Supreme Court backs ‘conventional’ understanding of banks’ Quincecare duty

Banking disputes expert Mike Hawthorne of Pinsent Masons said he was not surprised by the “conventional” decision, which is in line with “what the bank-side of the market always considered to be the law” regarding APP fraud. APP frauds occur when a victim authorises a bank transfer into an account that they believe is controlled by a legitimate payee, but that actually belongs to a fraudster.

In 2018, two Barclays customers, Mrs Fiona Philipp and her husband, Dr Robin Philipp, fell victim to an APP fraud, perpetrated by a third-party fraudster posing as an operative of the Financial Conduct Authority (FCA) in conjunction with the National Crime Agency. As a result of the fraud, Mrs Philipp was deceived into transferring £700,000 from her Barclays current account to two bank accounts in the UAE.

Attempts to recall the funds that had been transferred were unsuccessful. Mrs Philipp sued Barclays claiming that Barclays owed her a duty to observe reasonable care and skill in and about executing her instructions, and that this duty required Barclays to refrain from executing her payment instructions if and for so long as it had reasonable grounds for believing that the instructions were an attempt to misappropriate funds from Mrs Philipp.

Mrs Philipp's argument relied heavily on the 1992 case of Barclays Bank plc v Quincecare Ltd. That case, and others, helped establish the principle that, if a bank executes an instruction from a company to transfer funds, when the instruction is given by an agent for the company such as a director, and when there are reasonable grounds to suspect that the agent is acting fraudulently, then the bank is liable to the company for the loss. 

Hawthorne said: “These decisions created some confusion about whether the origin of this duty lies in the fact that the bank was negligent not to spot the fraud, because the bank did not receive binding instructions to make the payment because it was not authorised by the customer to comply with a fraudulent instruction from the agent. This confusion opened the door for an individual customer like Mrs Philipp to say that the bank owed her a duty of care in negligence to prevent her from making a fraudulent payment. That would have been a major change from the long-standing practice and understanding of the bank-customer contract.”

“But the Supreme Court has now clarified that the source of the duty is in agency law, not negligence, which means that where the customer gives the instruction herself – as opposed to via an agent – there is no scope for a negligence duty to exist which requires the bank to second-guess whether the payment instruction is being given by the customer pursuant to a fraud.”

The court held that the fact that Mrs Philipp had unequivocally authorised Barclays to make the payments was beyond dispute. Each of the two payments made by the bank came after Mrs Philipp and her husband had visited a branch in person and Mrs Philipp had given instructions to transfer the money from her account to an account in the UAE that they believed was safe.

Dr Philipp even conceded during the course of legal proceedings that, on the first occasion, he had told the branch cashier, falsely, that he had had previous dealings with the company that owned the UAE account.

A Barclays representative called Mrs Philipp on both occasions to confirm that she had made the transfer request and still wished to proceed with it. On each occasion Mrs Philipp provided the required confirmation. Handing down the court’s unanimous opinion, Lord Leggatt said that it was impossible to say that Barclays owed Mrs Philipp a duty not to comply with her instructions in these circumstances.

Jacob Hay of Pinsent Masons said: “The Supreme Court has made clear that, as regards an individual customer, a bank’s only contractual duty is to pay in accordance with the customer’s instruction. The ruling confirms that the Quincecare duty is limited to payment instructions given by an agent for the customer. In those cases, the bank is not permitted to pay if it has reasonable grounds to suspect that the agent is defrauding the customer. This is no change from the previous law as expressed in Quincecare, and helpfully clarifies the limits of the Quincecare duty.”

Hawthorne said: “It is worth noting that Barclays would not have defended this case all the way to the Supreme Court unless it had been as sure as it could have been that it was right on the law. Obviously, everyone has sympathy for the Philipps and all those who lose money to fraud, but the Supreme Court was right to apply the law as it stands now. It should be left to parliament and the regulators to change the rules if they think that banks should be made more liable to compensate customers for fraud losses.

He added: “There are in fact changes being implemented now by the Payment Systems Regulator which will enhance fraud protection for individuals in the future. The fact that this issue is already subject to policy-level intervention from the government was one of the key reasons given by the Supreme Court to explain why it would be wrong to make this kind of change from the bench.”

Mrs Philipp also claimed that Barclays was in breach of duty by not acting promptly to try to recall the payments made to the UAE after being notified of the fraud. This claim was summarily dismissed at an earlier hearing, but the Supreme Court found that it should not have been. It held that the questions of whether Barclays owed such a duty, and whether the money could have been recovered successfully if the bank had acted sooner, could not be decided without a fuller investigation.