In a somewhat unexpected judgment1 which broadens the scope of banks’ duty of care to their customers, the English Court of Appeal held that the duty of care established in Barclays Bank Plc v Quincecare Ltd  4 All ER 363 (the Quincecare Duty) may apply to individuals.
In January 2021, the English High Court in Philipp v Barclays Bank UK PLC  EWHC 10 (Comm) (Philipp) granted summary judgment in favor of Barclays Bank (the Bank), finding in favor of the Bank that the Quincecare obligation does not apply where a customer himself gives instructions for an “Authorized Push Payment” (APP), rather than through a third party.
Ms Philipp (the applicant) appealed against the High Court’s decision and in March 2022 the Court of Appeal set aside the summary judgment and reintroduced the case, stating that the case should be assessed at trial and not at a more limited level. summary judgment hearing.
In 2018, the applicant and her husband were told by fraudsters posing as representatives of the Financial Conduct Authority (FCA) and the National Crime Agency (NCA) that if they transferred money to certain accounts, their money would be protected against fraud. On this basis, the Applicant transferred GBP 700,000 from the savings account she had with her husband to an account with the Bank.
The Applicant, acting on the advice of what she believed to be the FCA and the NCA, then instructed the Bank to transfer GBP 700,000 from her bank account by means of two transfers of GBP 400,000 (the first transfer) and GBP 300,000 (the second transfer, collectively the Transfers) to bank accounts held in the United Arab Emirates. The transfers were ordered separately, a few days apart.
The Applicant alleged that no safeguard question or fraud warning was asked at the time of the Transfers, which the Bank disputed. The Applicant asserted that the Bank owed her a duty of care:
1. at common law in tort;
2. as implied in the contract between it and the bank; Where
3. by statute under section 13 of the Supply of Goods and Services Act 1982.
The High Court summarily dismissed the Applicant’s claim on the grounds that:
1. the Bank had no obligation of Quincecare towards the Applicant, which only applied when the instructions were given by an agent or a third party; corn
2. even if the Bank owed a Quincecare Duty, the Applicant was so deceived by the fraudsters that she would not have believed the Bank if it had intervened and investigated, and therefore there was no causality link.
On appeal. the claimant sought to extend the Quincecare obligation owed by the banks to include the APP’s instructions, arguing that if her instructions were not fraudulent, they were based on the fraud she suffered.
The Applicant alleged that the transfer of such a large sum should have put the Bank under review and that it therefore failed in its duty of care by not having policies and procedures in place to detect, prevent, reverse or claim any potential fraud against the APP, including:
- alert the Applicant to the risk of fraud;
- arranging a meeting with the Applicant, the police and Bank employees; and
- conduct further investigations
and that, had the Bank responded to the inquiries, the transfers would not have been made.
In response, the Bank argued that the Quincecare obligation is limited to circumstances where an agent fraudulently purports to act on behalf of the customer, and APP transactions are therefore excluded, and therefore it had no obligation to the claimant. .
The Consumers’ Association (which?) acted as an intervener in the hearing, supporting the plaintiff, and argued that the court should find a coing obligation. Which? presented evidence at the hearing, including a report from the Financial Services Ombudsman (FOS), which showed that the FOS upheld around three-quarters of APP complaints in favor of the consumer.
The judgment of the Court of Appeal
The judgment of the Court of Appeal makes it clear that the summary judgment procedure should not have been used in this case, noting that it was not appropriate for the High Court to proceed with a mini-trial, while the Applicant’s case was “arguable”, and that the existence of a duty and the standard of care owed to the Applicant by the Bank should have been more properly considered and determined at trial.
On the merits, the Court of Appeal noted that the petitioner’s success at trial will largely depend on the evidence regarding ordinary banking practices and under what circumstances the court would consider an ordinary prudent banker to be subject to investigation of possible fraudulent activity. .
The court considered that three issues had to be addressed in order to determine whether a Quincecare obligation applied, namely:
1. What was the relationship between the Appellant and the Bank in connection with the instruction to pay?
a. the answer is that the bank is the client’s agent as principal, which the court found undisputed.
2. What would be the situation if the Bank knew that the instruction in question was an attempt to embezzle funds?
a. in these circumstances, if the Bank executed the instruction, its liability would be engaged. He couldn’t just say it was an “execution only” service – Birss LJ argued that the obligation to execute is not absolute, as a bank must always be competent and due diligence.
3. What lesser state of knowledge will place the bank in a legal obligation?
a. this was established in Quincecare and confirmed by the Supreme Court in Singularis – if the circumstances are such that an ordinary prudent banker would be “under investigation”, then the obligation arises.
b. the duty is not to carry out the order during the investigation, and to make inquiries.
Did it matter that the instructions came from the caller and not directly from a third party?
The Court of Appeal was not convinced that this case was automatically dismissed because the line of authority developed from Quincecare involved instructions given to the banks by fraudulent third parties and not (as in this case) by the holder of the duped but innocent account. Birrs LJ in delivering judgment said:
“I consider that as a matter of law the duty of care identified in Quincecare, which is an obligation for a bank to inquire and refrain from acting on a payment instruction in the meantime, does not depend on whether that the bank is charged by an agent of the bank’s customer.”
The valve argument
The High Court was persuaded by the Bank’s argument that imposing the Quincecare Duty in the context of consumers would impose an onerous and unenforceable burden on banks. However, the Court of Appeal ruled that this issue should not have been decided without a trial.
The Court of Appeal recognized “the abundance of evidence to support that the duty of care invoked would not be impracticable or onerous in terms of banking practice in March 2018”, noting that Which? the intervener, provided further supporting evidence showing that the practices necessary to prevent this fraud were in place at the time and had since been developed. He was not convinced that the floodgates would open.
What does this mean for consumers, banks and the future of Quincecare Duty?
The move will be welcomed by consumers as it calls into question the application of the Quincecare requirement to consumer banking transactions and APPs – a growing area of concern, with over £350million stolen using of APP mechanisms in the first six months of 2021, according to data from the payment systems regulator.
It remains to be seen whether the Bank will settle this case, but if not, and unless a future trial on the substantive issues deviates from the reasoning of the Court of Appeals judgment , this ruling will set an important precedent for future Quincecare APP Fraud Cases of Duty.
Ultimately, it appears Quincecare Duty enforcement will kick in when banks have been, or should have been, required to make reasonable inquiries by reference to industry standards.
With the future of Quincecare Duty enforcement uncertain, banks should review their procedures to ensure their practices and policies are in line with industry standards. This is particularly important when considering the FOS’s approach to APP fraud; where the majority of cases are in favor of the consumer. Consumers can also seek redress through the APP Voluntary Code under which a number of banks have agreed to reimburse victims of APP fraud when certain conditions have been met.
While Philipp’s decision is an important step in expanding Quincecare Duty, it does not necessarily follow that the cost of all APP fraud will be borne by the banks. Philipp’s facts were unusual in that large sums and foreign banks were involved. Most consumer APP scams will be less complex, and therefore may not be enough to put an ordinary reasonable and prudent banker on notice to investigate.
We will write an update if there is a subsequent judgment in the Philipp case.