Introduction
In July 2023, the Supreme Court in Philipp v Barclays Bank UK PLC unanimously held that when a customer clearly authorises and instructs a bank to make a payment, the bank must carry out the instruction promptly, as it is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions.[2] The Supreme Court narrowed circumstances where a bank may be required to not carry out an instruction without first making further inquiries, to where a bank has reasonable grounds to believe that agents or signatories are attempting to defraud a customer, or concerns regarding a customer’s capacity.[3]
This review of banks’ duty of care to exercise reasonable care, commonly referred to as the ‘Quincecare[4] duty’, follows Philipp‘s somewhat concerning decision from the Court of Appeal. The Court of Appeal held that ‘in principle’ a bank may have a duty not to carry out payment instructions if the Bank has reasonable grounds for believing a customer is being defrauded, regardless of whether the instruction is from the customer or their agent.[5]
This litigation and review of banks’ duties is relevant to the ‘growing social problem’ [6] of authorised push payment (APP) fraud which caused losses of £485.2 million in 2022.[7]
The Quincecare[8] duty
The case law prior to Quincecare,[9] was reviewed in Philipp.[10] In summary, the previous cases[11] held that banks must act with reasonable care and skill when interpreting, ascertaining, and acting in accordance with instructions of a customer[12] and must also make inquires if there were reasonable grounds to believe signatories were misusing their authority to defraud their principal.[13] Guidance on ‘reasonable grounds’ was further provided in Lipkin Gorman (a firm) v Karpnale Ltd.[14]
The previous cases concern agents misappropriating their principal’s money, a factual matrix also present in the subsequent leading case of Quincecare.[15] In Quincecare, the Court identified that whilst a bank has a duty to exercise reasonable care, this is subordinate to the bank’s other conflicting contractual duties.[16] It clarified the duty as that ‘a banker must refrain from executing an order if and for as long as the banker is ‘put on inquiry’ in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate the funds of the company’.[17]
Application of the Quincecare[18] duty appeared confined to agency[19] until the Phillip[20] litigation.
Case background[21]
In 2018, Mrs Fiona Philipp and her husband, Dr Robin Philipp, were deceived into transferring £700,000 from Mrs Philipp’s Barclays account to fraudsters in the United Arab Emirates. Barclays followed their instruction and the money was lost. For each transaction, instructions were given in-person, the bank sought confirmation, and instructions were made in spite of the couple’s warnings from police and the bank’s fraud department that they may be being scammed.[22]
The Claimant, having lost their life savings, claimed against Barclays, alleging that they had breached the Quincecare duty[23] by carrying out her and her husband’s instructions, despite having reasonable grounds to believe she was being defrauded.
At first instance, the High Court dismissed the claim summarily on the bank’s submissions that it did not owe Mrs Philipp the alleged duty as the duty is confined to agent’s instructions.[24]
The significance of the case increased upon the Court of Appeal allowing the Claimant’s appeal and accepting that in principle, the Quincecare duty[25] does not rely on an agent giving the instruction,[26] despite this being an ‘undeniable’ common factor in previous cases.[27] Whilst the conclusion was only made ‘in principle’ and allowed the summary judgment to be lifted, it must have, for obvious reasons, alarmed banks.
Supreme Court decision
Barclays appealed to the Supreme Court, with judgment being given on 12 July 2023.[28] Lord Leggatt gave the leading judgment allowing the bank’s appeal, with whom the other Lords agreed.
The Court considered three issues: did the Quincecare[29] duty apply to instructions from customers, as well as agents? If not, should the duty be extended to cases of authorised push payment fraud, or recognise or impose such obligations as part of its duty to exercise reasonable skill and care? Finally, should the Court determine issues 1 and/or 2 above on a summary judgment and/or strike-out application? In addressing these issues, the Court held that the Court of appeal was wrong in its reasoning, reviewed the scope and application of the Quincecare duty,[30] and held that the bank did not owe the duty alleged.
The Court set out its conclusion early in the judgment, stating the common law duty to make payments in compliance with a customer’s instructions is strict and they must do so promptly, and it is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions.[31] It was noted that a duty could be agreed by contract but was not in this case[32]. It held that it is impossible to derive from a duty to observe reasonable skill and care in and about executing a customer’s order a duty, not to execute the customer’s order.[33] In its conclusion on the first and second issues, the Court held that the Quincecare[34] duty requires banks to make further inquiries before executing an instruction if it has reasonable grounds to believe that a third-party instructing the bank on behalf of a customer (such as a spouse of a joint account), not just agents of corporate entities, is attempting to defraud a customer, but otherwise does not apply where clear instructions are given by the customer themselves or by someone acting with apparent authority, even if the instructions later transpire to have been induced by fraud.[35] The reasoning given for this is that if a third-party appears to be attempting to defraud a customer, they almost certainly do not have authority to do so, and the bank has a duty to make further inquiries before executing the instruction.[36] The Court held that, as in the present case, in absence of the above, if clear instructions are given personally or by an agent with apparent authority, no inquiries are needed to clarify or verify what the bank must do; and the bank must execute the instruction promptly, regardless of whether the intention results from mistaken belief or deception.[37] This includes in instances of APP fraud as the validity of the instruction is not in question and it is not for banks to concern itself with the wisdom or risks of its customer’s payment decisions.[38] The Court clarified that whilst a bank can rely upon the apparent authority of an agent, it cannot do so unreasonably, but noted that the law of agency provides this.[39]
Regarding whether to recognise or impose a duty on banks to prevent or reimburse APP fraud, the Court held that this ‘is a question of social policy for regulators, government and ultimately for Parliament to consider’.[40] The Court noted that The Financial Services and Markets Act 2023, enacted on 29 June 2023, prescribes a reimbursement scheme at Section 72, albeit restricted to domestic payments.[41]
The Court allowed the bank’s appeal and restored summary judgment against the Claimant on the basis that no duty as alleged was owed at common law or contractually. The Court, however, varied the summary judgment to allow an alternative claim based on the Bank’s alleged failure to act promptly to try to recall the payments after the fraud was discovered.[42] Whether this is pursued, and the outcome thereof, is awaited.
Comment
It is submitted that the Supreme Court reached the logical conclusion as it is clear from the case law that the bank must inquire where an agent is attempting to defraud a customer, but extending that to a duty to not carry out customer’s express instructions (no matter how ill-advised) would be too onerous. The judgment aligns with Mr Justice Steyn’s (as he then was) view in Quincecare that the law ‘should not impose too burdensome an obligation on bankers, which hampers the effective transacting of banking business unnecessarily’.[43] Requiring a bank to second-guess every unwise or risky transaction instruction would hamper this and make modern, quicker transfer methods unworkable.
The summary and analysis of prior case law provided by Lord Leggatt[44] and his consequent reasoning is just as whilst a bank may have doubts about a signatory fraudulently obtaining or losing a customer’s funds and it is fair to require them to make further inquires; it does not follow that a bank must act as a guardian against the customer making bad decisions and losing their own money regardless of whether the instruction comes directly from them or someone with apparent authority.[45]
Whilst the Financial Services and Markets Act 2023 shows Parliament taking steps to shift the cost of authorised push payment frauds onto banks, whether the prescribed reimbursement scheme will be effective, and/or possibly be extended to international payments, requires to be seen.
Steven Overs – unregistered barrister
Disclaimer: this case summary is not intended as legal advice.
[1] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.
[2] Philipp v Barclays Bank UK PLC [2023] UKSC 25, [3], [97-102].
[3] Ibid [90-100].
[4] n 1.
[5] Philipp v Barclays Bank Plc [2022] EWCA Civ 318, [78] (Birss LJ).
[6] n 2 [6].
[7] UK Finance, ‘Over £1.2 billion stolen through fraud in 2022, with nearly 80 per cent of APP fraud cases starting online’, (11 May 2023) <https://www.ukfinance.org.uk/news-and-insight/press-release/over-ps12-billion-stolen-through-fraud-in-2022-nearly-80-cent-app> accessed 19 August 2023.
[8] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.
[9] Ibid.
[10] See Lord Leggatt’s review of pre-Quincecare case law at [2023] UKSC 25, [38-42];Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555; Karak Rubber Co Ltd v Burden (No 2) [1972] 1 WLR 602; Lipkin Gorman (a firm) v Karpnale Ltd (HC) [1987] 1 WLR 987, [1006].
[11] Ibid
[12] Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555, p1609 (Ungoed-Thomas J).
[13] Karak Rubber Co Ltd v Burden (No 2) [1972] 1 WLR 602, 629 (Brightman J).
[14] [1987] 1 WLR 987, [1006].
[15] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.
[16] Ibid, [376].
[17] Ibid.
[18] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.
[19] See Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340 (CA); Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2017] EWHC 257 (Ch); Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2018] EWCA Civ 84; Nigeria v JP Morgan Chase Bank, NA [2019] EWCA Civ 1641; Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2019] UKSC 50, [2020] AC 1189.
[20] Fiona Philipp v Barclays Bank UK Plc [2021] EWHC 10 (Comm); [2022] EWCA Civ 318; [2023] UKSC 25.
[21] Ibid.
[22] Ibid.
[23] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363, [376].
[24] [2021] EWHC 10 (Comm).
[25] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363, [376].
[26] [2022] EWCA Civ 318, [30], [78].
[27] Ibid, [27].
[28] [2023] UKSC 25.
[29] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.
[30] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.
[31] [2023] UKSC 25, [3].
[32] Ibid, [26].
[33] Ibid, [64].
[34] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.
[35] Fiona Philipp v Barclays Bank UK Plc [2023] UKSC 25, [97-102].
[36] Ibid [86-90]
[37] Ibid [97-102].
[38] Ibid, [97-100].
[39] Ibid, [93-94].
[40] Ibid, [6], [22]-[24].
[41] Due to only applying to payments through the Faster Payments Scheme, see n 37, [21].
[42] Fiona Philipp v Barclays Bank UK Plc [2023] UKSC 25, [115-119].
[43] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363, [376].
[44] Fiona Philipp v Barclays Bank UK Plc [2023] UKSC 25, [38-42];Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555; Karak Rubber Co Ltd v Burden (No 2) [1972] 1 WLR 602; Lipkin Gorman (a firm) v Karpnale Ltd (HC) [1987] 1 WLR 987, [1006].
[45] Fiona Philipp v Barclays Bank UK Plc [2023] UKSC 25, [3], [28-30].