The bank is not under a client identification requirement with respect to the recipient of the payment

In the case adjudged by the Supreme Court, the defendant bank (hereinafter referred to as the Bank) performed the payment order of the applicant (hereinafter referred to as the Client) in favour of the bank account designated in the payment order. However, the recipient of the payment did not perform his obligation vis-a-vis the Client, and failed to pay back the received amount to the Client either. Thus the amount of payment has occurred as damage on the side of the Client.

Accordingly, the Client has submitted a compensation claim against the Bank. The Client claimed that the Bank has failed to perform its obligation. The Client argued that the Bank has failed to act with due diligence because it did not verify the existence and consistency of the account number and the account holder designated as the recipient “with regard to Barclays Bank Plc considered to be its sub-contractor”. Both the court of first instance and the court of appeal rejected the claim.

The Supreme Court, sustaining the judgment of the appeal court, made a number of important statements regarding the obligations of the bank executing a payment order. First, the Supreme Court has stated that a payment order creates a legal relationship between the account managing bank and the client giving the payment order. The account managing bank executes the payment order by paying in favor of the bank account designated in the order. Accordingly, the Supreme Court has made it clear that the client giving the order is liable for both the choice and the exact designation of the recipient.

In addition to the above-mentioned statement, the Supreme Court has emphasised that the account managing bank of the recipient could not be considered as the assistant of the Bank performing the payment order. Thus the Supreme Court has confirmed that the paying bank does not enter into a legal relationship with the recipient by performing the payment order. This also means that the payment order is performed by paying to the bank managing the account of the recipient and designating the account of the recipient. The paying bank is not liable for the conduct of the recipient’s bank, thus not liable for whether the amount paid shall be credited on the account of the recipient or not, and whether the recipient shall have effective control over the amount or not. The paying bank is of course not liable for whether the recipient’s bank complies with its client identification obligation arising from its status as an account manager.In accordance with the abovementioned, the Supreme Court has stated with regard to the client identification requirement of the bank managing the account and performing the payment order that it is obvious under both EU law and the Hungarian regulation implementing such EU law that this requirement applies to the bank only with regard to its own client, the person who enters into a bank account contract with the bank or submits a payment order to the bank. The recipient of the payment order could not be considered as the client of the paying bank, therefore the bank is not under a client identification requirement with respect to the recipient.

In accordance with the abovementioned, the Supreme Court has stated with regard to the client identification requirement of the bank managing the account and performing the payment order that it is obvious under both EU law and the Hungarian regulation implementing such EU law that this requirement applies to the bank only with regard to its own client, the person who enters into a bank account contract with the bank or submits a payment order to the bank. The recipient of the payment order could not be considered as the client of the paying bank, therefore the bank is not under a client identification requirement with respect to the recipient.

We believe that the above described decision of the Supreme Court provides useful contribution to the clarification of both the content and the nature of the legal relationship relating to a payment order. 

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