In Philipp v Barclays Bank UK PLC1, the UK Supreme Court has given unanimous judgment in favour of Barclays Bank, and provided clear guidance on the so-called ‘Quincecare duty’ owed by banks to their customers. White & Case acted for UK Finance, the collective voice for the UK’s banking and finance industry, as intervener in the proceedings.
The background to the case is summarised in our previous Client Alert on the Court of Appeal’s decision2, available here. The case concerns authorised push payment ("APP") fraud, which occurs where fraudsters deceive a customer into authorising a payment from the customer's account to one controlled by the fraudster.
The decision
The central issue in the present appeal was whether a bank owes its customer a duty not to carry out a payment instruction if the bank has reasonable grounds for believing the customer is being defrauded.
The Supreme Court concluded that no such duty exists.
Banks have a strict duty to execute their customer’s payment instructions promptly (unless agreed otherwise). A bank is not required to refrain from executing a transaction, even if it has reasonable grounds for believing a customer is being defrauded.
The Court concluded that the so-called ‘Quincecare duty’3 has no application in cases such as Philipp because the customer had unequivocally authorised the bank to make the payment. Cases like Quincecare involved dishonesty by the customer’s agent (such as a director of a corporate customer) to defraud the customer.
By contrast, APP fraud cases do not involve dishonesty by a customer’s agent. In Philipp (as is common in other APP fraud cases), the customer personally gave a clear payment instruction to the bank. There was no question of a lack of authority or clarity in the instructions. The bank therefore had a duty to execute the transaction.4
A clarification of the so-called ‘Quincecare’ duty
The Court’s judgment also provides important clarity on the scope of the so-called ‘Quincecare duty’. It clarifies that the ‘Quincecare duty’ is not a special duty or rule of law: it merely applies the general duty of care owed by a bank to ascertain and act in accordance with its customer’s instructions.
Moreover, the premise and reasoning in the Quincecare judgment were flawed:
- The Quincecare judgment assumed the validity of a payment instruction given by a dishonest agent to defraud its principal, such that it was then necessary to resolve a perceived conflict between a bank’s duty to execute instructions and its duty to act with skill and care. There is no such conflict.
- The correct position is that, if a customer’s agent acts dishonestly to defraud the customer, the agent will lack actual authority to give the instruction. If there is no actual authority, a bank may rely on the agent’s apparent authority, but only if there are no circumstances suggestive of dishonesty that would cause a reasonable banker to make inquiries to verify the agent’s authority.
- If such circumstances exist, the bank’s contractual duty to exercise reasonable skill and care in executing a customer’s instructions requires the bank to make inquiries to confirm whether the customer has authorised the transaction. If the bank makes the payment without making those inquiries, it will breach its contractual duty and will also be acting outside the scope of its mandate.5
The limits of banks’ duties in APP fraud situations
The Philipp judgment leaves the door ajar for argument on other points in APP fraud cases. These include whether a bank must not execute an instruction if it has reliable information from a source (such as the police) suggesting that a customer’s instruction has (unknown to the customer) been procured by fraud. This did not arise on the facts in Philipp and the Court did not express a concluded view.
There is also an unresolved issue about the scope of any duty to attempt to claw back payments when a customer reports a fraud. The Court refused summary judgment on this point in Philipp, such that it is now a matter for the first instance court to decide at trial.
Comment
The Supreme Court’s landmark decision brings welcome clarity and certainty to case law about the so-called ‘Quincecare duty’. By finding that the Quincecare case law is grounded in agency law principles, the Court confirmed that it has no application in APP fraud cases.
The Court’s decision does leave certain other issues open for further consideration about the limits of a bank’s broader duties in APP fraud situations. The finance industry and consumer groups alike will therefore continue to watch the case with interest, as it is remitted to the High Court to decide arguments about the scope of any duty to attempt to claw back payments when a fraud comes to light.
The Supreme Court’s decision also follows the recent passing of the Financial Services and Markets Act 2023, which provides a framework for banks to reimburse victims of APP fraud in qualifying cases under the Faster Payments Scheme. In practice therefore, many future victims of APP fraud will look to that legislative framework, rather than seek redress for breach of any contractual or common law duty owed by the bank. That outcome is consistent with the Supreme Court’s view that it is for Parliament and regulators, not the courts, to navigate difficult policy decisions about how to calibrate the sharing of losses in APP fraud cases.
1 [2023] UKSC 25.
2 [2022] EWCA Civ 318.
3 Derived from Barclays Bank plc v Quincecare Limited [1992] 4 All ER 363.
4 The duty of a bank to carry out its customer’s instructions is not without limit and there may be circumstances in which a bank should refrain from executing the customer’s instructions – see further below.
5 Unless express wording in a mandate authorises a bank to follow instructions which an agent has neither actual nor apparent authority to give.
