The Supreme Court has unanimously allowed the appeal in Philipp v Barclays Bank UK PLC and provided clarity on the scope of the Quincecare duty owed by banks to their customers.
The Quincecare duty is derived from the decision in Barclays Bank plc v Quincecare Ltd (the “Quincecare Case”). In this and other similar cases, courts have held that a bank has a duty not to execute a payment instruction from a customer’s agent if it reasonably believes that the instruction is an attempt to misappropriate the customer’s funds.
The key issue to be determined in this case was whether the Quincecare duty could apply in cases of authorised push payment fraud (‘APP Fraud‘). APP Fraud arises when a customer is induced by a fraudster to authorise its bank to transfer funds to an account controlled by the fraudster.
The Supreme Court has now confirmed that the Quincecare duty does not have any application to cases of APP Fraud, where the customer instructs and authorises the bank to make a payment.
In this case, Mrs Philipp, became a victim of APP Fraud in 2018. Mrs Philipp was deceived by fraudsters, posing as representatives of the National Crime Agency and the Financial Conduct Authority, into making payments totalling £700,000 to an account in the UAE. The payment was made in two tranches. On each occasion, Mrs Philipp attended a branch of Barclays Bank in person and gave instructions for the international transfers to be made.
When Mrs Philipp discovered that she had fallen victim to a fraud, she brought a claim against the Bank alleging that it had breached its Quincecare duty by failing to implement policies and procedures to detect and prevent APP Fraud.
The Bank argued that the Quincecare duty was limited to cases of attempted misappropriation by an agent of a customer and did not apply in situations, where the customer had directly provided instructions to the bank.
A dissent in a court of last resort is an appeal to the brooding spirit of law, to the intelligence of a future day when a later decision may possibly correct the error into which the dissenting justice believes the court to have been betrayed.”
Charles Evans Hughes
Supreme Court Decision – In a single judgment delivered by Lord Leggatt on 12 July 2023, the Supreme Court unanimously overturned the Court of Appeal’s decision, holding that it was “inconsistent with first principles of banking law”.
The Court rejected Mrs Philipp’s argument that a bank owes an implied duty to a customer not to follow an instruction given by the customer if it has reasonable grounds to believe that it is an attempt to misappropriate the customer’s funds.
On the contrary, the Court confirmed that it is a basic duty of a bank under its contract with a customer who has a current account in credit to make payments from the account in compliance with its customers instructions. The Court emphasised that this duty is strict and where the customer has authorised the bank to make a payment, it must carry out that instruction promptly without concerning itself with the “wisdom or risks of its customer’s payment”.
The Supreme Court held that on a proper understanding of a bank’s duties there cannot be any such conflict. In the context of making a payment instruction from a customer, a bank’s duty to exercise reasonable skill and care will only arise where the validity or content of the customer’s instruction is unclear or leaves the bank with a choice about how to carry out the instruction. In such cases, the duty of skill and care is limited to “interpreting, ascertaining and acting in accordance with the instructions”of the customer. Where the bank receives a valid payment order which is clear and leaves no room for interpretation or choice about what is required in order to carry out the order, the bank’s duty is simply to execute it by making the required payment.
However, Lord Leggatt observed that rejecting the reasoning in the Quincecare Case should not lead to rejecting the conclusion. The Court explained that the true basis for the Quincecare duty can instead be found in the principles of agency. It confirmed that the authority of the agent to give payment instructions on the customer’s behalf does not include authority to defraud the customer. An agent acting in this way will lack actual authority to give the instruction on behalf of the customer. The Court clarified that the agent will still have apparent authority to give instructions on the customer’s behalf unless there are “circumstances suggestive of dishonesty” apparent to the bank. In that case, the bank’s duty to exercise reasonable skill and care in executing the customer’s instructions requires the bank to make inquiries to verify the agent’s authority. If the bank makes the payment without making these inquiries, it will breach its duty. It will also be acting without actual or apparent authority from the customer and will, therefore, not be entitled to debit the customer’s account.
The Court concluded that these principles have no application to cases such as the present one where there is no agent involved and the customer directly authorises the bank to make the payment. On this basis the Supreme Court allowed the Bank’s appeal.
Commentary
This decision by the Supreme Court confirms that the Quicecare duty is limited to cases concerning payment instructions that have been given by an agent on behalf of a customer. This is consistent with the position, as expressed in previous cases, such as the Supreme Court decision in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd. However, the detailed judgment given by the Court in this case provides helpful guidance on the proper scope and application of the Quincecare duty and re-affirms the limits on a bank’s duties to its customers.
While the Supreme Court acknowledged that APP Fraud is a growing social problem that can have cause great hardship for its victims, the Court made it clear that the question of whether the victims of such fraud should bear the loss themselves or whether banks should be required to reimburse victims of such crimes is ultimately a question of social policy for Parliament to consider.
Since the commencement of Mrs Philipp’s claim, there have been various regulatory and legislative developments in that regard, including most recently the Financial Services and Markets Act 2023 (‘FSMA 2023‘), which received Royal Assent on 29 June 2023 and will come into effect in 2024. Under FSMA 2023, liability for victims who have been defrauded of their funds will be imposed on banks and payment firms “where the payment order is executed as a result o fraud or dishonesty.” It provides that the losses will be allocated equally between the sending and receiving providers, though the proposed new scheme is subject to certain limitations. It is, for example, confined to consumers, charities and “micro-enterprises” and does not apply to larger businesses. However, it will provide some recourse for victims of APP Fraud and demonstrates that the legislature is taking steps to address the issue.
To date, courts have held that a bank has a duty not to execute a payment instruction from a customer’s agent if it reasonably believes that the instruction is an attempt to misappropriate the customer’s funds.
The Supreme Court has now confirmed that the Quincecare duty does not have any application to cases of APP Fraud, where the customer instructs and authorises the bank to make a payment.
Link: Philipp v Barclays Bank UK PLC [2023] UKSC 25 (12 July 2023)
Expert Evidence prides itself on assisting throughout the legal process where required and is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.
Ask a question about Expert Witness services. We are here to help!
Disclaimer: The above case summary is derived from publicly available information and is not intended to be anything more than a statement of the author’s views on the salient factors of the case. It is not intended and should not be understood to be legal advice of any sort. All views are solely those of the author and no use of the summary should be made without statements being checked against the source of information. Expert Evidence Limited takes no responsibility for the views expressed. The copyright of the summary is owned by Expert Evidence Limited but may be used with written permission which may be forthcoming on application through the contact us page. This news item is not intended to imply or suggest that Expert Evidence Limited was involved in the case, only that it is considered an interesting legal development.
