Shorter Reads

Why a mistake in London is more of a blunder in New York

A federal judge decided that Citibank is not entitled to recoup $900 million of its own money that it mistakenly transferred lenders of Revlon. Members of our Banking & financial disputes team comment on this and how the situation could have played out differently if it had occurred in the UK.

1 minute read

Published 10 March 2021

Authors

Share

Key information

  • Services
  • Banking & financial disputes
  • Sectors
  • Financial services

Last year, Citibank committed one of the most embarrassing blunders in recent Wall Street history.

The bank, acting in its capacity as Administrative Agent for a syndicated loan taken out by Revlon, had intended to wire approximately $8 million in interest payments to Revlon’s lenders.

Instead, it mistakenly transferred almost $900 million of its own money as well, equalling the entire principal and outstanding interest owed by Revlon to its lenders.

Citibank notified the lenders of this mistake, but some refused to return the money. Last month, the District Court in New York held that Citibank was not entitled to recoup its funds. Lenders who chose not to return the money were allowed to keep it.  Click here for a link to the judgement.

English lawyers might be surprised. By operation of the “discharge-for-value defense” under New York law, it was held that the lenders had no liability to Citibank in its claim for restitution. “When a beneficiary receives money to which it is entitled and has no knowledge that the money was erroneously wired, the beneficiary should not have to wonder whether it may retain the funds; rather, such a beneficiary should be able to consider the transfer of funds as a final and complete transaction, not subject to revocation” (see Banque Worms v Bank America (1991) 570 N.E. 2d 189). Interestingly, to invoke the “discharge-for-value defense”, the recipient of the funds does not even need to show that the outstanding debt was “due” at the relevant time. It is sufficient for the recipient to show that, when the funds were received, it was a bona fide creditor.

New York lawyers may be interested to learn that there is no equivalent “discharge-for-value defense” in English law. Here, if a person pays money to another under a mistake of fact, they are prima facie entitled to recover the funds. If a bank transfers money to a customer’s creditor without being instructed to do so, then the underlying debt is not discharged. The bank is entitled to recover the money from the payee, unless the payee has changed their position in good faith, or is deemed in law to have done so (see Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] Q.B. 677).

Message us on WhatsApp

Related latest updates
PREV NEXT

Arrow Back to Insights

Shorter Reads

Why a mistake in London is more of a blunder in New York

A federal judge decided that Citibank is not entitled to recoup $900 million of its own money that it mistakenly transferred lenders of Revlon. Members of our Banking & financial disputes team comment on this and how the situation could have played out differently if it had occurred in the UK.

Published 10 March 2021

Associated sectors / services

Authors

Last year, Citibank committed one of the most embarrassing blunders in recent Wall Street history.

The bank, acting in its capacity as Administrative Agent for a syndicated loan taken out by Revlon, had intended to wire approximately $8 million in interest payments to Revlon’s lenders.

Instead, it mistakenly transferred almost $900 million of its own money as well, equalling the entire principal and outstanding interest owed by Revlon to its lenders.

Citibank notified the lenders of this mistake, but some refused to return the money. Last month, the District Court in New York held that Citibank was not entitled to recoup its funds. Lenders who chose not to return the money were allowed to keep it.  Click here for a link to the judgement.

English lawyers might be surprised. By operation of the “discharge-for-value defense” under New York law, it was held that the lenders had no liability to Citibank in its claim for restitution. “When a beneficiary receives money to which it is entitled and has no knowledge that the money was erroneously wired, the beneficiary should not have to wonder whether it may retain the funds; rather, such a beneficiary should be able to consider the transfer of funds as a final and complete transaction, not subject to revocation” (see Banque Worms v Bank America (1991) 570 N.E. 2d 189). Interestingly, to invoke the “discharge-for-value defense”, the recipient of the funds does not even need to show that the outstanding debt was “due” at the relevant time. It is sufficient for the recipient to show that, when the funds were received, it was a bona fide creditor.

New York lawyers may be interested to learn that there is no equivalent “discharge-for-value defense” in English law. Here, if a person pays money to another under a mistake of fact, they are prima facie entitled to recover the funds. If a bank transfers money to a customer’s creditor without being instructed to do so, then the underlying debt is not discharged. The bank is entitled to recover the money from the payee, unless the payee has changed their position in good faith, or is deemed in law to have done so (see Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] Q.B. 677).

Associated sectors / services

Authors

Need some more information? Make an enquiry below.

    Subscribe

    Please add your details and your areas of interest below

    Specialist sectors:

    Legal services:

    Other information:

    Jurisdictions of interest to you (other than UK):

    Article contributors

    Enjoy reading our articles? why not subscribe to notifications so you’ll never miss one?

    Subscribe to our articles

    Message us on WhatsApp

    Please note that Collyer Bristow provides this service during office hours for general information and enquiries only and that no legal or other professional advice will be provided over the WhatsApp platform. Please also note that if you choose to use this platform your personal data is likely to be processed outside the UK and EEA, including in the US. Appropriate legal or other professional opinion should be taken before taking or omitting to take any action in respect of any specific problem. Collyer Bristow LLP accepts no liability for any loss or damage which may arise from reliance on information provided. All information will be deleted immediately upon completion of a conversation.

    I accept Close

    Close
    Scroll up
    ExpandNeed some help?Toggle

    Get in touch

    Get in touch using our form below.