The much-anticipated judgement in Philipp v Barclays Bank UK PLC was handed down in court today. The court has confirmed that the Quincecare duty, as set out in Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363, does not extend to an individual customer who has given a bank a valid payment instruction, even if it is the result of a fraud.
Background
In 2018 Mrs Fiona Philipp and her husband fell victim to fraudsters. The fraudster posed as an operative working for the Financial Conduct Authority in conjunction with the National Crime Agency. Mrs Philipps believing the fraudster, instructed Barclays, in person, to transfer £700,000 from her current account to various accounts in the United Arab Emirates. After realising that she had fallen victim to fraud, she unsuccessfully tried to recall the funds which had been transferred. Mrs Philipp bought a claim against the Bank alleging that Barclays owed her a duty to observe reasonable care and skill when executing her instructions. Mrs Philipp relied on the Bank’s Quincecare duty and claimed that Barclay’s had a duty to refrain from carrying out her instructions to transfer the funds if and for so long as it had reasonable grounds for believing the instructions were an attempt to misappropriate funds belonging to Mrs Philipp . Mrs Philipp ’s alleged that Barclays acted in breach of the duty (i) by making the payments from her account, and (ii) in not taking adequate steps to recover the payments once the fraud had been discovered. Barclays applied to strike out Mrs Philipp’s case and/or sought summary dismissal, for which application was granted. Mrs Philipp appealed to the Court of Appeal, who unanimously allowed her appeal. Barclays, in turn, appealed to the Supreme Court.
Decision
The Supreme Court has unanimously allowed the appeal, holding that Barclays did not owe the alleged duty to Mrs Philipp. That said, the Supreme Court has allowed Mrs Philipp to maintain an alternative claim based on the Bank’s alleged failure to act promptly when Mrs Philipp tried to recall the funds once the fraud had been discovered.
Reasons for Decision
The fraud in question is what is now commonly referred to as “authorised push payment” fraud (“APP”). This sort of fraud takes place where a victim is induced by a fraudster to authorise their bank to transfer funds to the fraudster’s bank account. Whether or not a victim of such fraud should bear such loss or whether the bank who made or received the payment should reimburse a victim has, for some time, been a question of social policy for regulators and is now the subject of legislation. In terms of The Financial Services and Markets Act 2023 (“FSMA 23”), which received Royal Assent two weeks ago on 29 June 2023, provision has been made for a mandatory reimbursement scheme. In terms of section 72 of FSMA 23, the Payment Systems Regulator must prepare and publish a draft of a relevant requirement for reimbursement in such qualifying cases of payment orders as the Regulator considers should be eligible for reimbursement. A case is a “qualifying case” for the purposes of this section if —
- the case relates to a payment order executed over the Faster Payments Scheme, and
- the payment order was executed subsequent to fraud or dishonesty.
Mrs Phillip’s claim was based on her contract with Barclays. Contracts between banks and customers holding current accounts are well established contracts. Certain obligations have, over time, been recognised by common law (and sometimes statute) as obligations implied by law in contracts which can be added to or altered by express agreement. Although saying this, Barclays had not agreed that it would not carry out a payment instruction received from a customer if it believed, or had reasonable grounds to believe, that the customer had fallen victim to fraud.
The court found that, provided a customer’s account is in credit, the ordinary duty of a bank when instructed to make a payment from a customer’s account is to carry out such instruction. In carrying out the instruction, the bank acts as an agent to its customer. Unless otherwise agreed, the bank must execute the instruction and do so promptly. It is not for the bank to concern itself with the wisdom or risks of its customer's payment decisions.
The court dismissed Mrs Philipp’s reliance on the Quincecare duty. In considering whether or not the Quincecare duty applies, regard must be had as to whether the bank had received a payment instruction from a customer’s agent. The courts have held that a bank which receives an instruction from an agent of the customer to make a payment owes a duty to its customer not to carry out the instruction if the bank has reasonable grounds for believing that the agent is defrauding the customer by using the money for the agent's own purposes. As the instruction for payment was made by Mrs Philipp directly, the issue of whether not Mrs Philipp had authorised payment, as with instances where an agent makes the payment instruction, is not in question. The court found that in cases, such as this one, if the instruction is clear the bank is not required to clarify or verify what the bank is authorised and required to do. Unless expressly agreed otherwise, the bank’s duty is to execute the instruction and any refusal or failure to do so would be in breach of the bank’s duty to its customer.
Conclusion
Mrs Philipp and her husband had personally visited a Barclay’s branch in order to give the payment instruction to the bank. It is most unfortunate for Mrs Philipp and her husband, as they had genuinely believed they were making payments to “safe accounts”. In fact, a representative of the bank had telephoned Mrs Philipp prior to proceeding with the transfer to confirm that she had actually made the transfer request. Given that Mrs Philipp had authorised the bank to make the transfer it would be impossible to say that Barclays owed her a duty not to comply with her instructions.
It will be interesting to see how the court deals with Mrs Philipp’s alternative claim that the bank was in breach of duty in not acting promptly to recall the payments made after being notified of the fraud.
For any questions in relation to the topics raised in this blog, contact banking litigation specialist Kerri Wilson or a member of our team.
