Finality of Payments in Digital Transactions: Emerging Trends in Uganda

Growth in the uptake of digital payments has generally maintained an upward trend globally over the past couple of years, attributable in part to the COVID-19 Pandemic. This growth trend is indeed tangible even in Uganda, and data from the Bank of Uganda indicates exponential growth in the volume and value of digital transactions. In 2022, the value of mobile money transactions grew by 46.5% from the prior year, while internet and mobile banking grew by 82.8% and 146.1% respectively.

This evolution of digital payments has undoubtedly spurred financial inclusion. However, the evolution is not without its challenges. One such challenge that has taken center stage, especially in Uganda relates to the finality of payments. It is not uncommon for users of payment systems to initiate transactions and then seek to reverse them. In response to consumer demands, mobile money providers have provided protocols for initiating payment reversals.

The High Court of Uganda, in Translink Limited V Standard Chartered Bank Uganda Limited, Civil Suit No.415/2019 (the “Translink Case”) considered a similar issue, regarding the obligation of a bank to initiate a payment reversal. This article reviews the decision of the court in the context of the general principles applicable to the finality of payments in digital transactions.

Finality of payments

The National Payment Systems Act, 2020 (the “Act”) provides a framework on which the rules on the finality of payments are discernible. Firstly, Section 11(1) of the Act requires payment system operators to develop payment system rules that govern the payment system. These rules should provide for, among others, the moment a payment instruction is considered final and irrevocable.

Section 25(1) of the Act then recognizes the finality, irrevocability, and enforceability of such a payment instruction, provided it meets the requirements in the rules of the payment system. Section 25(2) goes as far as prohibiting any court from making an order for the rectification or stay of a payment instruction if such payment instruction is deemed final based on the rules of the payment system.

It may therefore be argued that once the rules of a payment system are established, they are the primary reference point for the operations of a payment system especially concerning customers. It thus becomes critical to ensure that the rules a payment system operator develops are robust and unambiguous, failing which, disputes like that in the Translink Case will continue to arise.

The Translink Case

In this case, Translink, a customer of the Bank, initiated an online transaction of USD 13,675 at 3:08 pm and the transaction was duly processed by the Bank. At 3:59 pm, Translink sought to countermand the payment instruction and the Bank made attempts to honor the instructions of their customer. However, by the time the countermand instructions were transmitted to the Bank’s correspondent bank, the funds had already been paid to the beneficiary account and the reversal was no longer possible.

It is on this basis that Translink instituted the suit claiming negligence or breach of contract in the alternative on the part of the Bank, in failing to honor the countermand instructions thereby occasioning a loss of USD 13,675.

In its defense, the Bank argued that by the time it received the countermand instructions, the processing of the transaction had been completed and the funds were no longer in its control and as such, the duty to honor the instruction had been discharged.

Court’s Finding

The court applied the “reasonableness” test and observed that because the countermand instruction was made about 59 minutes after the initiation of the payment instruction, it would not be reasonably expected that the Bank would honor the countermand instruction given that it was processed within 1 minute.

The court further relied on the Bank’s terms to buttress its finding, which terms provided that the Bank would try to stop/cancel a transaction but would not be responsible to do so if it could not do so. In essence, the court found that the Bank had no obligation to reverse a transaction if the transaction was complete.

Analysis

This case was instituted before the enactment of the Act. It is for this reason, therefore, that there is no reference to its provisions. However, the principles enunciated by the court are somewhat aligned with the principles in the Act. The following principles are discernible from the decision of the court:

1. A bank is under an obligation to honor a countermand instruction from a customer, provided the transaction is not complete;
2. Where the transaction is complete, a bank would be discharged from the obligation to honor such instructions; and
3. The court may rely on the Bank’s terms (rules of the payment system) to determine when the obligation to reverse a transaction is reasonable.

It is imperative to note that while the court referred to the Bank’s terms to support its finding on the reasonableness and practicality of the countermand instruction, it was not the primary reference point. However, in subsequent disputes of a similar nature, as the Act provides, the rules of the payment system would be the primary reference point for the court.

Additionally, while the court observed that the claim would have had more weight if the countermand order had been made earlier, a window future litigants may have exploited to institute similar disputes, the Act bars any court from making an order rectifying a payment instruction if the rules of that payment system deem it complete. As such, an order by a court to the contrary would be illegal.

Finally, the clause in the terms of the Bank relied on by the court did not expressly state when a transaction is deemed complete and irrevocable. The clause largely related to the cancellation of a transaction and did not provide for circumstances when that cancellation would not be possible. It may be argued therefore that in terms of the provisions of the Act, the clause was insufficient in so far as defining the moment a payment instruction becomes complete.

Conclusion

As the uptake of digital payments continues to grow, payment service operators must spend time developing robust payment system rules, clearly providing for instances when a payment instruction is deemed completed and irrevocable. They must also take the initiative to sensitize customers on the salient features of their payment system rules, in line with the requirements of the National Payment Systems Consumer Protection Guidelines. This will empower customers with knowledge of the operations of payment systems thereby driving meaningful financial inclusion and minimizing the risk of disputes related to payment reversals.

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