Mrs. Fiona Philipp and her husband, Dr. Robin Philipp, were victims of APP fraud and were tricked into making large bank transfers to a fraudster posing as a legitimate payee. At the instigation of the fraudster, Dr. Philipp transferred £950,000 of savings into Mrs. Philipp's account with the bank. Mrs. Philipp then instructed the bank to transfer £700,000 of that money in two payments of £400,000 and £300,000 into separate bank accounts in the United Arab Emirates (UAE).

On 10 and 13 March 2018, before the bank made the transfers, the bank called Mrs. Philipp to seek her confirmation that she had made the transfer request and wished to proceed with it. Mrs. Phillip on both occasions provided the confirmation requested. The Philipps also received visits from a police officer alerting them to a potential scam but chose not to cooperate.

On 16 March 2018, the police contacted the bank to explain they had received credible information that Mrs. Philipp's current account had been compromised by fraudsters in the UAE. At that point the bank immediately froze the account.

On 19 March 2018, Mrs. Philipp sought to make a third transfer of £250,000 to the UAE but was told by the bank that her account had been blocked pending a review, and the transfer did not take place.

On 26 March 2018, following a third visit from the police officer, the Philipps finally came to realise that they had been the victims of a fraud. Mrs. Philipp notified the bank of this on 27 March 2018. Around 31 May 2018, the bank made attempts to recall the funds which had been transferred to the UAE but these attempts were unsuccessful.

Mrs. Philipp brought a claim against the bank on the basis that she believed it had failed to comply with the Quincecare duty. She argued that the bank owed her a duty under its contract with her or at common law not to carry out her payment instructions if, as she alleged, the bank had reasonable grounds for believing that she was being defrauded.

At first instance summary judgment was awarded in favour of the bank but the Court of Appeal accepted Mrs. Philipp's case that, in principle, a bank owes a duty to its customer of the kind alleged and that whether such a duty arose on the facts in this case is a question which can only be decided at trial. The bank appealed the decision to the Supreme Court.

Supreme Court decision

The Supreme Court unanimously allowed the bank's appeal, thereby overturning the Court of Appeal decision. Lord Leggatt, giving the leading judgment (with which Lord Reed, Lord Hodge, Lord Sales and Lord Hamblen agreed), held that the Quincecare duty did not extend to cases of APP fraud, where the customer had authorised and instructed the bank to make the payment.

Rather, it was confined to situations where the payment instruction was given to the bank by an agent who was an authorised signatory of the customer's account, but who was acting in fraud of the customer.

The Supreme Court concluded that "where a bank is "put on inquiry" in the sense of having reasonable grounds for believing that a payment instruction given by an agent purportedly on behalf of the customer is an attempt to defraud the customer. This duty requires the bank to refrain from executing the instruction without first making inquiries to verify that the instruction has actually been authorised by the customer."

Similar reasoning would apply where a bank is on notice (in the sense of having reasonable grounds for believing) that the customer lacks mental capacity to operate a bank account or manage their financial affairs. A bank could likewise refrain from executing a payment instruction if to do so would mean the bank incurs liability for dishonestly assisting in a breach of trust.

However, the principles had "no application to a situation where, as in the present case, the customer is a victim of APP fraud. In this situation the validity of the instruction is not in doubt" and no further inquiries were necessary. "The bank's duty is to execute the instruction and any refusal or failure to do so will prima facie be a breach of duty by the bank".

The Supreme Court did however allow Mrs. Philipp's alternative claim to proceed (a claim based on the bank allegedly not taking adequate steps to attempt to recover the money transferred until end of May 2018).

Quincecare revisited

In reaching its decision, the Supreme Court revisited the original formulation of the Quincecare duty in the eponymous case of Barclays Bank v Quincecare [1992] 4 All ER 363.  In that case, Mr. Justice Steyn (as he then was) identified a tension between, on the one hand, a bank's duty to execute its customer's payment instruction and, on the other, its duty of care to exercise skill and care in carrying out the payment.

The Supreme Court found no such tension. The duty of care to exercise skill and care only arises where the validity or the content of the customer's instruction is unclear or leaves the bank with a choice about how to carry out an instruction. Where the bank receives an instruction that is clear, the bank's duty is simply to execute the order by making the required payment and the duty of care does not arise.

Hong Kong position

The Hong Kong courts have recently considered the position at length. In 2021, the Honourable Mr. Justice Coleman found the defendant bank not liable for the actions of one of its employees who fraudulently offered investments which caused loss to the plaintiff (see Hogan Lovells alert Hong Kong court finds bank not liable for fraudulent investment introduced by employee).

Coleman J said he agreed with the proposition of the judge at first instance in Philipp that "the Quincecare duty should be confined to cases where the suspicion which has been raised (or objectively ought to have been raised) is one of attempted misappropriation of the customer's funds by an agent of the customer". To impose on the bank professional standards of detective and investigative work, aimed at establishing whether or not a payment is potentially fraudulent would "elevate that duty to a point where too much doubt would be cast over the effectiveness of the customer's instructions".

Earlier this year in the Court of Final Appeal, Lord Sumption NPJ, giving the leading judgment, appeared to countenance a slightly broader application of the principle, albeit in the context of agency, in noting that a bank should make inquiries if there were features of the transaction apparent to the bank that indicated wrongdoing unless there was some special explanation. An explanation should be sought before it could be assumed that the transaction was legitimate. This required looking into what was actually known to the bank without inquiry. If what was known indicated a want of actual authority, the bank was required to proceed with inquiry.

Practical implications

The Supreme Court decision is undoubtedly welcome news for banks as it limits the risk of their exposure to these losses. The ruling may however prompt banks to review their systems and controls around payments to ensure that they cater for situations when a bank is justified in refraining from carrying out a payment instruction from a customer, whether from an individual or from an agent acting for a principal.