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Freshfields Risk & Compliance

| 4 minutes read

Lord Sumption delivers Judgment on the Quincecare duty

Lord Sumption recently delivered the lead judgment in proceedings before the Hong Kong Court of Final Appeal (CFA) which concerned the scope of the much-litigated Quincecare duty.

Whilst the judgment in PT Asuransi Tugu Pratama Indonesia v Citibank N.A. is not binding on the English courts, they are likely to consider it persuasive, particularly given Lord Sumption’s illustrious reputation.


Three officers of Tugu opened an account with Citibank in 1990. Over numerous transactions spanning several years, millions of dollars were paid out to the three officers who had opened the account, and a fourth officer of Tugu. Each transfer was made in accordance with payment instructions signed by two of the officers concerned. The final instruction directed Citibank to transfer the remaining balance to an account in the name of the two signatories, and to close the account, which it did.

Tugu commenced proceedings in 2007, claiming that these transfers were dishonestly authorised and that the debit entries resulting from the unauthorised transfer instructions were of no effect, and that accordingly the account remained in existence and fell to be “reconstituted” by reversing the disputed debit entries. This was accordingly a claim in debt. Further or alternatively, Tugu claimed the same amount as damages for breach of the Quincecare duty. This is the duty on a bank not to give effect to payment instructions in circumstances where the bank knows of facts which would lead a reasonable and honest banker to consider that there was a serious or real possibility that the customer might be being defrauded.

The court of first instance found that the transactions were fraudulent, and that by the time of the third transaction, the bank had breached its Quincecare duty by not making sufficient inquiries. However, the court found the claim was time-barred on the basis that the limitation period ran from the date of the closure of the account in 1998. The court also stated that Citibank would have been entitled to rely on a defence of contributory negligence had the claim not been time-barred.

Citibank appealed to the Court of Appeal, which upheld the lower court’s decision for substantially similar reasons to those relied on by the lower court. The CFA however overturned the Court of Appeal’s decision, allowing Tugu’s claim in debt against Citibank. The CFA held that the customer is entitled to have its account balance reconstituted if transactions were made without authority, and this claim would be payable on demand.

CFA decision – key points

While ostensibly a case about limitation, the CFA’s judgment considered the nature of the Quincecare duty, and reviewed some of the key case law concerning the duty.

Lord Sumption analysed the Quincecare duty in the context of principles of agency and authority. He stated that there are two judicial sources for a bank’s duties in making payments out of an account – firstly, the duty to make such payments only with the authority of the customer, and secondly the duty to act as agent, which requires the exercise of reasonable skill and care (the Quincecare duty). The CFA stated that while there are differences between these duties which might affect the remedies, limitation, and contributory negligence (more on this later), the standard of duty is the same.

The CFA considered that the critical question, under both the Quincecare duty and the law of ostensible authority, is what constitutes sufficient notice of a lack of actual authority, so as to require a bank to make inquiries before paying out in accordance with its mandate. In his judgment, Lord Sumption stated that being put ‘on inquiry’ is not the same as constructive notice; there is no general obligation to inquire into an agent’s authority. Therefore, the question is whether the information a bank actually has calls for inquiry.

Other points of interest:

  • Limitation period: As actions in debt arise when the customer makes a demand, the limitation period can be ‘indefinitely deferred’ by the customer without their rights being affected. The Court found ‘this may be inconvenient to banks, but it is a fundamental incident of their business’. Framing a claim as a debt claim can therefore enable the claimant to defer the start of the limitation period.
  • Contributory negligence: The CFA confirmed that a bank cannot advance a defence of contributory negligence in debt claims (unlike claims regarding breach of duty). The CFA rejected the suggestion that claims of this nature can be viewed as negligence claims, stating that just because the debt arises as a result of the bank’s failure to make reasonable inquiries, that does not convert a debt claim into a claim for damages.

Key takeaways

This is the latest in a string of cases on the Quincecare duty (see our previous blogs here and here).

This case is notable for the CFA’s approach of analysing the Quincecare duty according to authority and agency principles. It will be interesting to see whether this approach aligns with that adopted by the UK Supreme Court when it delivers its eagerly-awaited judgment in Philipp v Barclays. In Philipp, the Court of Appeal found that the Quincecare duty is not restricted to circumstances where the bank is instructed to make a payment by an agent of the customer, but may also arise where the instruction comes from the customer itself (for example where a customer is the victim of authorised push payment fraud). The fact that Lord Sumption in Tugu framed the ‘critical question’, when looking at the Quincecare duty, as being ‘what constitutes sufficient notice of a want of actual authority, so as to require a bank to make inquiries before paying out in accordance with its mandate’ indicates that he considers that the Quincecare duty has its basis in the law of agency, and that the potential extension of the duty in Philipp is not so much an expansion of the duty as a reformulation. It remains to be seen what approach the UK Supreme Court will take.


litigation, financial institutions, financial services, financial services litigation