
19
1hls resulLs ln Lhe dlscrepancy beLween Lhe name of
Lhe payee and Lhe desLlnaLlon accounL 1he earller response of Lhe bank
forbld reversals as Lhe order was a dlrecL credlL order whlch was

Tyiee, above n.

Fyles v Fllis (8) Bing .

Alan Tyiee, Bonkinq low in Austrolio,

th
eu (8).

Tyiee, above n.

Bovey v Bonk of New ZeolonJ |j NZLR .

8
Ibiu
9
'Emeiging issues in uispute bank iesolution', Banking anu Financial Seivices
0mbuusman Ltu, .

processed ln Lhe commerclal bulk enLry sysLem 1hls ls approprlaLe for a
bank paymenL sysLem buL noL for consumer paymenL sysLems
20


1he rules governlng bulk enLry are blndlng as beLween lnsLlLuLlonal
parLlclpanLs buL Lhey cannoL blnd cusLomers who are parLles Lo Lhe rules
and from Lhe cusLomer's polnL of vlew Lhe paymenL was a mlsLake wlLh
Lhe resulL LhaL recovery ls governed by Lhe laws relaLlng Lo Lhe recovery of
mlsLaken paymenLs 1he cusLomer ls probably enLlLled Lo recover Lhe
money from Lhe recelvlng bank and slnce Lhe paymenL ls amblguous due
Lo Lhe dlfference ln Lhe name of Lhe payee and Lhe accounL number Lhe
paylng bank may have made an unauLhorlsed paymenL


Cred|t Cards

CredlL cards are usually lssued by a flnanclal lnsLlLuLlon and allow
cardholders Lo access credlL funds 1he card ls a complex commerclal
arrangemenL beLween Lhe card lssuer a slgnlflcanL number of merchanLs
and a slgnlflcanL number of cusLomers who are lssued wlLh a card 1here
are four parLles Lo Lhe card's operaLlon Lhe Card ssuer Lhe Cardholder
Lhe MerchanL and Lhe MerchanL Acqulrer (Lhe merchanL's flnanclal
lnsLlLuLlon)

Where Lhere ls a dlspuLe beLween Lhe cardholder and Lhe merchanL or
where Lhere has been unauLhorlsed use chargebacks maybe lnlLlaLed A
charge back ls a reversal of Lhe paymenL lnlLlaLed by Lhe card lssuer
usually aL Lhe lnsLlgaLlon of Lhe cardholder
21


lraud and unauLhorlzed use ls lmmlnenL where LransacLlons are aL a
dlsLance vla Lelephone fax or lnLerneL Where Lhere has been
unauLhorlzed use of Lhe card Lhe cardholder ls llable unLll Lhe cardholder
noLlfles LhaL Lhe card has been losL or sLolen Powever Lhe cardholder can
escape llablllLy lf Lhere ls fraud or negllgence on Lhe parL of Lhe merchanL
lnvolved ln Lhe unauLhorlzed use of Lhe credlL card
22


1here may be crlmlnal llablllLy for lmproper use of boLh credlL and deblL
cards SecLlon 134 and 133 of Lhe Crlmlnal Code 1993 (CLh) prohlblL a
range of dlshonesL and fraudulenL behavlour whlch resulLs ln losses Lo a
CommonwealLh enLlLy
23

Tyiee, above n

Alan Tyiee, Bonkinq low in Austrolio,

th
eu (8).

6ulf Refininq Co v Willioms Roofinq Co (9) 8 SW u 9.

Tyiee, above n.

,|staken nternet payments

LlecLronlc banklng allows dlrecL credlL paymenLs Lo be lnlLlaLed by a
payer 1he sysLem requlres Lhe payer Lo enLer Lhe accounL number of Lhe
lnLended reclplenL and ln mosL cases requlres Lhe payee's name 1hese
paymenLs are processed as dlrecL credlLs Lhrough Lhe 8ulk LlecLronlc
Clearlng SysLem (8LCS) sysLem and are sub[ecL Lo Lhe 8LCS rules AlLhough
Lhe sysLems accepL boLh Lhe accounL number and Lhe name of Lhe payee
Lhe Lransfer ls done solely on Lhe basls of Lhe accounL number
24


When Lhe payer enLers an lncorrecL accounL number buL Lhe correcL
name Lhe paymenL wlll be made Lo Lhe wrong person unless Lhe web
page sLaLes LhaL Lhe name wlll noL be used Lhen Lhe mandaLe glven by
Lhe cusLomer should lnclude Lhe name of Lhe lnLended payee 1he rule ls
LhaL Lhe bank may noL deblL an accounL unless lL follows lLs cusLomer's
mandaLe 1he cusLomer musL exerclse care ln drafLlng Lhe mandaLe
because lf lL ls amblguous Lhe bank may glve a reasonable"
lnLerpreLaLlon Lo lL
23


1he 8LCS rocedures provlde LhaL lf Lhe reclplenL bank has acLed ln
accordance wlLh Lhe accounL number deLalls provlded by Lhe sendlng
bank buL Lhe amounL has been credlLed Lo Lhe wrong accounL llablllLy ls
Lhe responslblllLy of Lhe sendlng bank
26
1he 8LCS rules blnd only Lhe
banks and have no effecL on Lhe cusLomer's rlghL Lo recover paymenLs
made under a mlsLake of facL
27

1he law on mlsLaken paymenLs may be summarlzed as
O a mlsLaken paymenL ls recoverable slnce Lhe reclplenL ls un[usLly
enrlched
O ln order Lo esLabllsh a prlma facle rlghL Lo recovery Lhe plalnLlff
musL show LhaL Lhe paymenL was made because of a mlsLake
O lL ls Lhen up Lo Lhe defendanL Lo esLabllsh reasons why Lhe
paymenL should noL be reLurned
28

Applylng Lhls law Lo Lhe case of an elecLronlc paymenL a paymenL has
been made under a mlsLake of facL Lo a person who would noL have been
pald buL for Lhe mlsLake As a consequence Lhe payer has a prlma facle
rlghL of recovery 1he onus ls Lhen on Lhe defendanL Lo show why Lhe

E.P Ellingei, Ellingei's Nouein banking law (0xfoiu 0niveisity Piess, ).

Alan L Tyiee, Histoken lnternet Poyments () <

http:austlii.euu.aualanmistaken-epayments.html>.

Ibiu

Ibiu
8
BoviJ Securities v Commonweoltb Bonk of Austrolio (99) CLR anu
Austrolio onJ New ZeolonJ Bonkinq 6roup ltJ v Westpoc Bonkinq Corporotion (988)
CLR .

paymenL should noL be reLurned 1he defendanL ls Lhe person who holds
Lhe accounL Lo whlch mlsLaken paymenL was dlrecLed Powever Lhe
paymenL was lnlLlally made Lo Lhe recelvlng bank vla Lhe elecLronlc
paymenL sysLem Lherefore Lhe recelvlng bank ls a leglLlmaLe defendanL
1he bank may use Lhe 'agency defence' Lo reslsL Lhe lnference LhaL lL has
been un[usLly enrlched Agency defence can be used where an agenL who
has been mlsLakenly pald may reslsL repaymenL lf lL has accounLed" Lo lLs
prlnclpal before recovery ls demanded
29
1he bank can show LhaL lL has
accounLed Lo lLs cusLomer by showlng Lhe accounL has been credlLed and
Lhe cusLomer has wlLhdrawn all funds
30

1he banks should Lherefore esLabllsh LhaL a mlsLake has been made f Lhe
name and accounL number do noL maLch Lhen lnformaLlon abouL one of
lLs cusLomers musL be dlsclosed as lL clearly ls ln Lhe bank's lnLeresL Lo
dlsclose Lhls lnformaLlon as a defence agalnsL a clalm for money recelved
under a mlsLake of facL lsclosure ln Lhe bank's lnLeresL ls one of Lhe
recognlsed excepLlons ln @ootolet v Notloool ltovloclol ooJ uoloo 8ook of
oqlooJ
J1
1herefore lf a mlsLake exlsLs lL can requesL repaymenL by Lhe
recelvlng bank f Lhe cusLomer has closed Lhe accounL or lf lL may be
shown ln some oLher way LhaL Lhe recelvlng bank has accounLed" Lo lLs
cusLomer Lhen Lhe payer musL pursue Lhe cusLomer lnsLead of Lhe
recelvlng bank


Conc|us|on

1hrough an analysls of Lhe feaLures and lssues of elecLronlc banklng we
can see LhaL whlle elecLronlc banklng can provlde a number of beneflLs for
cusLomers and new buslness opporLunlLles for banks lL also poses
problems for cusLomers and challenges for banklng regulaLors and
supervlsors 1herefore legal prlnclples are sLlll uLlllsed ln varles ways Lo
resolve Lhe problems equlLably when Lhey occur













9
E.P Ellingei, Ellingei's Nouein banking law (0xfoiu 0niveisity Piess, ).

Ibiu

|9j KB


8lbllography


A/5 Awllco of Oslo v lolvlo 5pA Jl Novlqozlooe of coqllotl (@be cblkomo)
1981 1 WL8 314

Alan 1yree 8ookloq low lo Aosttollo 6
Lh
ed (2008)

Alan L 1yree ,lstokeo lotetoet loymeots (2003)
hLLp//ausLllleduau/alan/mlsLakenepaymenLshLml

Andrea SchaechLer 'Ml ollcy lscusslon aper' nLernaLlonal MoneLary
lund 2002

Aosttollo ooJ New 2eolooJ 8ookloq Ctoop ltJ v westpoc 8ookloq
cotpototloo (1988) 164 CL8 662

uovey v 8ook of New 2eolooJ 2000 3 -L8 641

uovlJ 5ecotltles v commooweoltb 8ook of Aosttollo (1992) 173 CL8 333

L Llllnger Llllnger's Modern banklng law (Cxford unlverslLy ress
2006)

'Lmerglng lssues ln dlspuLe bank resoluLlon' 8anklng and llnanclal
Servlces Cmbudsman LLd 2003

otopeoo 8ook ltJ v cltlbook ltJ 2004 -SWCA 76

yles v llls (1827) 4 8lng 112

Colf kefloloq co v wlllloms koofloq co (1943) 186 SW 2d 790

,otJotf leocb ooJ co ltJ v Attlco 5eo cottlets cotp of llbetlo (@be
locoolco) 1977 AC 830

,omm v 8otcloys 8ook lotetootloool 1977 C8 79

8heLL MarLln8ookloq ooJ lloooce (LawbookCo 1
sL
ed 2008)

koyol ltoJocts ltJ v ,lJlooJ 8ook ltJ 1981 2 Llyod's 8ep 194

Sale of Coods AcL 1923 (-SW) s13

@eoox 5teomsblp co ltJ v 8tlmoes 1973 C8 929

8
@ootolet v Notloool ltovloclol ooJ uoloo 8ook of oqlooJ 1924 1 k8 461