UK Supreme Court clarifies the scope of the ‘Quincecare duty’
Speed Read
On 12 July 2023, the UK Supreme Court delivered its much-anticipated judgment in Philipp v Barclays Bank UK PLC[1], ruling unanimously in favour of Barclays Bank UK PLC (the Bank), and providing clarity on the ‘Quincecare duty’.[2]
Background
In 2018 Mrs Philipp and Dr Philipp were defrauded into instructing the Bank to transfer two sums totalling £700,000 from Mrs Philipp’s bank account to accounts in the United Arab Emirates. The Bank transferred the money on the instruction of Mrs Philipp's, who later discovered that she was the victim of a fraud. This type of fraud is known as ‘authorised push payment’ (APP) fraud, which is where a victim is deceived into authorising a bank to make a payment to a criminal.
Mrs Philipp issued proceedings against the Bank claiming that the Bank was responsible for the loss of the money on the basis that it owed her a duty to refuse to carry out the payment instructions if it had reasonable grounds to believe that she was the victim of a fraud. Mrs Philipp also claimed, in the alternative, that the Bank was in breach of its duty for not taking adequate steps to seek to recover the money once the fraud had been discovered.
The Bank applied to the High Court for summary judgment to strike out the case on the basis that the Court could decide, as a matter of law, that it did not owe the duty as alleged by Mrs Philipp's. The High Court struck the matter out and Mrs Philipp appealed the decision. The English Court of Appeal allowed the appeal and set aside the summary judgment finding that the ‘Quincecare duty’ was not limited to circumstances in which an agent gave a payment instruction and accordingly could, in principle, arise in this case, a question that would need to be decided at trial. This judgment was appealed to the Supreme Court.
Supreme Court Decision
The key legal issue before the Supreme Court was whether a bank owed the duty as alleged by Mrs Philipps. The Court unanimously held that no such duty exists and that the Court of Appeal decision was inconsistent with first principles of banking law. The Supreme Court noted that a bank’s primary and strict duty under its contract with a customer is to make payments promptly in accordance with the customer’s instruction and it is not for the bank “to concern itself with the wisdom or risks of its customer’s payment decisions”.
The judgment provides clarity on the scope of the ‘Quincecare duty’ and noted that it is merely an application of the general duty of care, owed by a bank, to interpret and act in accordance with a customer’s instructions rather than constituting a special rule of law. The duty typically arises where a bank is put on inquiry that an instruction given by an agent to make a payment on behalf of the customer is an attempt by the agent to defraud the customer. In those circumstances, a bank’s duty requires it to exercise reasonable skill and care to verify the payment with the customer prior to processing it and a failure to do so will be a breach of that duty.
In the case of Mrs Philipp, there was no agent involved and it was Mrs Philipp who gave the payment instruction. The Court held that the ‘Quincecare duty’ has no application to these factual scenarios. Importantly, the judgment held that:
“…these principles have no application to a situation where, as in the present case, the customer is a victim of APP fraud. In this situation the validity of the instruction is not in doubt. Provided the instruction is clear and given by the customer personally or by an agent acting with apparent authority, no inquiries are needed to clarify or verify what the bank must do. The bank’s duty is to execute the instruction and any refusal or failure to do so will prima facie be a breach of duty by the bank.”
The judgment then goes on to note that: “the fact that the customer’s payment instruction was induced by fraud entitles the customer to claim repayment from the fraudster but does not invalidate the instruction or give rise to any claim against the bank.”
The Supreme Court allowed the Bank’s appeal and restored the High Court order dismissing the claim that the Bank owed Mrs Philipp’s a duty not to execute her payment instructions.
The end of the chapter?
This decision will be a welcome relief for many financial institutions as an adverse decision was likely going to lead to an influx of complaints and litigation from customers as a result of the increasing amounts of APP fraud. However, it is not all over. The Supreme Court also considered Mrs Philipp’s alternative claim that the Bank ought to have made efforts to recall the payments earlier. The judgment noted that the fact that the Bank did take steps to seek to recover the money demonstrates that steps could be taken and raised the question as to why this was not done sooner – albeit it did note that the prospect of recovery seemed slim. The Supreme Court refused summary judgment on this alternative claim and considered this to be a matter for trial. We will need to wait and see what happens with Mrs Philipp’s remaining claim, which is likely to involve further assessment of the Bank’s obligations and duties in recalling payments when a fraud has occurred.
Overall, while the decision is a helpful clarification of the scope of the ‘Quincecare duty’, this duty continues to need to be finely balanced against ongoing regulatory obligations. Irish banks and payment service providers in the consumer sphere will need to consider the scope of this duty in parallel with the Central Bank’s ongoing industry engagement regarding its review of the Consumer Protection Code, particularly if any additional substantive requirements on appropriate consumer outcomes are developed as part of this ongoing review and consultation.
For more information, please contact Dario Dagostino, Partner, Laura Corrigan, Senior Associate or your usual ALG Disputes & Investigations team contact.
Date published: 25 July 2023
[1] Philipp (Respondent) v Barclays Bank UK PLC (Appellant) (supremecourt.uk)
[2] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363