Garage owner complains about how his bank handled an unpaid cheque

Cheques Banking

Martin came to us when his bank withdrew funds from his account because of an unpaid cheque from one of his customers.

What happened 

Martin, a garage owner complained to his bank about how they handled an unpaid cheque from one of his customers, another business.

His bank initially credited his account the full £6,000 on the cheque; however, nine months later it withdrew this amount from the account without contacting him to explain what they were doing or why.

The bank said it withdrew the funds because the customer’s bank never paid them. Martin’s business meanwhile had performed more work for this customer.

It transpired the customer had since become insolvent and could pay neither the initial cheque nor for the work that had taken place subsequently.

Martin complained to his bank, saying that by first crediting his account and later withdrawing the funds, they had taken money which he had thought belonged to his business, denied him the opportunity to pursue his customer for the initial amount owed which had never been paid, and led him to believe the customer could afford further work. As a result, he’d lost out financially on both the initial amount and the value of the further work.

His bank admitted they were wrong not to tell him about the unpaid cheque and offered compensation for this, but less than the amount of the cheque. They said they could not be held responsible for Martin’s customer becoming insolvent. Martin was not happy with this offer, so he brought his complaint to us.

What we said 

We asked Martin’s bank how an unpaid cheque had been paid into his business account, why it took nine months to correct this and why they didn’t contact him about it.

His bank said they had credited Martin’s account for the full £6,000 with internal funds, assuming the customer’s bank would shortly credit them the money. When they did not, Martin’s bank followed up with the customer’s bank. The customer’s bank said they didn’t send the money because they had two requests around the same time for the same amount and believed one was a duplicate.

It was only when Martin challenged his bank over the removal of the £6,000 from his account nine months later that he was told about the supposed duplicate, and could explain that the customer owed him two payments for the same amount. By this time, his customer had become insolvent.

We agreed with Martin that his bank should have told him about the potential duplicate payment when they first learned about it from his customer’s bank. We said that, had Martin been told earlier, he would have corrected the mistake and had a good chance to recover the money at that point. We also said that the amount shouldn’t have been withdrawn from Martin’s account nine months later without explanation. So, we said the bank should pay Martin’s business the full amount of this cheque.

We also acknowledged the subsequent work Martin did for the customer that went unpaid. However, we said we could not be sure whether he would have agreed to this work or not had the bank not made their initial mistake, or whether the customer would have been able to pay at that point in any event. We therefore did not feel it would be fair to hold the bank responsible for the cost of this further work.

When first addressing Martin’s complaint, his bank offered him compensation for the distress caused by their mistake. However, where an individual brings a complaint on behalf of a company, we cannot award compensation for distress which might have been caused. We can, though, recognise the inconvenience caused to the business and, in this case, given Martin had spent considerable time and effort on his complaint which could have been spent on his work, we agreed the bank should compensate his business accordingly.