Supreme Court halts Quincecare expansion

On 12 July 2023, the Supreme Court in Philipp v Barclays Bank UK PLC [2023] UKSC 25 reversed a decision by the Court of Appeal effectively extending a duty of care owed by banks to their customers to not carry out payment instructions where the bank ought to have reasonable grounds to believe that those customers were being defrauded. This duty of care had become known as the ‘Quincecare duty’ after a decision of the High Court in Barclays Bank v Quincecare Ltd [1992] 4 All ER 363 that a banker must refrain from executing an order if he has reasonable grounds for believing that the order is an attempt to misappropriate funds from a customer.

The Facts

Mr and Mrs Philipp fell victim to an elaborate authorised push payment (“APP”) fraud. They were convinced by fraudsters, masquerading as agents of the Financial Conduct Authority (FCA) and the National Crime Agency (NCA), to send a total of £700,000 via two transactions from Mrs Philipp’s Barclays current account to two bank accounts in the United Arab Emirates (the money had earlier been transferred by Mr Philipp to Mrs Philipp). Mrs Philipp attempted to recall the funds but was unsuccessful. It is worth noting that this was a highly sophisticated fraud during which the fraudsters were able to purport to telephone from numbers belonging to the NCA and the FCA. Mr and Mrs Philipp were even unconvinced by the police that they had been defrauded until they were told for the third time. They lost most of their life savings.

Mrs Philipp subsequently sued Barclays, claiming that the bank owed her a duty to observe reasonable care and skill in carrying out her instructions, and that this duty required Barclays to not execute her payment instructions if it had reasonable grounds to believe that the instructions were an attempt to misappropriate funds from her (see Quincecare above).

As a secondary argument, the Mrs Phillipp argued that Barclays did not take adequate steps to recover the payments once the fraud had been discovered.

Litigation history

HHJ Russen QC in the High Court initially granted summary judgment in favour of Barclays, however the Court of Appeal reversed the decision, accepting, in principle that the Quincecare duty should be extended to incorporate APP scams even in situations where the customer had attended the bank personally to insist that payment be made as Mrs Philipp had done.  The Court of Appeal decision was discussed in our blog here.

Barclays obtained permission to appeal the Court of Appeal’s decision to the Supreme Court and there was a two-day hearing on 1 and 2 February 2023, with the Supreme Court’s judgment handed down on 12 July 2023.

The Supreme Court’s judgment

Lord Leggatt gave the judgment of the Court which was unanimous. He reviewed the authorities with particular emphasis on those judgments that pre-dated Quincecare and from where that decision had been derived.

Lord Leggatt rejected the Philipps’ argument, ruling that the duty outlined in Quincecare had been wrongly extended on the basis that it existed in ‘tension’ with the primary duty of a bank to act on its customers instructions. Instead he described it as part of the “general duty of care owed by a bank to interpret, ascertain and act in accordance with its customers' instructions. Where a bank is “put on inquiry” in the sense of having reasonable grounds for believing that a payment instruction given by an agent purportedly on behalf of the customer is an attempt to defraud the customer, this duty requires the bank to refrain from executing the instruction without first making inquiries to verify that the instruction has actually been authorised by the customer”.

Leggatt SCJ distinguished Quincecare on the basis that, in Quincecare (and the authorities that preceded it) the bank had received instructions from an agent of their customer who was acting fraudulently and hence outside his capacity, and not the customer herself as was the case with the unfortunate Mrs Philipp. The bank had reasonable grounds to believe that the agent was defrauding the customer and so, if they were to carry out the instructions from the agent to the letter, the bank would be making a transaction that the customer had not actually authorised the bank to make. In this way the Court preserved the right of a bank to refuse to make payments in circumstances where it was on notice of fraud whilst not imputing any duty to do so which would conflict with its primary duty to act on its customers instructions.

Of course, in Philipp, the customer was instructing the bank directly to make payments (and even at one stage misrepresenting the reason for the transfer). The fact of the fraud did not vitiate the instructions of the customer and consequently the bank’s obligation to her. The Supreme Court clarified that, provided a customer’s account is in credit, the ordinary duty of a bank is to carry out that customer’s instructions. Unless otherwise agreed, a bank must execute those instructions and do so promptly. The Court approved the reasoning in Bodenham v Hoskins [1852] 21 LJ Ch 864, 869, whereby:-

“… the banker looks only to the customer, in respect of the account opened in that customer’s name, and whatever cheques that customer chooses to draw, the banker is to honour. He is not to inquire for what purpose the customer opened the account; he is not to inquire what the monies are that are paid into that account, and he is not to inquire for what purpose monies are drawn out of that account: that is the plain general rule, as between banker and customer.”

It also approved the later finding in Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340, that there is nothing in the contract between a bank and its customer which could require a banker to consider the commercial wisdom or otherwise of a particular transaction. The Supreme Court approved those longstanding authorities such that “provided the instruction is clear and is given by the customer personally… no inquiries are needed to clarify or verify what the bank must do.”

The Supreme Court therefore allowed Barclays’ appeal and restored the order of the High Court granting summary judgment on the issue of whether the bank had a duty to not carry out Mrs Philipps’ instructions. The Court, however, did not grant summary judgment to Barclays in respect of the Philipps’ secondary argument, regarding whether adequate steps had been taken to recover the funds once the fraud had been discovered.

Comment

The Supreme Court’s judgment has provided clarity in the expanding area of Quincecare litigation and will certainly provide some welcome relief to banks battling to deal with sophisticated APP fraud. The Court also said, in no uncertain terms, that it is not the role of the courts to regulate the banking industry – this is an area for legislators and regulators.

The Court did, however, express concern about the relatively few banking institutions that have signed up to extant voluntary schemes to assist victims of APP fraud. Likewise, the Court pointed out that the new mandatory reimbursement scheme that forms part of the Financial Services and Markets Act 2023 only applies in certain cases and has not been proposed to be directly enforceable by bank customers.

These remarks seem to be a clear signal that the Supreme Court would welcome greater protection for bank customers from APP fraud, but that expanding the ‘Quincecare duty’ is not the way to do it.  Mr and Mrs Philipp and many others have been the victims of appalling criminality and Parliament must take urgent steps to ensure that there is appropriate recourse for them.

Brett Wilson LLP's specialist fraud solicitors assist individuals and businesses which have been the victims of high value frauds (typically where the loss is greater than £100,000).  If you require assistance with such a matter send us an email, complete our online enquiry form or call us on 020 3811 2793.