This is another case which illustrates the Quincecare duty of care imposed on banks and the extent of its reach. This well-established duty ensures that a bank should not execute a customer’s order if the bank has been ‘put on inquiry’ ie if the bank had reasonable grounds for believing, in the eyes of an ordinary prudent banker, that the order was an attempt to defraud the customer.
JPMorgan Chase (the ‘Bank‘) paid nearly US$900m from an account governed by a depository agreement and held by the Federal Republic of Nigeria (‘FRN‘). This sum was paid in three installments to companies in the Shell and Eni SpA groups. The bank had agreed to act as depository in respect of these settlement monies in relation to a long-running dispute about an offshore Nigerian oilfield. The dispute related to competing ownership claims from a company called Malabu Oil and Gas Nigeria and a subsidiary of Shell oil. These disputes had been settled by various agreements, the culmination of which was that Shell was required to pay US$1 billion into the depository account in question, held by FRN, which would then be used by FRN to pay Malabu.
As stated above, the Bank paid out nearly the whole deposited sum on the instruction of authorized signatories of the FRN under the terms of the account. The FRN alleged that the bank had been put on inquiry that the payment transfers were part of a corrupt scheme by which the FRN were defrauded. The scheme apparently reached the very highest levels of Nigerian political life. The money had allegedly been used to pay off corrupt former and contemporary Nigerian government officials (or their representatives) and used to make other illegal payments. The FRN alleged that the bank had failed in its Quincecare duty of care by making these transfers and brought a claim to recover the money. Although there was no specific allegation that the Bank knew or was in any way involved with the alleged fraud, the FRN considered that the Bank should have known that it could not trust the Nigerian officials from whom it took instructions. It should not have made those transfers out of the depository account.
Neither a borrower nor a lender be.”
William Shakespeare
The Bank argued that there was no such duty of care applicable as it was inconsistent with, or excluded by, the express terms of the depository agreement.
At first instance before Mr. Justice Burrows, the court held that there was a Quincecare duty of care, which had not been excluded by express terms in the agreement, and that the Bank had breached that duty by making those payments. The Judge found that the Quincecare duty was not only confined to current accounts, but could also apply to depository accounts. The Bank took the case to the Court of Appeal applying for a strike out or reverse summary judgement. The Bank’s appeal again argued that the depository agreement excluded liability for a Quincecare duty and further, that it included an indemnity provision which allowed the Bank to be indemnified against the claim by the claimant.
On the correct interpretation of the depository agreement, the court found that the Quincecare duty of care was neither inconsistent with, nor excluded by, the terms within. Clear and unequivocal wording must be used for an exclusion to be effective and in this case it was not sufficiently clear. The court stated:
“…. That the bank should be entitled to pay out on instruction of the authorized signatory even if it suspects the payment is furtherance of a fraud which that signatory is seeking to perpetrate on its client.“
Even though an exclusion would be theoretically possible with the correct wording, it might be commercially unpalatable. On the further argument by the Bank, that of indemnity, the court found that the indemnity clause, correctly interpreted, did not allow the Bank to be indemnified.
The Court of Appeal gave consideration to the scope of the Quincecare duty and has arguably expanded it. The judgement states that in most cases, it will require ‘something more’: the duty should comprise both a ‘negative’ duty on the bank (to refrain from making payment) and a ‘positive’ duty on the bank (to proactively do ‘something more’). This positive duty should not necessarily be limited to further enquiry or investigation- it might, for instance, include contacting regulatory authorities. The positive and negative duties imposed by the Quincecare duty should carry equal weight, neither being separate or subsidiary to each other.
The court refused the Bank’s appeal.
As a note of interest, the oilfield’s original license was awarded to Malabu in 1998, and is estimated to hold more than 9 billion barrels of oil, but has yet to enter production.
Link: JP Morgan Chase Bank NA v The Federal Republic of Nigeria [2019] EWCA Civ 1641 (08 October 2019)
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