The UK Supreme Court has unanimously ruled on Philipp (Respondent) v Barclays Bank UK PLC (Appellant) [2023] UKSC 25 finding, in favour of Barclays Bank UK PLC (the “Bank”), that it did not owe a Quincecare duty of care to the customer, a victim of an authorised push payment (“APP”) fraud. This decision is another example of the courts curtailing attempts to expand the Quincecare duty beyond its original scope.
The Quincecare Duty:
Derived from the case of Barclays Bank plc v Quincecare Ltd [1992] 4 AII ER 363, the Quincecare duty requires that where a bank receives a payment instruction from an agent acting on behalf of a customer “the banker must refrain from executing an order if and for so long as the banker is ‘put on inquiry… that the order is an attempt to misappropriate funds”. If a bank fails to do so and executes an instruction without making inquiries and the instruction later proves to have been provided without the customer’s authority, then the bank may incur liability.
Facts of the case:
- In 2018 Mrs Fionna Philipp and her husband Dr Robin Philipp fell victim to an APP fraud (APP fraud arises when fraudsters deceive individuals into sending money under false pretences to bank accounts under the fraudsters’ control, often using social engineering methods, as was the case with the Philipps).
- The Philipps were subject to a series of phone calls over several weeks from fraudsters posing to be co-operating with the Financial Conduct Authority in conjunction with the National Crime Agency as part of an anti-fraud operation.
- As a result of being deceived, the Philipps moved over £700,000 of their life savings into an account in Mrs Philipp’s name with the Bank. On the 10th and 13th of March 2018 respectively, Mrs Philipp instructed the Bank to transfer the money in two payments of £400,000 and £300,000 to separate bank accounts in the United Arab Emirates.
- Attempts to subsequently recover the transferred funds (which amounted to three quarters of the couple’s lifesavings) were unsuccessful.
- The claim to recover the £700,000 from the Bank was brought by Mrs Philipp.
- At first instance, Mrs Philipp conceded that Dr Philipp had told a cashier that he had had previous dealings with the company to whose accounts the money was sent. Furthermore, before facilitating each of the two separate payments, a Bank representative had contacted Mrs Philipp to seek confirmation of the transfer request and Mrs Philipp’s approval of it, which was granted.
- At first instance, the Bank applied successfully to have Mrs Philipp’s claim summarily dismissed on the grounds that as a matter of law it did not owe Mrs Philipp a duty to not carry out her payment instructions ([2021] EWHC 10 (Comm). The Court of Appeal however, accepted Mrs Philipp’s argument that the Bank might in principle owe a duty of the kind alleged subject to the point being considered at trial. This signalled a potential widening of the scope of the Quincecare duty: ([2022] EWCA Civ 318).
- The Court of Appeal’s decision was appealed by the Bank to the Supreme Court.
Judgment of the Supreme Court:
The duty owed by the Bank to Mrs Philipp
Certain obligations have been recognised by common law as obligations implied by law into contracts between banks and customers. These obligations can be added to or altered by express agreement. For example, a bank might expressly agree that it is not to carry out a payment instruction if it believes, or has reasonable grounds for believing, that the customer has been deceived into authorising the payment.
In the circumstances, the Bank’s standard terms of business (see further below) did not contain such an express term. However, Mrs Philipp sought to argue that did not matter because a duty is already recognised by the common law or it should be recognised as an extension of the existing law as to implied terms in contracts between customers and banks.
Mrs Philipp relied upon the case of Barclays Bank plc v Quincecare Ltd [1992] 4 AII ER 363.
Dismissing the application of the Quincecare duty, Lord Leggatt stated that under ordinary circumstances a bank is not a trustee nor a fiduciary over funds deposited by a customer, but rather a debtor. The explanation in Barclays Bank plc v Quincecare and similar cases is that the authority of an agent to give payment instructions on the customer’s behalf does not include authority to defraud the customer. Hence a bank owes a duty not to carry out an instruction if it has reasonable grounds for believing that the instruction is not authorised by the customer (due to the fraud of the agent). However, this does not apply where no agent is involved and the customer herself gives the instruction.
The principal obligations owed by a bank to a customer are to repay the customer on demand any sum equivalent to that which was deposited and, provided that the relevant account is in credit, to make payments in accordance with the customer’s instructions and in line with the bank’s mandate. Lord Leggatt considered there to be nothing contained within a bank’s obligations that meant that a bank should be concerned with the wisdom or risks of the customer’s payment decisions. Furthermore, a failure by a bank to follow an instruction that is received from a customer directly and in a clear manner would constitute a breach of the basic contractual duties owed between the bank and customer.
Analysis of Barclays terms of business
As noted above, the Supreme Court considered the Bank’s terms and conditions. Its terms and conditions for personal customers updated as of January 2018 outlined certain circumstances in which the Bank did not have to follow the customer’s instructions, these included instances where:
- “…[the instruction] isn’t complete or clear, or we [the Bank] don’t think it came from you or someone authorised to give us the instruction on your behalf…”;
- “…by carrying out the instruction we might break a law, regulation, code or other duty that applies to us, or it might expose us to claims from third parties…”;
- “…we reasonably think that a payment into or out of an account is connected to fraud or any other criminal activity, including where the funds are being obtained through deception…”.
Lord Leggatt clarified that simply because the Bank reserved the right not to follow the customer’s instruction, that this did not mean that it was bound to not follow an instruction. Put simply, a right is not the same as a duty.
Accordingly, the Supreme Court restored the order of the Court at first instance granting the Bank summary judgment.
The recovery of funds
Mrs Philipp did lodge an alternative claim, that the Bank was in breach of duty after the fraud had been discovered by not taking adequate action to recover the money that had been transferred to the bank accounts in the UAE.
Whilst the likelihood of this delay making any difference to Mrs Philipp’s ability to recover the money seemed “slim”, the Supreme Court held that Mrs Philipp’s potential claim for loss of chance should not have been summarily dismissed at first instance.
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