The Supreme Court declines to expand the scope of the Quincecare duty

Summary

In a judgment¹ handed down yesterday (12 July 2023), the Supreme Court has confirmed that the Quincecare duty does not apply where an individual customer directly instructs their bank to make a payment which is subsequently found to be prompted by fraud. This means that the ambit of the duty is limited to circumstances where the fraudulent payment instruction is given by an agent of the bank's customer.

What is the Quincecare duty?

The so-called "Quincecare duty" is a duty on a bank to refrain from executing its customer's order if and for so long as it is put on inquiry by having reasonable grounds for believing that the order was an attempt to misappropriate funds. Previous occasions where the Court has considered the Quincecare duty (including Singularis Holdings v Daiwa Capital Markets², in which this firm acted for the Defendant) concerned instructions being given to the bank by an authorised agent of a customer who was seeking to defraud the customer. It was therefore considered that the scope of that duty was limited to protecting customers from the risk of fraud by their own directors or agents.

Facts of the case

This case concerned payment instructions given by an individual customer directly (Mrs Philipp, who, with her husband, were the victims of a sophisticated authorised push payment (APP) fraud). The couple were ultimately deceived into transferring £700,000, the majority of their life savings, to an account in the UAE, which then disappeared. Mrs Philipp argued that the bank owed her a duty not to carry out her payment instructions if - as is alleged - the bank had reasonable grounds for believing that she was being defrauded. Mrs Philipp argued that the Quincecare duty does not depend on the fact that the bank is instructed by an agent of the customer of the bank, but it can also apply in a case where the instruction to the bank is given by a customer themselves.

The Bank applied to have the claim summarily dismissed on the ground that, as a matter of law, it did not owe Mrs Philipp the alleged duty. The High Court granted summary judgment in favour of the bank. The Court of Appeal allowed an appeal by Mrs Philipp against that ruling, finding that in principle, a bank owes a duty to its customer of the kind alleged (see our previous briefing here). It is the bank's appeal of that decision which is the subject of the Supreme Court's judgment.

The Supreme Court decision

The Supreme Court unanimously allowed the bank's appeal, finding that the bank did not owe the alleged duty to Mrs Philipp. The ordinary duty of a bank when instructed by its customer to make a payment from the account is to carry out the instruction and make the payment. The bank must execute the instruction and do so promptly.

This case can be distinguished from the previous line of cases involving agents who were seeking to defraud the customer. An agent's authority to operate the customer's bank account would not include authority to defraud the customer. If the bank were to carry out the instruction it would therefore be making a payment which the customer has not actually authorised the bank to make. If the bank has reasonable grounds for believing that the instruction given by the agent is an attempt to defraud the customer, the bank must first making inquiries to verify that the payment has actually been authorised by the customer. If the instruction proves to have been given without the customer's authority, the bank will be in breach of duty.

Provided the instruction is clear and the validity of the instruction is not in doubt (as was the case here), no enquiries are needed to clarify or verify what the bank is authorized and required to do. The Supreme Court said that it is not for the bank to concern itself with the wisdom or risks of its customer's payment decisions.

Implications of the decision

With the prevalence of APP fraud, this decision will be welcome news for financial institutions. It closes the significant risk of what might otherwise have been a flood of litigation against the nation's banks brought by customers who have been victims of APP fraud.

Clearly the onus is on customers to ensure that their payment instructions are appropriate and bona fide. Where they have been tricked by APP fraudsters they are left in a difficult place. Although the Supreme Court was sympathetic towards victims of APP fraud, it said that responsibility for the losses suffered by victims "is a question of social policy for regulators, government and ultimately for Parliament to consider". Consumers may take consolation from the fact that The Payment Systems Regulator has indicated it plans to introduce mandatory reimbursement for victims of APP fraud next year³. Although relatively wide-ranging, the scope of the reimbursement requirement is such that not all victims will be eligible: notably, it focusses on Faster Payments, does not apply to international payments, and there will be a maximum level of reimbursement for APP fraud claims which is still subject to consultation.

Not the end for Mrs Philipps?

The judgment is not all bad news for Mrs Philipp. The Supreme Court allowed the claim to proceed on the separate but connected issue of whether the bank acted promptly in attempting to recover the funds after being notified of the fraud. This will be the subject of a full trial in due course.

Footnotes

_{1.Philipp v Barclays Bank UK Plc [2022] EWCA Civ 318 (14 March 2022)}

_{2. [2019] UKSC 50}

_{3.https://www.psr.org.uk/media/iolpbw0u/ps23-3-app-fraud-reimbursement-policy-statement-final-june-2023.pdf}