| BANKING – Letter of credit – Payment – Merchant acquirer receiving payments from card issuer – Whether merchant acquirer lawfully entitled to withhold payments from merchant engaged in third party debit and credit card processing
Lancore Services Ltd v Barclays Bank plc [2008] EWHC 1264 (Ch); [2008] WLR (D) 214
ChD: Judge Hodge QC sitting as a judge of the Chancery Division in Manchester District Registry: 25 June 2008
The implication of a temporal limitation upon the right of a merchant acquirer to withhold payment to a merchant for goods and services provided by a third party was not permissible and would go far beyond any acceptable process of implication or construction.
Judge Hodge QC, sitting as a judge of the Chancery Division in the Manchester District Registry, so held when dismissing the claim of the claimant, Lancore Services Ltd, against the defendant, Barclays Bank plc, save as to the return of the claimant’s security deposit of £36,000 plus interest.
JUDGE HODGE QC stated that the issue was the extent to which a merchant acquirer, a supplier of facilities to enable a merchant to accept card payment, could lawfully withhold payments received from a card issuer from a merchant which had been engaged in unauthorised third party card processing. A merchant’s ability to accept card payments was governed by the terms of its agreement with its merchant acquirer, known as a Merchant Services Agreement (“MSA”). The claimant accepted that it had been engaged in third party processing i.e. submitting payment details otherwise than for goods and services provided by the defendant. The claimant was therefore in breach of condition 3.12(a) of the defendant’s Merchant Terms and Conditions, and so the defendant had been entitled to terminate the MSA by giving immediate notice, which it had done by letter. Condition 3.12 was one of the conditions set out to survive the termination of the MSA in condition 16.6. However, the defendant had already exercised its right to withhold payments before it had exercised its right to terminate the MSA. Conditions 3.12(c) and 4.1 conferred an express right to “withhold” payment rather than “suspend” payment. A right to withhold payment which did not survive the termination of an MSA would produce the absurd result that, if the right to withhold payment for an illegal transaction were to be exercised prior to termination, the defendant would have been obliged to make a payment as soon as it had exercised its right to terminate the MSA. The House of Lords had declined in Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] 1 WLR 689 to redraft a withholding provision in a building sub-contract by reading in words so as to restrict the moneys withheld to the value of the main contractor’s claim. A time-based limitation on the right to withhold payment to a merchant for goods and services provided by a third party was equally impermissible.
|
