The Claimant in Fiona Lorraine Philipp v Barclays Bank UK PLC  EWCA Civ 318 went to the Court of Appeal recently with judgment delivered on 14 March 2022. Mrs Philipp, the Claimant customer, issued proceedings against Barclays, the Defendant bank, for breach of the ‘Quincecare’ duty. Mrs Philipp was the victim of what is known as ‘authorised push payment’ (‘APP’) fraud.
In March 2018, Mrs Philipp was persuaded by a fraudster to make two payments totalling £700,000 from her Barclays account to accounts belonging to the fraudster in the UAE, as part of a sophisticated APP fraud. By the time the fraud was discovered, the sums could not be recovered. Mrs Philipp brought a claim against Barclays, alleging the bank ought to have had in place policies and procedures for the purpose of detecting and preventing APP fraud. Furthermore, Mrs Philipp alleged that Barclays failed to discharge its Quincecare duty to exercise her instructions with reasonable care and skill.
The Quincecare duty was established in the case of Barclays Bank plc v Quincecare Limited  4 All ER 363. The Court held it was an implied term of a contract between a bank and its customer that the bank would use reasonable care and skill in executing their customer’s orders. In performance of that duty, the bank was bound to refrain from executing an order if and for so long as they were put on enquiry, in the sense that they had reasonable grounds for believing that the order was an attempt to misappropriate the customer’s funds. The standard to be employed was that of an ordinary prudent banker, which was not a high standard. In recent years, the Quincecare duty has become increasingly relevant due to the technological developments in the way in which fraud is carried out against banking customers.
The first-instance High Court decision related to the defendant’s application for strike-out/summary judgment, upon which they were successful. The Court of Appeal have now set aside the summary judgment decision and held that a Quincecare duty of care may arise in the context of APP fraud. Lord Justice Birss, sitting in the Court of Appeal, set out his conclusions as follows:
- The Court of Appeal, in considering various Supreme Court authority re Quincecare, ruled that it is possible in principle for the Quincecare duty to arise in cases of APP fraud. In reaching this conclusion, the Court of Appeal also ruled that the Quincecare duty can extend to cases beyond where a bank itself may have acted dishonestly or caused loss to a customer (which is the primary, negative Quincecare duty) by stating that banks have another duty which operates in tension with the primary duty, such that a bank may be required to refrain from executing an order if and for so long as the circumstances would put an ordinary prudent banker on inquiry. What that amounts to is the existence of “reasonable grounds for believing that the order was an attempt to misappropriate funds” (per Baroness Hale in Singularis Holdings v Daiwa Capital Markets  UKSC 50, paragraph 1). Furthermore, the Quincecare duty was held to be capable of applying with equal force to a case in which a payment instruction to a bank is given by a customer themselves who is an unwitting victim of APP fraud, provided the circumstances are such that the bank is on inquiry that executing the order would result in the customer’s funds being misappropriated.
- Moreover, the Court of Appeal rejected the bank’s argument that the extension of Quincecare duties of inquiry was tantamount to creating a new type of duty of care. Birss LJ ruled that banks recognising the duty of inquiry would be in line with sound policy.
- The Court of Appeal rejected Barclay’s argument that its duty to Mrs Philipp was to merely execute payment orders, even if it knew that a customer’s instruction to pay was a mistake by the customer resulting from the fact that it was an unwitting victim of APP fraud. The Court of Appeal ruled that “[a bank] would be liable for breach of duty if it executed the order [in those circumstances]”, and further ruled that that claim for breach of duty is “at its lowest properly arguable.”
- The Court of Appeal provides a non-exhaustive list of relevant facts and/or considerations that, as at March 2018 could put an agent on inquiry (or what would amount to reasonable grounds for believing that a payment order was an attempt to misappropriate funds):
- the customer’s account history.
- whether the customer is transferring an enormous, or even unprecedented, sum of money.
- whether the originating funds (i.e., the source of funds) had recently entered into the sender’s/customer’s account.
- whether the ultimate recipient, based on their account’s details, was different altogether to the intended recipient, or whether the ultimate recipient was based in a different location than the sender/customer.
Furthermore, the Court of Appeal affirmed that “the question must be whether, if a reasonable and honest banker knew of the relevant facts, he would have considered that there was a serious or real possibility, albeit not amounting to a probability, that its customer might be being defrauded. That, at least, the customer must establish. If it is established, then in my view a reasonable banker would be in breach of duty if he continued to pay cheques without inquiry.”
- The Court of Appeal reiterated at several points throughout its ruling that the matter was fit for determination at trial, since determining whether Ms Philipp’s case was to succeed at trial or not (i.e., did Barclays owe her a Quincecare duty of care to conduct a trail of inquiry) would ultimately depend on the evidence and findings of fact given at trial about the standards of ordinary banking practice at the time (March 2018). This is so because the duty to inquire is entirely fact-dependent, and would most likely arise once, for example, Mrs Philipp is able to satisfy some of the evidential criteria listed above.
The Court of Appeal’s recent ruling presents a good opportunity for banking customers who are victims of APP fraud to seek to enforce their rights against banks which may have failed to exercise reasonable care and skill, although the resolution of these matters would involve taking cases all the way through to trial. Furthermore, the application of the Quincecare duty in cases of APP fraud continues to evolve and we are closely monitoring the developments in other active proceedings.
Spring Law is a boutique disputes firm based in London since 2002. The firm specialises in all areas of High Court commercial litigation, with an emphasis on contractual and business disputes, intellectual property, fraud, and insolvency. The firm regularly acts for UK and international high net-worth individuals and companies in the pre-action stage, Court proceedings, and international arbitrations. The firm celebrates its 20th anniversary this year with a resounding victory in a long running High Court fraud claim (see here).
If you have any questions in connection with this article please feel free to contact Alexander Erman Ünal (see here), and for other enquiries please contact either Tim Perry (see here) or James Russell (see here).