Decision Netherlands Supreme Court On Direct Debits Reversal

On 16 September 2011 the Netherlands Supreme Court rendered an important judgment regarding the exercise by a bank of its right to reverse a direct debit (LJN BQ873 SNS Bank/Pasman q.q.). In light of this judgment it can be concluded that, in principle, a bank may exercise its right of reversal not only if the direct debit caused the account to be overdrawn or (if an overdraft facility has been granted) the limit to be exceeded, but also if the bank will, as a result of the debtor/payer's bankruptcy, be unable to recover the claim resulting from the direct debit. This is only otherwise in the event of exceptional circumstances.

The facts of the case

SNS Bank had provided Vetrans with an overdraft facility. A few days before Vetrans was declared bankrupt, funds were debited from its account at SNS Bank by direct debits initiated by the payee. The debits increased the debit balance but did not, however, cause the overdraft limit to be exceeded. After the bankruptcy order, SNS Bank exercised its right to reverse the relevant direct debits within the applicable reversal period. This reduced the debit balance on Vetrans' account.

The bankruptcy trustee brought an action against SNS Bank for the amount of the direct debit reversals. The trustee argued, firstly, that the reversals constituted post-bankruptcy repayments effected through giro-based funds transfers and that these repayments gave rise to claims of the bank against Vetrans. Because these claims arose after Vetrans' bankruptcy, the bank was prohibited from setting them off against Vetrans' debt to the bank under the overdraft facility (Section 53 Bankruptcy Act). The bankruptcy trustee argued, secondly, that the bank had committed a tortious act in exercising its reversal right and was therefore liable for damages, since the direct debits did not cause the overdraft limit to be exceeded.

The Supreme Court judgment

Legal characterisation of reversals

In a case decided on 3 December 2004 (Mendel q.q./ABN AMRO NJ 2005, 200), the Netherlands Supreme Court had held that a reversal of a direct debit-based giro transfer did not constitute a repayment in the legal sense, but was merely an administrative correction. The reversal therefore did not result in a claim of the bank against the debtor/payer and the stage of set-off was consequently never reached. The dispute in that case concerned the crediting of the payee's account. The Supreme Court held that, under the applicable general terms and...