The recent Court of Appeal decision in Philipp v Barclays Bank UK plc [2022] EWCA Civ 318 has provided helpful clarity on the scope of banks’ Quincecare duties. It was confirmed that where a bank has reasonable grounds for believing that an order to transfer funds is an attempt at misappropriation, its duty to make enquiries can extend to instructions from individual personal banking customers.
Facts
The case arises from an authorised push payment (APP) fraud perpetrated on Mrs Philipp by sophisticated fraudsters, who deceived her and her husband so thoroughly that they were persuaded to transfer life savings of £700,000 to accounts in the UAE. The fraudsters convinced the couple that in making the transfer they were assisting the Financial Conduct Authority and National Crime Agency in tackling a fraud and as a result they lied to the bank about the purpose of the transfer.
After the fraud was discovered Mrs Philipp brought a claim against the bank for breach of duty arguing that it ought to have had policies and procedures in place to detect and prevent APP fraud and to recover the monies transferred. The bank succeeded in a strike out application on the basis that its duty of care in these circumstances did not extend to instructions directly from individual customers. Mrs Philipp was allowed permission to appeal and the case came before the Court of Appeal.
What are Quincecare duties?
The Quincecare duty originated from the decision in Barclays Bank plc v Quincecare Ltd [1992] 4 All E.R. 363. The decision established that there is an implied term between the bank and its customer to “observe reasonable care and skill” when carrying out a customer’s orders. Banks are ordinarily required to execute their client’s instructions promptly, however, the Quincecare duty obliges banks to refrain from carrying out a customer’s instructions for as long as the bank is “on inquiry”. This would be in situations where the bank has reasonable grounds for believing that an instruction is an attempt to defraud the customer.
What did the Court of Appeal decide?
In this case, the Court of Appeal overturned the first instance decision and rejected the argument that the Quincecare duty only applies where there is fraud by an agent acting for the customer. The duty can be extended to situations of APP fraud in circumstances where the bank is on inquiry that executing the order would result in the customer’s funds being misappropriated. It was therefore possible that Barclays could owe a duty of care to Mrs Philipp and the case would proceed to trial.
The judge commented that the Quincecare duty was determined by what the “ordinary banking practice is at the relevant time”. If an “ordinary prudent banker” would have been put on inquiry then the Quincecare duty will apply.
The Court said that the size of the transfer and the previous history of Mrs Philipp’s account were relevant as to whether the bank should be “on inquiry”. On the facts of the case Mrs Philipp was transferring an unusually large amount of money to a UAE account that she had only recently transferred into her own account. The Court stated that each case would have to be judged on its own merits and dismissed the argument that this obligation would require intervention on thousands of smaller payments.
What does the decision mean for banks?
The claim is proceeding to trial and banks will be following this decision carefully. If it is decided in Mrs Philipp’s favour then this is likely to cause some concern regarding further claims in relation to APP fraud. The fact that the Quincecare duty could apply to APP fraud means that it is wider than some may have anticipated.
The decision has also opened the possibility for the Quincecare duty to expand and put more of an onus on banks to scrutinise customers’ instructions. As the Quincecare duty is not fixed in case law, these policies and procedures will also need to be reviewed and updated regularly to ensure that they are maintained in line with “ordinary banking practice”, which can change rapidly in this area. The outcome of this case will be based on the standard of practice in 2018 and so any future developments since that date will also need to be considered.
What does the decision mean for victims of fraud?
The use of social engineering tactics by criminals to commit APP fraud is on the rise and it is not just the elderly or vulnerable who become victims. UK Finance’s 2021 half yearly fraud report suggested that £355m was lost to APP fraud in the first half of that year, representing an increase of 71% on the same period in 2020 and overtaking payment card fraud for the first time.
The Court of Appeal’s decision is therefore undoubtedly good news for bank customers and should provide an additional safeguard against a particularly malign type of fraud which can have a devastating impact on people’s lives.
The duty won’t provide protection in every case where a customer is a victim of APP fraud and vigilance remains the best protection. However, following the Court of Appeal’s decision, there may well be an increase in cases which test the point of “tension” between the bank’s duty to execute customer instructions and its duty of care in carrying out those instructions.
Where next for Quincecare duties?
Following the Court of Appeal’s decision, Mrs Philipp’s case goes back to the Circuit Commercial Court for a full trial of the issues. There will be interest in where the Court draws the line on the bank’s competing duties.
2022 also brings further potential development in the scope of banks’ Quincecare duties with judgment awaited in two cases. In Stanford International Bank Ltd (SIB) v HSBC Bank plc the Supreme Court is considering whether a bank’s Quincecare duty (in this case owed by HSBC) extends to protecting an insolvent customer’s (SIB’s) creditors. In Federal Republic of Nigeria v JP Morgan the High Court is considering the extent of a bank’s duty to investigate when it is on notice of a possible fraud.
James Evison