In the important judgment in Philipp v Barclays Bank plc handed down this week, the UK Supreme Court has rejected the extension of a bank’s Quincecare duty to cover payments which are unequivocally authorised by the customer. Dr and Mrs Philipp were the victims of what is known as authorised push payment (APP) fraud, and were persuaded by fraudsters to give Barclays express instructions to transfer a substantial part of their savings to a bank account in the UAE. When the savings were lost, they argued that Barclays was obliged to compensate them, on the basis that the Quincecare duty or a wider duty to exercise reasonable care and skill applied. However, the Supreme Court has rejected this extension of the Quincecare duty or any wider duty, holding that the fact that Mrs Philipp’s payment instruction was induced by fraud did not invalidate it or give rise to any other claim against Barclays. It has also clarified the juridical basis for the Quincecare duty itself.
What is the Quincecare duty?
The Quincecare duty (as described in Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363) obliges banks to refrain from executing a customer’s order if, and for so long as, the bank is ‘on inquiry’ that the order is an attempt to misappropriate the customer’s funds. The question of the circumstances in which the duty applies and in which a bank is ‘on inquiry’ has been the subject of increasing litigation over the past few years. However, Mrs Philipp’s case is the first in which the customer (rather than an agent) had given the relevant instructions to the bank to make the payment.
Mrs Philipp’s case against Barclays
In February 2018, Dr Philipp was contacted by a fraudster who claimed to be working for the Financial Conduct Authority in conjunction with the National Crime Agency and to be investigating a fraud. The Philipps were led to believe that their money needed to be moved to “safe accounts”, and visited a Barclays branch on two occasions and gave specific instructions for payments from Mrs Philipp’s account to be made to a bank account in the UAE. On each occasion, the bank telephoned Mrs Philipp to check that she had made the transfer request and wished to proceed with it, which she confirmed. Barclays therefore made the payments. When Mrs Philipp made a request for a third payment to be made, she was informed that the payment had been blocked pending a review. Mrs Philipp tried unsuccessfully to have the block removed. Mrs Philipp later realised that they had been the victim of fraud. Barclays’ attempts to recall the funds were unsuccessful.
As the account holder, Mrs Philipp brought a claim arguing that the Quincecare duty can apply to APP fraud in circumstances where the bank is on inquiry as to the fraud. Alternatively, Mrs Philipp argued that the bank was bound by a broader duty which requires a bank to refrain from executing a customer’s order without making inquiries if it has reasonable grounds for believing that the customer is a victim of fraud.
The High Court initially granted Barclays summary judgment against Mrs Philipp, but the Court of Appeal allowed Mrs Philipp’s appeal, finding that in principle a bank owes a contractual duty to its customers of the kind alleged by Mrs Philipp, and that whether such a duty arose on the facts was a question for trial.
The Supreme Court’s decision
Giving judgment for the Supreme Court, Lord Leggatt noted that APP fraud is a growing social problem that can undoubtedly cause hardship for its victims, but that it is not the courts’ role to formulate social policy to compensate for it. He also noted that the Financial Services and Markets Act 2023 (which received Royal Assent in June 2023) provides for a mandatory reimbursement scheme for victims of APP fraud, where those payments are domestic ones.
Lord Legatt then went on to examine the nature of the relationship between a customer and its banker, and the way that the Quincecare duty was first articulated and developed. He noted that a bank’s basic duty under its contract with customers is to make payments in compliance with their instructions (whether these are commercially wise or not), and that unless a bank includes an express term stating it will not comply with such instructions if it has reasonable grounds for believing the customer has been tricked into authorising such a payment, a duty to do anything but make the payment cannot be imposed or implied.
Lord Leggatt noted that Quincecare cases were more properly analysed through the lens of agency law, rather than the way they were originally articulated by Lord Steyn in the Quincecare case itself. Through the agency lens, there is no conflict between the Quincecare duty on the one hand to refrain from executing instructions where the bank is ‘on inquiry’, and the duty to execute a valid payment instruction on the other. Put simply, the Quincecare duty is “an application of the general duty of care owed by a bank to interpret, ascertain and act in accordance with its customer’s instructions”. Therefore, where a bank has reasonable grounds to believe an instruction given by an agent is an attempt to defraud the customer, it must refrain from executing the instruction as otherwise it will be in breach of its duty, on the basis that the agent has no apparent authority and therefore it would be acting outside the scope of its mandate if it were to comply with the instructions. By contrast, there is no doubt as to the validity of the instruction in APP fraud cases, and agency principles do not apply.
However, Lord Leggatt allowed Mrs Philipp’s alternative case that Barclays had breached its duties by failing to take adequate steps to recover the money after it had been paid out of her account to proceed to trial.
Conclusion
The Supreme Court’s decision is not unexpected. It is consistent with the courts’ approach, (with the exception of the Court of Appeal’s decision in Philipp), of emphasising the narrow and confined nature of the Quincecare duty (see for example Stanford International Bank v HSBC Bank plc and Federal Republic of Nigeria v JP Morgan) and, in the Hong Kong case PT Asuransi Tugu Pratama Indonesia v Citibank N.A, Lord Sumption’s analysis of the duty according to agency principles (see our previous blogs here and here). The decision will however be a welcome clarification of the rationale for the Quincecare duty for financial institutions. While everyone sympathises with victims of fraud, it is paramount that any obligations on financial institutions to monitor and detect financial crime are clear and practicable. It may be that the clarification of the Quincecare duty (and the reminder that the duty will be interpreted narrowly) means that Quincecare claims are less attractive for claimants.
