Court of Appeal holds that Quincecare duty can arise in principle where customer gives instructions in authorised push payment fraud

The Court of Appeal has clarified in Philipp v Barclays Bank UK Plc [2022] EWCA Civ 318 that the Quincecare duty, which requires a bank to refrain from acting on a payment instruction and to make inquiries when it is on notice of a serious possibility of fraud, can arise for a bank even where it is the customer themselves giving instructions to pay money out of their account to a fraudster.

Background

The case concerned an authorised push payment (APP) fraud, where the victim is deceived into instructing their bank to make a "push" payment, ie a payment instruction out of their own account, by a fraudster who then steals the money. Mrs Philipp, a music teacher, lost most of her life savings through such a fraud. Through a series of phone calls by a person only known as JW, Mrs Philipp and her husband had been made to believe that they were cooperating with the Financial Conduct Authority and National Crime Agency to bring other fraudsters to justice. JW convinced the couple to move £700,000 of their savings into an account in Mrs Philipp's name with the respondent bank, Barclays. Mrs Philipp then instructed Barclays to transfer this sum from her account in two payments to separate bank accounts in the United Arab Emirates, believing that this would protect the money from fraud. 

The couple attempted to transfer the funds in Barclays' Thornbury branch but due to a problem with the international payment system this did not go ahead, so that Mrs Philipp then used another  branch to make the first transfer. The second transfer was made using yet another Barclays branch, after which the money disappeared. Mrs Philipp brought a claim against Barclays for breach of duty, arguing that Barclays owed a duty in tort or implied into the contract between her and Barclays, or under s 13 of the Supply of Goods and Services Act 1982. This duty was a duty to observe reasonable care and skill about executing her instructions, which was also argued to be a species of the duty identified in Barclays Bank v Quincecare [1992] 4 All ER 363 (the Quincecare duty). Mrs Philipp argued in particular that various features of the payments would have alerted an ordinary prudent bank, which then would have delayed the transfers and made inquiries as to what was happening. 

At first instance, Barclays successfully applied for strike out of the action, and the court accepted Barclays argument that it did not owe a duty of care in these circumstances, and that this did not need to be decided at trial. Mrs Philipp appealed to the Court of Appeal. 

No fraudulent agent necessary for bank's Quincecare duty to arise 

The Court of Appeal unanimously found in Mrs Philipp's favour, allowing the appeal and ordering the case and the question of whether the Quincecare duty was engaged and whether the bank breached that duty to be decided at trial.

The Court found that while the major cases considering the Quincecare duty had dealt with circumstances where instructions for payment were given by a fraudulent agent acting for a company or firm, this did not mean that this was a necessary ingredient for the duty. The reasoning for the existence of the duty was that the bank, as an agent for the customer, not only has a duty to execute payment instructions, but also a duty to use reasonable skill and care in executing the customer's order. If an ordinary prudent banker would be "on inquiry" that executing the order would result in misappropriation of the funds, then the duty arises, and execution of the payment cannot be carried out. The relevant standard is expressed in different ways in the case law, but they are equivalent: the ordinary prudent banker, the reasonable bank manager and the honest and reasonable banker. Overall, the underlying logic is to protect the customer, and the reasoning for the duty does not depend on whether the instruction is given by an agent of the customer, or not. The duty can apply where the customer gives the instruction themselves where they are the victim of APP fraud, provided that in the circumstances the bank is "on inquiry". 

A carefully calibrated Quincecare duty is workable and not onerous

The court also considered the workability of the duty. At first instance, expert evidence that the duty was workable had been submitted on Mrs Philipp's behalf, and on appeal, new evidence in that regard had been filed by the intervening party, The Consumers' Association, who argued that the duty would not be unworkable and onerous because it would reflect current banking practice.  In contrast, Barclays had not filed any (expert) evidence yet on the issue and had only given initial disclosure. The Court decided that as the issue involved disputed facts, this could not be resolved at the summary stage and the court below had erred in accepting an absence of duty of care without a trial. 

Barclays had argued at first instance that the duty as contended for by Mrs Philipp in this case would be onerous and unworkable which had been accepted by the first instance Judge. On appeal, Barclays further questioned whether the duty could even be possible given the huge number of banking transaction executed every day and the speed of transfer obligations on banks, such as in relation to BACS payments and the Faster Payment system. The Court did not accept this argument in the appeal as a relevant concern because of the careful calibration of the Quincecare duty, which is conditioned by the ordinary banking practice at the relevant time. If the facts arising in Mrs Philipp's case, together with ordinary banking practice in March 2018, meant that an ordinary prudent banker would have been put on inquiry about APP fraud, this simply would not mean that the circumstances of many millions of low value BACS transfers would do so. 

Nothing novel about this interpretation of Quincecare duty

 The Court rejected the argument by Barclays that allowing the appeal would involve any extension of the Quincecare duty. Rather, the duty, which it found to be arguable in this case, was determined by established principles. The Court referred with approval to Nigeria v JP Morgan Chase Bank NA [2019] EWCA Civ 1641, and highlighted that Rose LJ had held that the Quincecare duty itself was one aspect of a bank's overall duty to exercise reasonable skill and care in the services it provides, and at first instance in the same case that the duty of inquiry aspect of the Quincecare duty would be in line with sound policy, because banks should not "sit back and do nothing" in the fight to combat fraud. 

Summary judgment not suitable for this type of claim

The Court noted that the only legal conclusion necessary to resolve this appeal was that as a matter of law the Quincecare duty of care does not depend on the bank being instructed by an agent of the customer. It was at least possible in principle that the duty could arise where a victim of APP fraud gave the instructions to their bank, but whether such a duty in fact arose in this case needed to be decided at trial. The summary judgment that had been obtained by Barclays was therefore set aside. 

Commentary

The most notable aspect of this decision is that a fraudulent agent is not necessary in order for a bank's Quincecare duty to arise, and that there is nothing legally novel about this conclusion. This is a customer friendly decision which prevents banks from obtaining victories arguing that no such agent was involved. Ultimately, it will depend on a fact specific analysis whether there was a breach of duty in the context of APP fraud, and the Court's emphasis on the "fine calibration" of the duty means that arguments in these cases will very much need to focus on the banking practice at the relevant time, which will likely happen in the forthcoming full trial of this case. However, it also noteworthy that the Court cited with approval policy reasons for the Quincecare duty and the role of banks in preventing fraud.