Broadening the concept of an unauthorised payment transaction […].

Broadening of the concept of unauthorised payment transaction: A transfer where the name of the original beneficiary has been falsified after it has been established entitles the Bank to reimbursement.

Court of Cassation – Commercial Division – 1^st June 2023 – no. 21-19.289 and no. 21-21.831

In a case in which a couple had sent their bank two written transfer orders by post, the Cour de cassation broadened the concept of unauthorised banking transactions by ruling that a transfer, the initial beneficiary of which had been falsified by a third party after it had been established, was not a transaction authorised by the originator.

The concept of an unauthorised payment transaction, which entitles the payer to have the amount of the transaction reimbursed by the payment service provider in accordance with article L. 133-18 of the French Monetary and Financial Code, has continued to evolve in recent years as a result of the dematerialisation of these transactions and the strong authentication that accompanies their remote execution.

In the judgment under review, handed down on 1^st On 1 June 2023, the Commercial Chamber of the Court of Cassation was confronted with a payment transaction carried out in the “old” way: in 2015, a couple had sent their bank, by simple letter and on paper, two transfer orders for amounts of €14,000 and €86,000, to be carried out for the benefit of a person whose contact details and account identification were mentioned on the written orders.

Shortly after the transaction, however, the originators discovered that the transferred funds had not been credited to the account of the beneficiary they had designated, but had been paid into the account of a third party, following a malicious change to the beneficiary’s IBAN number appearing on the transfer orders.

The couple who had given the transfer orders then sued their bank for repayment of the transactions, which they considered to be unauthorised because the original beneficiary had been falsified.

The Paris Court of Appeal, which first heard the case, dismissed the couple’s claim for reimbursement on the grounds that a transfer that had been falsified after it had been properly drawn up did not constitute an “unauthorised” transfer within the meaning of articles L. 133-18 and L. 133-24 of the French Monetary and Financial Code, which could only be a false transfer order “ab initio” (from the outset).

As a result, the Paris Court of Appeal did not grant the Bank the right to reimbursement provided for in the aforementioned text in the case of transfer orders originally authorised but subsequently falsified, so that only the Bank’s fault-based liability could be sought in order to obtain compensation for the payers.

However, the client couple appealed to the French Supreme Court against the ruling that dismissed their claim for reimbursement.

In overturning the Court of Appeal’s decision, the Court of Cassation, citing the aforementioned texts, held that, “that a payment transaction initiated by the payer, who gives a payment order to his payment service provider, is deemed authorised only if the payer has also given his consent to the payee”..

The absence of consent from the beneficiary of a payment order renders the order unauthorised.

Accordingly, the Cour de cassation ruled that a transfer order that was in order at the time it was drawn up, but for which the IBAN number of the recipient account was subsequently changed by a third party without the originator’s knowledge, does not constitute an authorised transaction (and consequently constitutes an unauthorised transaction as provided for in article L. 133-18 of the French Monetary and Financial Code).

The High Court has put an end to the doubt surrounding the classification of a transaction as unauthorised by not distinguishing whether the transaction consisted of a false transfer order ‘ab initio’ (from the outset) or a transfer order that was regular at the time it was drawn up but subsequently falsified.

Consequently, this broadening of the concept of unauthorised transaction means that the originator of a falsified payment order is entitled to immediate reimbursement of the unauthorised transaction, without even having to seek the Bank’s liability for fault.

However, it should be pointed out that the facts on which this decision is based correspond to a transfer practice that is becoming increasingly rare (i.e. a transfer request on paper sent by post to the Bank) in the face of payment orders given in electronic form with strong authentications that limit the risk of fraud.