Publishing company defrauded of over £193,000 fail to appeal decision that ex-employee was not liable for damages

A publishing company that was defrauded of over £193,000 as a result of a “whaling” scam has unsuccessfully reclaimed against a decision that its former credit controller was not liable for damages arising from her mistaken payment of the funds to the fraudsters.

The pursuers and reclaimers, Peebles Media Group Ltd, argued that Patricia Reilly had not exercised the reasonable care or displayed the skill commensurate with her position in making the payments. There was no suggestion that the defender was complicit in the fraud.

The appeal was heard by the Lord President, Lord Carloway, sitting with Lord Malcolm and Lord Doherty. The pursuers were represented by Lindsay QC and the defender by Smith QC.

Not in the system

The defender had been employed by the pursuers, the publishers of magazines including Scottish Grocer and Homes & Interiors Scotland, since 1996, first as an accounts assistant and then as a credit controller. She had made the payments, totally around £193,250, to persons with no connection to the pursuer in the mistaken belief that the payments had been authorised by her managing director, Yvonne Bremner. In truth, the emails purporting to be from Ms Bremner authorising the transactions were fraudulent.

The first payment was made on 9 October 2015 while the defender was the only full-time employee in the office. Late in the morning, an email allegedly originating from Ms Bremner’s phone instructed the defender to make a Chaps payment to a company not on the pursuer’s system. The defender contacted her line manager, Ms Caldow, who was unfamiliar with the company but processed the payment quickly as she was due to go on holiday that day. A second payment to the same company was made on 12 October.

Two more payments were made to companies allegedly based in Wembley and Walsall on 13 October. These payments were considered to be suspicious by the company’s bank but were authorised by a Mr MacKay. The fraud was eventually discovered on 15 October, and the bank was able to retrieve around £85,000 of the money sent. The defender was dismissed from the company the following month.

In finding the defender not negligent, the Lord Ordinary found that the defender’s main duty was to “chase” trade debts by interacting with customers and liaising with Ms Bremner. In respect of the first payment, he held that Ms Caldow, who had originally been a co-defender in the case, was the responsible party, and had not noticed anything suspicious when assessing the defender’s culpability. He also held that the language of the later emails was no less suspicious than the first, and the defender was not in breach of contract by not becoming suspicious.

It was submitted for the pursuers that the Lord Ordinary had erred in concluding that the defender was not in breach. When considered cumulatively, considering that the pursuers had no prior business relationship with any of the payees, the only reasonable conclusion was that the emails were fraudulent, and that the defender had been in breach.

Neither trained nor experienced

The opinion of the court was delivered by Lord Carloway, who noted: “The case is unusual because it is rare for an employer to sue a relatively junior employee for negligent actings. That there is a duty to act with care, when dealing with an employer’s funds, is undoubted. However, few employees insure themselves in respect of their own negligence. Employers are generally able to obtain insurance to cover losses sustained in that manner. If employers were to pursue their employees for negligent actings on a regular basis, this could have a significant impact on the employment relationship.”

On the circumstances of the payments generally, he said: “The payment, by a commercial organisation, of large sums to persons who had no known dealings with it and without a supporting invoice might be regarded as extraordinary. However, one of the Lord Ordinary’s critical findings, which the pursuers do not challenge, is that the defender genuinely thought that she was being instructed to make the payments by her managing director.”

He continued: “There is no sound basis for holding that [the Lord Ordinary] did not assess the evidence as a whole. As with many written judgments, the decision maker will set out different parts of the evidence, and the relative findings in fact, in a linear fashion. He or she may make comments which are specific to those elements. That does not carry with it any assumption that the judge has failed to consider the whole evidence or that his reasoning was based upon a consideration of only parts of the evidence.”

Addressing the expected standard to which the defender ought to have adhered, Lord Carloway said: “The defender was neither trained nor experienced in the payment of creditors. It may seem obvious to many that regular payments made by commercial concerns should not occur without the existence of a covering invoice, but the Lord Ordinary did not find that the defender was aware of this.”

He continued: “There were certainly features which may have caused a person in the defender’s position, and who used greater skill and care, to be wary, but the Lord Ordinary had material before him from which he could hold, as a matter of fact, that the defender did not jalouse what was truly going on and could not reasonably have been expected to do so.

Lord Carloway concluded: “Since the bank were undoubtedly aware of the potential for a scam, and the defender was not, it was difficult to fault the defender in circumstances in which the bank had authorised the transfer of the funds.”

For these reasons, the reclaiming motion was refused.

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