Malayan Banking Bhd v Barclays Bank PLC

• Jurisdiction: Singapore
• Judge: Jeremy Lionel Cooke IJ
• Judgment Date: 12 April 2019
• Neutral Citation: [2019] SGHC(I) 4
• Court: International Commercial Court (Singapore)
• Docket Number: Originating Summons No 1 of 2018
• Published date: 18 April 2019
• Year: 2019
• Hearing Date: 26 March 2019,27 March 2019,25 March 2019
• Plaintiff Counsel: Ng Ka Luon Eddee, Siew Guo Wei and Vinna Yip Kai Mun (Tan Kok Quan Partnership)
• Defendant Counsel: Mohammed Reza s/o Mohammed Riaz, Kwek Yuan, Justin and Victoria Jones (JWS Asia Law Corporation)
• Subject Matter: Banking,Electronic banking,Electronic funds transfer,Contract,Implied contracts,Illegality and public policy
• Citation: [2019] SGHC(I) 4

Jeremy Lionel Cooke IJ: Introduction

The claimant (to whom I shall refer as “Maybank”) applies by way of Originating Summons No 1 of 2018 filed on 14 February 2018 for declarations vis-à-vis the defendant (to whom I shall refer as “Barclays”) that: an implied contract arose between the parties by Barclays sending to Maybank and Maybank accepting and acting upon the payment instruction contained in a Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) MT 103 STP Single Customer Credit Transfer (“MT 103 STP”) sent on 30 June 2017; pursuant to such an implied contract, Barclays was obliged to initiate a sequence of transfers that would have ultimately led to Maybank’s correspondent bank paying Maybank the funds in relation to the MT 103 STP; and Barclays breached such an implied contract by failing to initiate a sequence of transfers that would have ultimately led to Maybank’s correspondent bank paying Maybank the funds in relation to the MT 103 STP.

Maybank further seeks an order that Barclays pay Maybank the sum of US$871,085.61, being the equivalent of the interbank settlement amount specified in the MT 103 STP, within seven days of such order being made and an order for payment of its costs in bringing this action.

Maybank is a licensed commercial bank incorporated in Malaysia and doing business in Singapore. Barclays is a bank registered in England as a public listed company, with a branch in Singapore. Both parties are users of the international financial message system operated by SWIFT. This is a secure platform on which banks can exchange messages formatted according to message text standards developed by SWIFT to, among other things, facilitate fund transfers between banks. It is common ground that it is only a messaging system, not a means of transfer of funds and that those who participate in it are bound by a multilateral contract in relation to its use, as set out in the SWIFT Message Type Standards which are contained in the SWIFT User Handbook. The relevant version is that of November 2016 (“the SWIFT Standards MT” or simply “the Standards”).

The SWIFT General Terms and Conditions describe themselves as:

… the main set of SWIFT standard terms and conditions for the provision and the use of SWIFT services and products. They apply to each electronic form or contract executed by the customer to subscribe to SWIFT services and products …

From the SWIFT General Terms and Conditions, it is stated:

SWIFT offers SWIFT services and products to all customers on a common contractual basis.

This is a key element of SWIFT’s co-operative nature. It ensures … that the sender and receiver of a SWIFT message are treated equally in all material respects.

…

Paragraph 5.5 of these conditions is entitled “Industry Practice, Applicable Laws, and Regulations”. The following appears:

Industry Practice, Applicable Laws, and Regulations

The customer is responsible for its use of SWIFT services and products, including any data transmitted through SWIFT.

In using SWIFT services and products and conducting its business, the customer must always exercise due diligence and reasonable judgment, and must comply with good industry practice and all relevant laws, regulations, and third-party rights, even if this restricts its usage entitlement under SWIFT’s governance.

Without prejudice to the generality of the foregoing, the customer must: … (b) ensure not to use, or try to use, SWIFT services and products for illegal, illicit or fraudulent purposes … (c) use BICs [business identifier codes] and message standards as prescribed in the applicable documentation …

On Friday 30 June 2017, Maybank received payment instructions or payment information from Barclays in a particular type of SWIFT message (known as an MT 103 STP) and proceeded to act upon it by crediting US$871,080.61 into the account of the beneficiary customer, PLG International Pte Ltd (“PLG”), that day. Maybank’s position is that, although it was not obliged to act on such a message until receipt of funds into its account or that of its correspondent bank, or until it received a communication informing it that instructions had been given by Barclays (in the form of a SWIFT message MT 202 COV) to transmit such funds from Barclays’ correspondent bank in New York, US (being Barclays’ New York branch (“Barclays NY”)) to Maybank’s own correspondent bank there, JP Morgan Chase Bank NA (“Chase”), Maybank was entitled to act on such instructions in the MT 103 STP and Barclays was obliged to reimburse the sums paid out to PLG on its instructions. It is Maybank’s case that, once the MT 103 STP instruction was acted on by it, the instruction could not be cancelled and Barclays was obliged to send (as this was a US dollar (“USD”) transaction) an MT 202 COV to Barclays NY. Barclays NY would inform and pay Chase which would inform Maybank, with funds then accruing to Maybank in its mutual accounting with its correspondent bank, with a credit transfer. The MT 202 COV would be sent to “cover” the MT 103 STP. This has been referred to as “the Cover Method”, as opposed to other forms of messaging which can achieve the same effect under the SWIFT system, such as “the Serial Method”.

An MT 202 COV was in fact sent by Barclays to Barclays NY on 30 June 2017, at about the same time as the MT 103 STP was sent to Maybank on 30 June 2017. However, no payment or confirmation of payment was ever made to Chase because, after sending the MT 103 STP and the MT 202 COV, Barclays received information that the funds to be transferred had been received by its customer in “questionable circumstances”. Bearing in mind the time differences (Singapore was seven hours ahead of London, UK which was five hours ahead of New York), Barclays in London sought, a few hours later: the cancellation of the MT 103 STP instruction by sending to Maybank a SWIFT message in the form of an MT 192, which was not received until after closing hours on the Friday 30 June 2017 in Singapore, by which time payment had already been made by Maybank to PLG’s account with it, which had been credited with the relevant sum; and the cancellation of the MT 202 COV instruction by sending to Barclays NY a SWIFT message in the form of an MT 292, and Barclays NY was still open at that stage and assented to the instruction to cancel the MT 202 COV.

As already stated, by the time of effective receipt by Maybank of the MT 192 cancellation request from Barclays, which was after the weekend, on Monday 3 July 2017, Maybank had already credited its customer PLG. Maybank thereafter sought PLG’s consent to adjust the position to debit the funds credited, but PLG refused, saying that the payment was made for a genuine business transaction.

Maybank seeks payment of the sum which it credited into PLG’s account (plus a US$5 handling fee). Maybank relies on what it describes as an implied contract based on principles of contract law and banking law relating to entitlement to reimbursement for fulfilment of instructions from other banks. Maybank also relies on principles of agency and the applicable rules governing the use of SWIFT messages, to which banks using the SWIFT system adhere.

Barclays’ case, as put in its early evidence and at the case management conferences, was that Maybank was not entitled to treat the MT 103 STP as irrevocable because it could be cancelled and was so cancelled by Barclays when it sent the MT 192 upon the discovery of a potential fraud. Barclays also submitted that Maybank acted in a manner inconsistent with market practice by effecting the credit transfer to PLG’s account without having first received the underlying MT 202 COV and that this was an internal credit risk decision which Maybank took and for which it should bear the consequences. For convenience I shall refer to the bank sending the MT 103 STP as the “Sending Bank” and to the bank receiving it as the “Receiving Bank”. Barclays contended, at that stage, that: An MT 103 STP sent using the Cover Method is irrevocable only if and when the Receiving Bank receives the MT 202 COV. The MT 202 COV must match the MT 103 STP. If the Receiving Bank decides to act upon the MT 103 STP by effecting the underlying credit transfer, without receipt of the funds from the Sending Bank, this decision is an internal policy matter and a credit risk which the Receiving Bank voluntarily takes. If the Receiving Bank ultimately does not receive the underlying settlement instruction by way of the MT 202 COV, its recourse is to unwind the credit of the funds into its beneficiary customer’s account; its recourse is not to recover the funds from the Sending Bank. This position is consistent with the SWIFT Standards MT in relation to the MT 103 STP, the Payments Market Practice Group (“PMPG”) Market Practice Guidelines for use of the MT 202 COV (“the PMPG Guidelines”) (and in particular, frequently asked question (“FAQ”) 10 of the PMPG Guidelines) and market practice. In the present case, Maybank did not receive the MT 202 COV from Barclays in respect of the MT 103 STP. Therefore, Barclays was entitled to cancel the MT 103 STP. Under the SWIFT General Terms and Conditions, Barclays and Maybank are obliged, as SWIFT users, to comply with all relevant laws, regulations and third-party rights, even if that affects their use of the SWIFT messaging system, and they agreed not to use SWIFT services for illegal, illicit or fraudulent purposes. Since the MT 103 STP was issued in connection with a potential fraud, Barclays was acting consistently with the SWIFT General Terms and Conditions by seeking to cancel the MT 103 STP and refusing to issue the related MT 202 COV.

As expressed by Barclays at the time of the case management conferences, there was, at the very least, terminological inexactitude in the way it put its case, since the evidence shows that the Receiving Bank does not...