On Duty on financial institution to reverse unauthorized debit on customer’s account within seventy two hours of customer’s written notification
Summary of Facts:
The appellant and the respondent had a banker-customer relationship under which the respondent maintained a current account with the appellant. On 21st October 2016, at about 5pm, and after close of business activities, the respondent received several SMS alerts of the unauthorized withdrawal of N9,293,578.15 in installments from its account on its managing director’s cell phone with an MTN number (the only telephone number registered in respect of the account with the appellant). And the withdrawals were effected through the appellant’s online banking platform.
On receipt of the SMS, the respondent complained via phone conversation and SMS to its account officer with the appellant at about 6pm on the same day. Later, on 24th October 2016, the respondent wrote a letter to the appellant requesting the immediate reversal of the debits to its account.
Subsequently, on 10th November 2016, the respondent issued a cheque for the transfer of N8million but the cheque was dishonored by the appellant on ground that the respondent did not have sufficient money in its account to cover the cheque. By a letter dated 11th November 2016, the respondent’s solicitors demanded the return of the money withdrawn from the respondent’s account and gave notice of the respondent’s intention to sue if the appellant failed to comply with the demand. In response, the appellant wrote a letter dated 22th November 2016, and on 26th November 2016, the appellant was served with the originating processes of the respondent’s Suit filed on 1st November 2016.
The respondent averred that the appellant failed in its duty to release the respondent’s money upon the respondent’s demand. The respondent also stated that the unauthorized withdrawals resulted from the appellant’s negligence because the respondent had never used the hardware token device issued to it by the appellant through which the unauthorized withdrawals were made and that its managing director never received any One Time Pin (OTP) SMS on the hardware token device or on his designated telephone number in respect of the unauthorized transactions.
The appellant admitted the loss or unauthorized withdrawal of N9,293,578.15 from the respondent’s current account. The appellant also admitted that the hardware token device it issued to the respondent’s managing director and which was linked to the respondent’s internet bank platform with the appellant was never used by the respondent to withdraw any money from its account. The appellant, however, stated that the withdrawals were made using software token because the respondent’s managing director compromised his e-mail profile and thereby gave the perpetrators of the fraud access to his e-mail where they accessed the U-token activation OTP and password either through physical access or social engineering.
Furthermore, the appellant pleaded that it was able to recover N4,692,097 of the amount withdrawn and would credit same to the respondent’s account. Relying on an indemnity and the exclusion clauses in forms signed by the respondent, the appellant stated that it was not liable for the balance unrecovered amount. The appellant also stated that the respondent did not have sufficient money in its account when it issued the cheque for N8million hence the cheque was dishonored.
The respondent filed a reply to the appellant’s statement of defence by which it gave notice that it would challenge the enforceability of the indemnity pleaded by the appellant as being against public policy. Four witnesses testified for the respondent and they tendered documentary evidence.
PW3, an Inspector of Police, gave unchallenged evidence that he investigated the appellant’s complaint against one Ejike Nwabara in respect of the withdrawals from the respondent’s account. PW3 said Ejike Nwabara admitted having an account with the appellant but denied knowing the respondent. PW3 also said the appellant failed to give the police evidence to aid its investigation and prosecution of Ejike Nwabara so he was released from detention.
PW4, a fraud analyst and employee of MTN Nigeria Ltd, gave expert evidence. He testified unchallenged and uncontradicted that the respondent’s mobile phone number was taken off the appellant’s data base at the time the transactions were done to avoid the identification of the person making the withdrawals and to avoid detection of the transactions at the time they were being done. He also testified about a similar case in another bank which showed that transaction was done by the bank’s employees.
DWI testified under cross examination that the unauthorized withdrawals were made by software token and not the hardware token device issued to the respondent’s managing director by the appellant. DWI confirmed that a review of the hardware token showed it was never used by the respondent: DW1 further testified that the appellant laid a criminal complaint to the police which resulted in the arrest of one Ejike Nwabara, but did not show what the appellant stated in its criminal complaint to the police. The appellant, however, did not show that the respondent’s U-direct token activation OTP and password was accessed by the fraudsters either through physical access or social engineering and failed to prove that they used that access to make the unauthorized withdrawals from the respondent’s account with the appellant. The appellant also adduced evidence that the respondent had only N5,058,574.24 in its account on 10th November 2016 after the unauthorized withdrawal of N9,293,578.15 when it presented its cheque of N8million hence the cheque was dishonored.
The documents tendered in evidence included exhibit D – the respondent’s solicitor’s letter of demand; exhibit F- the respondent’s reply to the letter of demand; exhibit H – the terms of the online/ internet banking relationship between the parties entered into in 2008; exhibit L – an indemnity in respect of NIBSS payment system executed in 2015, but which did not incorporate exhibit H executed in 2008 expressly by reference; and Exhibit K – which contained exclusion clauses.
In its judgment, the trial court expunged exhibit F from its record on ground that it was written when litigation was anticipated. The trial court relied on the Guidelines on Electronic Banking in Nigeria issued in 2003 under the Central Bank of Nigeria (Establishment) Act though it was not specifically pleaded by either party. The trial court found and held that the appellant was negligent in allowing the withdrawal from the respondent’s account and acted wrongfully in dishonoring the respondent’s cheque. So, the trial court granted the respondent’s claims which included N1 million claimed as fee paid to counsel and N500,000 as damages for the appellant’s wrongful dishonor of the respondent’s cheque.
The appellant appealed to the Court of Appeal. The respondent also cross-appealed on grounds that the Cyber Crimes (Prohibition, Prevention, Etc.) Act 2015 prescribed a minimum of N5million damages for unauthorized debits by a bank on its customer’s account; and that damages awarded to it for the dishonor of its cheque was low.
Held: Unanimously allowing the appeal in part and dismissing the cross-appeal.
The following issues were raised and determined by the Court of Appeal:
(a) On Duty on financial institution to reverse unauthorized debit on customer’s account within seventy two hours of customer’s written notification-
Section 37(3) of the Cyber Crimes (Prohibition, Prevention, Etc.) Act 2015 states that a financial institution that makes an unauthorized debit on a customer’s account shall, upon written notification by the customer, provide clear legal authorization for such debit to the customer or reverse such debit within 72 hours and that any financial institution that fails to reverse such debit within 72 hours, commits an offence and is liable on conviction to restitution of the debit and a fine of N5,000,000. In this case, by virtue of section 37(3) of the Cybercrimes (Prohibition, Prevention, Etc.) Act 2015, the appellant was bound to provide clear legal authorization for the unauthorized debits or reverse the unauthorized debits within 72 hours after it was informed by the managing director of the respondent on 21st October 2016 or after it received the formal letter from the respondent on 24th October 2016 complaining about the unauthorized debits. The appellant did not provide any clear authorization of the debits within 72 hours of receipt of the respondent’s letter. Therefore, the appellant was bound to reverse the debits within the same 72 hours.
(b) On Punishment for failure by financial institution to provide legal authorization for debit on customer’s account or reverse same-
Section 37(3) of the Cyber Crimes (Prohibition, Prevention, Etc.) Act 2015 makes a financial institution’s failure to provide clear authorization of an unauthorized debit or reverse the debit within 72 hours of being notified of the debit by the customer an offence punishable by a fine of N5million. The provision does not prescribe any general damages that the court must award for such wrongful debits. The N5million mentioned in the provision of the section is the fine it prescribes as punishment for the offence created therein.
On whether fee paid to counsel can be claimed as special damages-
An award of cost of attorney’s fee as special damages for breach of contract runs contrary to the legally recognized principle for the award of damages for breach of contract. In this case, the trial court erred when it awarded N1 million as cost of the respondent’s attorney’s fee for prosecuting this suit as special damages to the respondent for breach of the banker-customer contract.
3a. On When letter written by person interested in anticipated proceedings should be admitted in evidence-
A letter written as a reply to a letter of demand and intention to sue if the demand was not complied with is admissible in evidence. This is so because where a person receives but fails to respond to a business letter which by the nature of its content requires a response or a refutal of some sort, the person will be deemed to have admitted the contents of the letter. In this case, it was the respondent’s letter (exhibit D) that evoked the appellant’s reply letter (exhibit F). The appellant was bound by law to respond to exhibit D if it disputed the facts and claims therein and if it failed to so respond, its lack of response would have been deemed an admission of the contents of exhibit D.
(b) On when letter written by person interested in anticipated proceedings should be admitted in evidence-
Equity follows the law and is applied to ameliorate the rigidity and inflexibility of the law. In this case, though exhibit F was written by the appellant, a person interested, when the respondent’s suit was anticipated, it would be inequitable to exclude the exhibit under section 83(3) of the Evidence Act, which renders inadmissible any statement made by a person interested at a time when proceedings were pending or anticipated involving a dispute as to any fact the statement might tend to establish.
This is because exhibit F was written in response to the respondent’s letter (exhibit D), which had been admitted in evidence and which required a response from the appellant so the appellant would not be deemed to have admitted the contents of exhibit D as correct.
On When appellate court will not interfere with award of damages by trial court-
Appellate court will not interfere with an award of general damages unless it is shown that the trial court did not properly exercise its discretion in making the award. In this court, the respondent did not show why it considered the sum of N500,000 awarded as general damages by the trial court as too low. It was not enough for the respondent to merely assert that the amount awarded was too low. The respondent who so asserted ought to have demonstrated by reference to the facts of the case that the amount was indeed too low, but it failed to show that the trial court did not exercise its discretion in making the award judicially and judiciously.
On Purpose of award of costs-
The purpose for the award of costs is to compensate the successful party for some of the loss incurred in litigation.
On when exclusion or exemption clause in contract is enforceable-
For an exclusion or exemption clause to be enforceable and applicable, the word conveying the exemption must be clear, specific and unambiguous and must exactly cover the liability, which is sought to be excluded. In this case, the indemnity relied on by the appellant did not cover the liability of the appellant to refund the respondent’s money withdrawn without the respondent’s knowledge and authority from its account in the custody of the appellant. The liabilities covered by the indemnity were specifically listed therein, and it did not relieve the bank from liability for unauthorized withdrawals or dealings with customers’ funds or for breach of its duty to manage and maintain the customer’s account, protecting and securing the customers funds therein with due care and diligence.
On when burden of proof shifts to defendant in civil cases-
By virtue of section 133(1) and (2) of the Evidence Act, 2011, where a claimant establishes his case as pleaded, the evidential burden shifts to the defendant to rebut the case presented by the claimant. In this case, the respondent established its case that the withdrawals were unauthorized as pleaded. The evidential burden then shifted to the appellant to rebut the case presented by the respondent by showing that it was not responsible for the loss or unauthorized withdrawal of N9,293,578.15 from the respondent’s account in its custody. But the appellant failed to show how and why the money was withdrawn or removed from the respondent’s account without the prior knowledge and authorization of the respondent.
In the circumstance, the trial court rightly decided that the appellant was negligent in the maintenance of the respondent’s account with it on the basis that the appellant breached its duty of care to the respondent to ensure that the respondent’s money in its custody and control were safe and secure with it by allowing the unauthorized withdrawal of the respondent’s money in its custody.
On Principles guiding variation of contract-
Variation of contract involves a definite alteration of the contractual obligations by mutual agreement of both parties. Variation is analogous to the entry of a new contract. The requirements of offer, acceptance and consideration are thus imposed and the parties must have acted in some way to their benefit or detriment in either agreeing the variation or as a result of the variation. Where parties enter into an agreement and subsequently decide to introduce new terms, they can only do so by specific reference to the earlier agreement to the effect that the latter agreement has introduced new terms thereof. In this case, exhibit H (the foundation of the online/internet banking relationship between the parties entered into in 2008 specifically with respect of U-Direct online or internet banking platform did not contain any indemnity clause.
The subsequent agreements which contained the purported indemnities clause did not expressly or remotely mention exhibit H. From the totality of the pleaded facts and the evidence before the court, the respondent simply demonstrated that the indemnity which was an exclusion clause the appellant relied on to exculpate itself from liability were not incorporated in the agreement giving rise to the present cause of action which was exhibit H.
DWI’s testimony was direct and unequivocal. He also confirmed that the Hardware token-exhibit G was never utilized by the respondent. Exhibit L which was an indemnity with respect of NIPPS executed in 2015, 7 years after the online banking relationship ensued, did not incorporate exhibit H executed in 2008 expressly by reference hence could not fall within its contemplation. If the appellant intended the indemnity to bind exhibit H which was founded on the online banking, it would have expressly mentioned same in exhibit L or exhibit K.
On whether damages awardable of banker’s wrongful dishonor of customer’s cheque-
Damages are awardable for a bank’s wrongful dishonor of its customer’s cheque. In this case, the trial court was right to have awarded general damages for the wrong dishonor of the respondent’s cheque by the appellant.
On the factors to be considered by the court in awarding costs. The following factors are to be considered by the trial court in awarding costs.
The summons fees paid.
The duration of the case.
The number of witnesses called by the party in victory.
The vexatious or frivolous nature of the action or defence of the party failed in the litigation.
The cost of legal representation.
The monetary value at the time of incurring the expenses; and
The value and purchasing power of the currency of award at the time of the award.