Authorised push payment fraud - the cases keep on coming...

Authorised push payment fraud - the cases keep on coming...

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In April 2022 we summarised the Court of Appeal decision in Philipp v Barclays Bank UK plc [2022] EWCA Civ 318 in our article entitled "Authorised push payment fraud and the duties owed by the reasonably prudent banker". This decision provided helpful clarity on the scope of bank's Quincecare duties (essentially a bank's duty to "observe reasonable care and skill" when carrying out a customer's orders), confirming that where a bank has reasonable grounds for believing that an order to transfer funds is an attempt to misappropriate them, the bank's duty to make enquiries can extend to instructions from individual personal banking customers.

The High Court gave further guidance on the scope and nature of Qunicecare duties in the recent case of Federal Republic of Nigeria v JP Morgan Chase Bank, N.A. [2022] EWHC 1447 (Comm), which arose from an alleged breach of such duties by JP Morgan Chase Bank after it made payments on the instruction of a senior Nigerian official.

The facts

Malabu Oil and Gas Ltd (MOGL) entered into various settlement agreements to settle its disputes against a subsidiary of Shell and the Federal Republic of Nigeria (FRN) about rights to exploit an oilfield off the Nigerian coast. MOGL surrendered its claims in exchange for USD1.1bn to be paid via the FRN.

FRN opened a deposit account with the bank and the settlement figure was subsequently paid in two tranches on the instructions of authorised signatories of FRN. The terms and conditions (T&Cs) of the deposit account included a clause which excluded the bank from liability to FRN for action pursuant to the agreement unless it was caused by "fraud, negligence or wilful misconduct".

FRN brought claims against the bank, claiming that the settlement agreements and the transfers were part of a corrupt scheme which resulted in the FRN being defrauded. FRN argued that the bank should have realised that it could not trust the senior Nigerian officials from which it took instructions. FRN alleged that the bank were:

  1. On notice of MOGL's chequered history
  2. On notice that certain individuals from which the bank took instructions had transferred the sums for their own benefit
  3. Grossly negligent in making the payments
  4. Liable to pay damages to FRN in the same sum as the payments plus interest

The decision

The High Court found in favour of the bank and dismissed the claim, ruling that FRN was not a victim of a fraudulent and corrupt scheme (and that MOGL had a legitimate entitlement to the funds).

The High Court then went on to consider (on an obiter and non-binding basis) that the bank was not grossly negligent and had not breached its Quincecare duties, and in doing so confirmed a key point on the scope of Quincecare duties - namely what the bank must be on notice of in order to trigger the duty. 

The judge stated that the bank must be on notice that the payment instruction itself may be vitiated by fraud (in other words, that the payment instruction is an attempt to misappropriate the customer’s funds). That fraud red flag must involve current day payment of funds. Historic corruption or past financial crime would not be sufficient to trigger the Quincecare duty (as FRN argued).

The judge also stated that under the T&C's the FRN needed to prove gross negligence on the part of the bank in processing the payment request in order to succeed in its claim (assuming that a fraud has been committed), and not the ordinary standard of negligence (which is lower) and usually applicable to Quincecare duties. FRN failed to establish gross negligence.


Andrew Dodds, a partner in the banking and finance team at Stevens & Bolton comments that:

"Although the Quincecare arguments were considered by the High Court on an obiter and non­binding basis this case does engage with questions around the ambit of Quincecare duties. The ruling reiterates that the duty is a limited one, which is good news for financial institutions processing client payments."

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