The UK Supreme Court has unanimously ruled on Philipp (Respondent) v Barclays Bank UK PLC (Appellant) [2023] UKSC 25, finding that Barclays did not owe a Quincecare duty of care to its customer, who was a victim of authorised push payment (“APP”) fraud. The decision provides some further clarification as to the scope of the Quincecare duty and has been long anticipated for those in the banking and financial services sectors.
Quincecare duty:
The duty, derived from the decision of Steyn J in Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363, involves a situation where a payment instruction was given to the bank by an agent who was an authorised signatory of the customer’s account but was acting in fraud of the customer. If the bank were to execute the instruction without making inquiries, and the instruction later proves to have been given without the customer’s authority, the bank will be in breach of the duty as it has made payment outside the scope of the authority from the customer. It is therefore not entitled to debit the payment from the customer’s account.
Background:
The position in this case was slightly different to the case upon which the duty was founded and the victim of the fraud was seeking to extend that duty. Philipp and her husband were victims of an APP fraud and as a result instructed Barclays Bank UK PLC to transfer £700,000 to the fraudster’s bank account in the UAE [1] in two instalments. For the first instalment, Philipp’s husband falsely informed the cashier that they had previous dealings with the company to whom the payment was made. On both occasions, a representative of the Bank had telephoned Philipp to obtain confirmation, which she then gave. It was beyond dispute that she gave authorisation for both transactions to take place. Philipp contended that the Bank owed her a duty of care not to carry out her instructions where it had reasonable grounds to believe she was being defrauded – the Bank should not have acted on the instruction if it had reasonable grounds to believe that it involved a fraud or that Philipp had been tricked. The claim was based on her contract with the Bank and its obligations both express and implied into contracts of this type. The Bank argued that there was no express contractual provision to this effect, and it disputed the existence of a Quincecare duty as a matter of law. The Court of Appeal found such a duty to exist, the Bank appealed to the Supreme Court.
Judgment:
Did the Quincecare duty apply in these circumstances?
The Supreme Court found that where an account is in credit, the ordinary duty of a bank – as agent for its customer – is to make the instructed payment and that the bank should not be concerned with the customer’s decisions. The Quincecare duty is simply an application of the general duty of care owed by a bank to act in accordance with its customer’s instructions. Provided a bank receives a clear instruction, either from the customer personally or an agent acting with apparent authority, no inquiries are needed to clarify or verify what the bank must do. The Bank is not under a Quincecare duty as long as the instruction is clear and given by the customer personally, or by an agent acting with apparent authority. Indeed, not to act on the instruction would be a breach of the bank’s general contractual duties owed to the customer. Phillip’s instruction to the Bank was therefore “valid”, even if she had been tricked into giving it.
The Bank’s Terms of Business
The Court examined an express term in the Bank’s Terms of Business, which stated that the Bank did not have to carry out instructions in circumstances where it ‘reasonably think[sic] that a payment into or out of an account is connected to fraud’. This would include APP fraud. The Supreme Court found that whilst this did give the Bank a right to decline to carry out the instruction, this was not a duty. Therefore it could only be used to sue the Bank where the Bank had refused to carry out an instruction and this caused the customer loss. In Philipp’s case, the Bank’s refusal to carry out the attempted third transfer of funds to the UAE had in fact saved her from losing even more money.
Breach of duty by bank not to recall payments?
Whether or not the Bank was in breach of a duty in not acting promptly to recall the payments remains to be seen, as the Supreme Court held that this alternative claim should be remitted back to the High Court to be determined at trial. However, the Supreme Court did note that even if prompt action had been taken by the Bank to recover the payments, the likelihood of the funds being successfully reclaimed ‘seems slim’.
Application to the wider sector and to Crypto exchanges
The decision is important for those in the banking and financial services sector as the Supreme Court has confirmed the limits on the scope of the Quincecare duty, and therefore, the consequential liability that would arise on banks and other payment service providers in the context of APP fraud. It is also highly relevant to victims of fraud whether corporate or personal. It is important to note that there could be circumstances in which it will be reasonable for a bank to think that a customer would not want their orders to be carried out. The Supreme Court considered that this would be where the bank had information about the alleged fraudulent nature of the transaction that the customer was not privy too. In this situation the Quincecare duty could apply as the bank should alert the customer and query whether the customer wished to proceed.
There has been some discussion since the Court of Appeal decision in this case as to whether the Quincecare duty could also be extended to crypto exchanges. The Supreme Court’s judgment has not provided a reason to extend the scope of a Quincecare type duty to these exchanges and given the unregulated and decentralised nature of crypto and the need for the customer to have a contract with an exchange we do not see any Quincecare duty being implied yet in crypto trading.With thanks to Laura Gray for help with this article.
For further information, please contact:
Sophie Eyre, Partner, Bird & Bird
sophie.eyre@twobirds.com
[1] The government’s new Financial Services and Markets Act 2023 prescribes a mandatory reimbursement scheme; however it does not extend to international payments and so would not have applied in this case.
