Commercial Court clarifies the scope of the Quincecare duty

In a judgment published on 14 June, Mrs Justice Cockerill dismissed a claim by the Federal Republic of Nigeria (FRN) against JPMorgan Chase Bank, N.A. (JPMC) that JPMC had breached its Quincecare duty by executing payment instructions issued by officials in the Nigerian government.

This judgment provides further clarification of the scope of the “Quincecare” duty, including helpful commentary on the recent Court of Appeal decision in Philipp v Barclays Bank UK plc.

Background

The FRN’s claim related to payments made by JPMC in 2011 and 2013 out of a Depository Account held by the Nigerian government at JPMC, on the instructions of authorised officers of the Nigerian government. The FRN alleged that these payment instructions were part of a fraudulent and corrupt scheme perpetrated by certain members of the Nigerian government. Although the FRN accepted that JPMC was not involved in or aware of the alleged fraud, it claimed that in making these payments, JPMC acted in breach of its Quincecare duty, which requires a bank to refuse to execute payment instructions where the bank is on inquiry that the instructions are an attempt to misappropriate the customer’s funds. 

Outcome

The Court ruled in JPMC’s favour on two key areas: namely that there was insufficient evidence that the payment instructions were a fraud on the FRN, and that, even if there had been a fraud, JPMC did not breach its Quincecare duty to the FRN in either 2011 or 2013. 

Importance for the scope of the Quincecare duty

The Court in FRN v JPMC emphasised that the Quincecare duty is a narrow and confined duty, as has been made clear in previous cases dealing with the duty, including the recent Privy Council decision in RBS International v JP SPC 4. It has primarily been found to arise in cases of “internal fraud”, i.e. where an agent of the customer misappropriates the customer’s funds. 

The Court of Appeal decision in Philipp, however, signified a potential extension of the Quincecare duty beyond the internal fraud scenario. Philipp concerned a case of Authorised Push Payment (“APP”) fraud, where a bank’s customer is deceived by an external fraudster to transfer money from the customer’s account into an account controlled by the fraudster. In FRN v JPMC, Mrs Justice Cockerill noted that Philipp establishes that a Quincecare duty may apply where an instruction is received by a bank from someone other than an agent of the customer. She clarified that Philipp does not however establish as a general principle that a duty of care arises (i) in the case of a customer instructing their bank to make a payment when that customer is the victim of APP fraud; or (ii) in any case in which a bank is on inquiry that the instruction is an attempt to misappropriate funds. The Court in Philipp was clear that whether a Quincecare duty in fact arises will be a matter for determination at trial. 

Mrs Justice Cockerill agreed with the case put forward by JPMC that, in determining the scope of the Quincecare duty (i) there needs to be a clear focus on the issue of what it is of which the bank must be on notice, and (ii) the duty will not arise unless a bank is on notice that the instruction it has received may be vitiated by fraud. It is therefore clear that a bank must be on notice of the specific matter that vitiates the instruction and not any different or wider potential concern. 

The result of this was that the FRN had to establish that JPMC was on notice of the specific fraud in 2011 which was said to vitiate the payment instructions it received. Mrs Justice Cockerill found however that the FRN had not established that any such fraud existed, nor that JPMC was on notice of it. Accordingly there was no breach of duty and the bank was not liable to the FRN.