Barclays Bank Zambia PLC v Chipepa (Appeal No. 131/2014) [2017] ZMSC 38 (20 April 2017);

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Contract law - Use of debit and credit cards – Contractual relations that arise therefrom in relation to card issuer, card holder and retailer
Bank - Duty of care - Contractual duty to customer to exercise care and skill - Bank to debit customer’s account only with authority of customer
Bank - Duty of care - Contractual duty to customer to exercise care and skill - Whether principles that apply to cheque transactions equally apply to EFTPOS transactions
Bank – Duty of care – Authority from customer to pay may be by signature or PIN – Whether each payment by a bank to be supported by separate authority from customer
Bank – Unauthorised debit of customer’s account – Whether bank liable
Bank – Unauthorised debit of customer’s account – Whether customer precluded from pursuing bank where third party has admitted liability
Bank – Account – Authority from customer to pay may be by signature or PIN – Whether authority granted by customer in respect of particular retailer leaves customer’s card open to abuse by said retailer
Burden of proof – Allegation by customer that did not authorise use of card or transfer of funds – bank to prove that acted in accordance with client’s mandate
Bank – Account – Whether notice has to be given prior to bank closing an account
Costs – Finding that proceedings were unnecessary - Whether a departure from principle that costs should follow the event
Civil procedure – Damages – Entitlement to nominal damages for mere infraction of a legal right in the absence of proof of loss or damage

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Headnote and Holding: 

The Respondent opened a bank account with the Appellant and was availed a debit card. On 10th July 2010, she purchased an air ticket from Kenya Airways in the sum of K3 471. 50, using the debit card and on 13th July 2010, her account held with the Appellant was debited with the amount of the transaction. Later, on 12th August 2010, a similar amount was debited from the Respondent's account suggesting that the Respondent had purchased another air ticket from Kenya Airways. This prompted the Respondent to approach the Appellant to ascertain the basis upon which it had effected the second debit on her account. The Respondent carried out investigations and was informed by a representative of Kenya Airways that the airline's debit card machine had a fault and had on occasions debited clients twice. As a consequence of this, Kenya Airways was willing to refund the Respondent the amount wrongly debited from her account as long as she presented to the airline a copy of the original ticket purchased in July and her passport to show that she had travelled to Kenya.

Before the second debit on the Respondent's account was effected, her account was overdrawn and was, therefore, incurring interest charges agreed upon by the parties. These charges increased when the second debit was effected notwithstanding that her account continued to receive deposits by way of bank transfers. The Appellant was later prompted to close the account without prior notice to the Respondent. This appears to have aggrieved the Respondent. She took out an action in the High Court claiming that the second debit was without authority and of no effect, and further that interest charged in respect thereof, was similarly without basis and of no effect. The High Court found that there was something seriously wrong in the Appellant's system which, if it had been corrected, would have made the litigation in the matter unnecessary. The learned trial Judge found that the Appellant was negligent because it did not properly check the transactions on the Respondent's account to ensure that they were authorized. She further found that a customer's implied duties are limited to exercising reasonable care in executing written orders, such as cheques, so as not to mislead the bank or facilitate forgery and to notify the bank of forgeries which the customer becomes aware of. She further refused to accept the argument by the Appellant that once a customer had given his PIN or signature to a retailer, then he is at the mercy of the retailer. Her finding was that banks, such as the Appellant, have a duty of care and skill to protect their customers from unwarranted and unauthorized withdrawals. She found that where the bank has paid without the customer's mandate, it is not entitled to debit the customer's account. Having found in favour of the Respondent, the Learned High Court Judge ordered the Appellant to reopen the Respondent's bank account and adjust the amounts therein back to the position the account was in prior to the second debit. She also awarded the Respondent damages to be assessed by the Learned Deputy Registrar and costs, to be taxed in default of agreement. The Appellant appealed.

Held:
1. The use of debit cards, credit cards and other cards in general is governed by three contracts which are autonomous. These contracts are: between the card issuer (creditor/bank) and the card holder; the card holder and the retailer; and the issuer and the retailer. The transaction at Kenya Airways for the purchase of the air ticket created a relationship in the second category of the contracts, that is, between the card holder and the retailer.
2. In regard to the customer's authority or mandate, a system known as "chip and PIN", has been introduced, which enables the customer to enter his PIN onto a pad instead of signing a voucher, thereby giving his bank the authority or mandate to pay. In Electronic Funds Tranfer at Point Of Sale transactions the sale is negotiated and concluded at the point of sale by the card holder and the retailer. The bank is merely an intermediary or facilitator of the transaction by effecting the transfer of the funds from its customer's account to that of the retailer's. This transfer is effected as a consequence of the authority or mandate given to the bank by the customer, by way of the signature on the transactional voucher and or PIN. Where no such authority or mandate has been given, the bank has no authority to debit the customer's account. The principles that govern cheque transactions are also applicable to EFTPOS transactions.
3. In carrying out the customer's instructions, the bank is duty bound to do so with reasonable care and skill, as is the case when it is presented with a customer's cheque. The bank must therefore, be alert to ensure that prior to debiting its customer's account, the authority or mandate is in order or appears on its face to have been given by the customer. Each authority or mandate given to a bank by a customer when he or she enters the PIN on the pad of a debit card machine has its unique code and features. In the case on hand, what is apparent is that the Appellant debited the Respondent's account a second time using the initial mandate given by the Respondent in July 2010.
4. The Appellant was obliged to scrutinize the second request pursuant to which the second debit was effected on 12th August, 2010 to ensure that it had not already acted upon it. This is especially the case because the amount to be debited was similar to the amount debited earlier and in respect of the same retailer. The Respondent cannot, therefore, be said to have given authority or mandate for the second debit or that by giving the first mandate she left her card open to abuse. Consequently, the Appellant ought not to have debited the Respondent's account a second time.
5. The burden of proof becomes an important issue when a customer alleges that he did not use or authorize the use of his PIN (or card) to withdraw or transfer funds. As it is the bank which wishes to debit the customer's account, the normal rule would be that burden of proof is on the bank to prove that it acted in accordance with the customer's mandate. In theory, the bank must prove that (1) the PIN was used, and (2) it was authorized by the customer. The facts surrounding this appeal are that subsequent investigations conducted by the Appellant revealed that it later discovered that the second debit was on account of a faulty machine at the point of sale, being Kenya Airways. This shows that the Appellant did not satisfy the two tests, aforestated, on burden of proof because, not only was the second transaction not authorized by the Respondent, but she did not use her PIN.
6. The fact, in and of itself, that the Respondent opted to pursue the Appellant and not Kenya Airways does not in any way render her hands soiled. She was at liberty to pursue either of the two because she was aggrieved by the acts of both of them.
7. The requirement of notice before closure of an account is only applicable where there is a term to that effect in the agreement governing the relationship between a banker and customer.
8. The Appellant was wrong in debiting the Respondent's account a second time and charging higher interest and commissions. The position is that there has been an infraction of the Respondent's legal rights which entitles her to an award of nominal damages. Although, she did not lead any evidence in the court below which would have assisted the court to determine a monetary figure as damages for the infraction of her legal right by the Appellant, the fact, in and of itself, that there was such an infraction of her legal right entitles her to nominal damages, which we award in the amount of K500. David Chiyengele v Scaw Limited (Selected Judgment No 2 of 2017) followed
9. The court below was entitled to exercise its discretion to award costs by applying the general principle that "costs follow the event".

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