In a hotly anticipated judgment in Philipp v Barclays Bank plc, the Supreme Court has held that the reasoning behind the Quincecare duty (if we can still call it that) was flawed. After a period of uncertainty, the judgment provides clarity on the obligations banks owe to their customers when executing instructions to transfer funds. Specifically, the courts will consider the principles of agency, rather than competing duties of a reasonable banker, when looking at these issues.
The case concerns an authorised push payment (APP) fraud in which the claimant, Mrs Philipp, and her husband were the unfortunate victims. The Philipps, who were "completely under the spell of the fraudster", were persuaded to transfer their life savings to accounts in the United Arab Emirates, having been duped into believing they were assisting law enforcement by doing so. Two transfers totalling £700,000 were made and, on each occasion, the bank contacted Mrs Philipp to confirm she wished to proceed. She provided the confirmation and so the bank had direct instructions to make the payments.
Once the fraud was discovered, and the bank was unable to recall the payments, Mrs Philipp brought a claim against the bank alleging that it should have had APP detection procedures in place and that it was in breach of its Quincecare duty "to refrain from executing an order of Mrs Philipp if and for so long as it was put on inquiry, by having reasonable grounds for believing that the order was an attempt to misappropriate funds from Mrs Philipp".
In the original Quincecare case, Barclays Bank plc v Quincecare, the Commercial Court held that a bank owed duties to its customers to both carry out payment instructions promptly and exercise reasonable care and skill in executing those instructions. These competing obligations were to be balanced with a "sensible compromise" requiring a banker to refrain from executing an order for as long as they had reasonable grounds for believing it was an attempt to misappropriate the customer’s funds. Mrs Philipp sought to extend the scope of the duty beyond instructions by agents, to instructions given by the customer themselves.
The bank sought, and was awarded, summary judgment on the basis that the Quincecare duty was limited to circumstances where an agent of the customer attempted to misappropriate the customer’s funds and that imposing liability on the bank would represent an "unprincipled and impermissible extension" of the duty.
The matter then came before the Court of Appeal, which took a different view. It held that the authorities since Quincecare did not limit the duty to agents and that it was reasonably arguable that the duty could arise in any case where a bank is on inquiry that an instruction is an attempt to misappropriate funds.
Much excitement followed about a potential expansion of the duty and so, perhaps inevitably, the case came before the Supreme Court.
Supreme Court decision
The Supreme Court reversed the Court of Appeal decision, finding that it was "inconsistent with the first principles of banking law" and criticised the Commercial Court’s reasoning in the Quincecare case, saying that it "does not withstand scrutiny".
In arriving at its decision, the Supreme Court considered issues of public policy, the role of the courts and the underlying nature of the claim. It recognised that APP fraud is a growing problem, giving rise to a policy question as to whether victims or banks should bear the loss. However, it took the view that the resolution of such questions was a matter for regulators and government rather than the courts. It noted that some financial institutions, including the defendant, had adopted a voluntary code to reimburse customers in certain circumstances and that a mandatory scheme under the Financial Services and Markets Act 2023 would offer further protection where APP scams were carried out using the Faster Payments Scheme.
The court made clear that the Quincecare duty is not a "special or idiosyncratic" rule of law. Rather, in executing customer payment instructions, the bank should have regard to its contractual obligations and, where appropriate, the principles of agency. Unless the contract requires the bank to decline direct customer payment instructions where it suspects they result from APP fraud (which would be unusual), then it will not have a duty to do so. As such, APP fraud victims are unlikely to have claims against their bank.
However, where an agent has authority to give payment instructions on behalf of a customer, the position is different. An agent’s authority will not include authority to act dishonestly or in pursuit of their own interests. If they did so, they would lack actual authority. Furthermore, if the bank is aware of circumstances suggesting dishonest activity, then any apparent authority also falls away until enquiries have been made to verify the agent’s authority. It is here that the bank’s duty to exercise reasonable care and skill kicks in. If it does not make enquiries, then it will be in breach and the instruction will not bind the customer as there was no authority, actual or apparent.
Undoubtedly banks will welcome the decision as a helpful clarification of the scope of their duties, in particular the recognition that Quincecare, as previously formulated, is not the appropriate means to tackle APP fraud. For customers, the protection they had from dishonest agents remains. And what of the Philipps? Their case lives to fight another day on the basis that an alternative claim – that the bank failed to act promptly in trying to recall the payments – should not have been summarily dismissed.
This article was first published in The Law Society Gazette and can be accessed here.