Farrers takes on HSBC in test case for Chaps banking system

Farrer & Co has become involved in a groundbreaking e-commerce case that could have far-reaching implications for the future of electronic banking.

The London firm represented HSBC customer Dr Hosni Tayeb in his claim for nearly £1m against the bank, after it incorrectly returned a Clearing House Automated Payment System (Chaps) payment made to him without consent.

Tayeb sold his internet domain database to the Libyan General Post Office and Telecommunications Company (GPTC) for £944,124.23 in 2000, and GPTC transferred the cash to his account using Chaps.

However, finance giant HSBC suspected the large payment into its foreign customer’s account was the result of illegal activity and returned the funds to GPTC without informing Tayeb.

GPTC was unwilling to repay Tayeb, but at the trial HSBC accepted the original transaction had in fact been perfectly legal.

Jeremy Gordon, a partner in Farrers’ disputes team, represented Tayeb alongside Nicholas Elliott QC and Michael Lazarus from 3 Verulam Buildings, and Gordon was in no doubt about the importance of the outcome. “The legal relationships involved in this type of electronic banking have never really been tested before,” he said.

Mr Justice Coleman further noted that if a customer could not assume funds credited to an account by Chaps were their own, conveyancing would be forced to revert to the days of physical completion.

Since an average of £206m is transferred by Chaps every day, this would be a logistical and monetary disaster in the making.

The result sets a precedent for electronic money transfers and a different outcome could have brought the entire Chaps system to its
knees.

HSBC, which has permission to appeal, was represented by its own Birmingham-based in-house team DG Solicitors, as well as Jeremy Cousins QC and Stephen Eyre, both of St Phillips Chambers.