Quincecare Duty - Bank's duty restated and reinforced
The Supreme Court handed down a unanimous judgment yesterday (12 July 2023) in the case of Philipp v Barclays Bank UK PLC [2023] UKSC 25 in relation to the duty banks owe to customers who are defrauded through authorised push payments (APPs).
An APP is where a victim of fraud is induced by fraudulent means to authorise their bank to send a payment to an account which is controlled by the fraudster.
Background
Dr and Mrs Philipp were defrauded to the sum of £700,000 by a fraudster who posed as someone representing the Financial Conduct Authority (FCA), in conjunction with National Crime Agency (NCA). Dr and Mrs Philipp were deceived into making an authorised transfer from their bank, Barclays Bank, to an account which they were led to believe was legitimate and connected to the FCA and the NCA.
In order to make the transfer, which ultimately was to two different bank accounts in the UAE, Dr and Mrs Philipp had visited a branch of their bank in person to give their instructions.
On both occasions the Bank had telephoned Mrs Phillipp to confirm her instructions and whether her instructions stood and she wished to continue with the transfer.
The requisite confirmation was, on each occasion, given by Mrs Philipp.
When it became apparent that the payments made by Dr and Mrs Philipp were not made to a bona fide payee, Mrs Philipp instructed the bank to recall the payments, but these attempts were unsuccessful.
As a result, Mrs Philipp took legal action against the Bank for breaching their duty of reasonable care to her in executing her instructions. She contented that this duty of care was such that the Bank should not have followed her instructions if they had reasonable grounds to consider she was being defrauded.
This duty is known as the Quincecare Duty.
Quincecare Duty
The Quincecare Duty which Mrs Philipp sought to rely on originates from a 1992 case also involving the Bank, Barclays Bank plc v Quincecare Ltd. The resultant duty arises where a customer has a bank account, the bank receives a payment instruction in relation to that account, the money is paid and it transpires a fraud has taken place so the customer’s money is lost. In the 1992 Quincecare case, Quincecare Ltd was the customer. The payment instruction was made by a fraudulent agent of Quincecare, being one of its directors. A key distinction in Philipp v Barclays is that the customer themselves made the payment instruction, rather than their agent.
Cases since the 1992 Quincecare case have reaffirmed the Quincecare Duty, that a bank which receives an instruction from an agent of the customer to make a payment, owes a duty to its customer not to carry out the instruction if the bank has reasonable grounds for believing that the agent is defrauding the customer. Where the bank does have reasonable grounds for believing the agent is acting fraudulently, the bank must make enquiries that the payment has been authorised by the customer, or risk breach of this duty.
The duty extended only to this tripartite bank, customer and agent scenario, until the Court of Appeal in Philipp v Barclays ruled in the customer’s favour. In doing so they considered that the Quincecare Duty could extend to where the customer themselves have the payment instruction, rather than the fraudulent agent of the customer.
Previous Decisions
At the first instance the Bank was awarded summary judgment on the grounds that, as a matter of law, it did not owe the Quincecare Duty to Mrs Philipp.
The Court of Appeal allowed Mrs Philipp to appeal that decision and found in her favour that the Bank did owe that duty to Mrs Philipp.
The Bank appealed the Court of Appeal decision to the Supreme Court.
The Supreme Court’s decision in Philipp v Barclays
The Supreme Court have unanimously allowed Barclays’ appeal, holding that Barclays did not owe the alleged Quincecare Duty to the victims of the APP fraud.
In doing so, they considered that, as regards the customer themselves, a bank’s only contractual duty is to make a payment in accordance with the customer’s instruction. This upholds the status quo, that the bank has a strict duty to uphold a customer’s payment request promptly, and not to concern themselves with the risks of that payment decision.
The Supreme Court have therefore reinstated the law as it was before the Court of Appeal deviated its course. One may reasonably ask where this leaves victims of such APP fraud, and whether they should be left to bear such loss themselves. The Supreme Court considered this to be a question of public policy to be decided by Parliament. As it happens, it is now the subject of legislation. Specifically, section 72 of the Financial Services and Markets Act 2023 received Royal Assent on 29 June 2023. This section requires the Payment Systems Regulator to publish, within two months, draft requirements for the reimbursement of qualifying victims of APP fraud. These requirements are to be imposed within 6 months of the Act coming into force.
Ongoing Claim
Mrs Philipp has an alternate claim against the Bank in relation to their attempts to recall the transfers and whether they breached a duty in not acting promptly in this regard.
The Supreme Court considered that a fuller investigation of the facts will need to be undertaken in order to establish whether that duty was there and was in breached by the Bank in not acting sooner.
The Supreme Court held that this alternate claim should not have been summarily dismissed.
Comment
David Vaughan, Commercial Dispute Resolution partner at Irwin Mitchell:
“The judgment in this case is important for banks who act on their customers’ instructions. It restates the duty a bank owes to its customers and reinforces the limits of that duty. In a very clear judgment, the Supreme Court has gone back to ‘First Principles’ and emphasised that the relationship between a bank and its customer is a contractual one. That contract requires a bank to follow payment instructions from its customer promptly, unless the bank reasonably suspects that the person providing the instructions us defrauding the bank’s customer. The bank does not have a duty to investigate the underlying reasons for that payment.
“The burden is on the customer to ensure that they are satisfied the request for funds comes from a bona fide source and is being sent to a bona fide account, correct for the intended means of the transfer.
“The Supreme Court decision brings to an end a recent wave of High Court and Court of Appeal decisions, which sought to widen the Quincecare duty and, reduces the routes through which victims of fraud might recover their losses.
“The UK government has gone some way to redressing the issue in the Financial Services and Markets Act 2023 which was recently given royal assent and will come into effect in 2024. However, the rules will only apply to payment orders executed over the 'Faster Payments' scheme and made by consumers, charities and “micro-enterprises”, while larger businesses and international transfers are excluded.”
