On 12 July 2023, the Supreme Court handed down its eagerly awaited judgment in Philipp v Barclays Bank UK PLC [2023] UKSC 25. As many had anticipated, the Supreme Court overturned the Court of Appeal's decision – granting summary judgment in favour of Barclays Bank (the "Bank") – holding that the Bank did not owe a duty to Mrs Philipp in respect of her own payment instructions. The Supreme Court did, however, permit Mrs Philipp to proceed with her alternative claim based on the Bank's alleged failure to act promptly to try to recall the payments after the fraud was discovered.
The Supreme Court held that the Quincecare duty does not extend to so-called "authorised push payment" (APP) fraud, whereby the victim is induced by fraudulent means to authorise their bank to send a payment to a bank account controlled by the fraudster. Pursuant to the first principles of banking law, it is a basic duty under a bank's contract with a customer to make payments from the credited account in compliance with the customer's instructions. That is a strict duty. The bank must carry out the customer's instruction if the customer itself has authorised and instructed the bank to make payment; "[i]t is not for the bank to concern itself with the wisdom or risks of its customer's payment decisions".
The Supreme Court noted that the Quincecare duty is simply an application of this general duty of care owed by a bank to "interpret, ascertain and act in accordance with its customer's instructions". Where a bank is put on inquiry that a payment instruction, given by an agent purportedly on behalf of the customer, is an attempt to defraud the customer, the bank's duty is to refrain from executing the instruction without first making inquiries to verify that the instruction has in fact been authorised by the customer. This principle cannot extend to a customer who is a victim of APP fraud, since the validity of the instruction is not in doubt.
- Background
- High Court and Court of Appeal's decisions
- Supreme Court decision
- Commentary
1. Background
Mrs Philipp, a music teacher, and her husband Dr Philipp, a retired physician, were deceived by a fraudster, JW, out of the bulk of their life savings. JW instructed them to transfer £700,000 into an account in Mrs Philipp's name with the Bank. Shortly thereafter (on 10 March 2018), acting on JW's suggestion, Mrs Philipp went in person to a Bank branch and instructed the Bank to transfer £400,000 of that money to a bank account in the United Arab Emirates ("UAE"). Three days later, she went in person to a different branch of the Bank and instructed them to transfer the remaining £300,000 to another bank account in the UAE. The Philipps had been convinced by JW that such transfers were necessary to protect their money from fraud. On each occasion, before making the transfer, the Bank telephoned Mrs Philipp to seek her confirmation that she had made the transfer request and wished to proceed with it, and she provided such confirmations.
A striking feature of the facts in this case is that Mrs Philipp and her husband were even persuaded by JW not to cooperate with the police when the police warned them that a fraud was being perpetrated. However, following a third visit from the police, the Philipps came to realise they had been victims of a fraud. Mrs Philipp notified the Bank of this on 27 March 2018. On or about 31 May 2018, the Bank made attempts to recall the funds which had been transferred to the UAE. However, these attempts were unsuccessful. Mrs Philipp brought a claim against the Bank in respect of her loss.
The Quincecare Duty
The Quincecare duty is a duty of care owed by a bank to its customer, requiring the bank – where it has 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 – to refrain from executing that payment instruction, without first making inquiries to verify that the instruction has in fact been authorised by the customer.
2. High Court and Court of Appeal's decisions
The Bank applied to have Mrs Philipp's claim summarily dismissed on the ground that, as a matter of law, it did not owe Mrs Philipp a duty not to execute her own payment instructions. The High Court agreed with this submission and granted summary judgment in favour of the Bank.
Mrs Philipp appealed. The Court of Appeal allowed the appeal, setting aside summary judgment, holding:
a. As a matter of law, the Quincecare duty did not depend on the bank being instructed to transfer money by an agent of the customer of the bank. It was therefore at least possible that a relevant duty of care could arise in the case of a customer instructing their bank to make a payment in the context of APP fraud.
b. Whether such a duty applied in this case, including the important question of whether the duty would be unworkable or onerous, was a question that could not be decided without a trial.
The Bank appealed this decision to the Supreme Court.
3. Supreme Court decision
Mrs Philipp's primary claim: the application of the Quincecare duty to victims of APP fraud
The Supreme Court overturned the Court of Appeal's decision on the basis of the following key points:
a. The first principles of banking law: The Court of Appeal's decision was inconsistent with the first principles of banking law: it is a basic duty under a bank's contract with a customer to make payments from the credited account in compliance with the customer's instructions. This is a strict duty. Mrs Philipp had unequivocally authorised and instructed the Bank to make the payments.
b. The bank's mandate: The terms on which a bank is authorised and undertakes to carry out its customer's instructions to make payments is generally referred to as the bank's mandate from the customer. Unless otherwise agreed, the bank's mandate is strict. Where the bank receives an instruction to make a payment given in accordance with the mandate, the ordinary duty of the bank is simply to carry out the instruction and to do so promptly. By reference to a number of authorities, the Supreme Court noted that it is not for the bank to concern itself with the wisdom or risks of its customer's payment decisions.
c. The terms of the contract: Mrs Philipp's core legal allegation was that the Bank was under a duty to refrain from executing her order if and for as long as it was put on inquiry, by having reasonable grounds for believing that the order was an attempt to misappropriate funds. This duty was said to be implied by the common law into the contract between Mrs Philipp and the Bank. The Supreme Court acknowledged that it would be possible for a bank to agree as an express term of the contract that it will not comply with a payment instruction given by the customer if the bank believes, or has reasonable grounds for believing, that the customer has been tricked by a third party into authorising the payment. However, the contract between Mrs Philipp and the Bank did not contain such an express term. The Supreme Court held that no such obligation could be implied or said to be inherent in the relationship between a bank and its customer.
d. Authorities: The Supreme Court analysed the authorities in respect of the Quincecare duty. The Supreme Court referred to Baroness Hale's Supreme Court judgment in Singularis Holdings Ltd v Daiwa Capital Marketings Europe Ltd [2019] UKSC 50 [2020] AC 1189 – seemingly the first case in which the relevant duty was referred to as the Quincecare duty – and noted that it was apparent that Baroness Hale saw the Quincecare duty as limited to a situation where a payment instruction is given to the bank by an agent of the customer. It further noted that many of the cases in this area have not required the courts to analyse the Quincecare duty's juridical basis and have almost all followed the same basic factual situation. In these cases, the payment instruction was given to the bank by an agent who was an authorised signatory of the customer's account (but acting in fraud of the customer) rather than being an instruction from the customer itself.
e. No conflicting contractual duties: In the Court of Appeal judgment, Birss LJ held that a bank's primary duty to execute a valid payment order operates in tension with its duty to exercise reasonable skill and care in and about executing such an order, and that this conflict may be resolved by requiring the bank in certain circumstances not to execute an order without making inquiries. Birss LJ drew his reasoning directly from the judgment of Steyn J in Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363. However, the Supreme Court noted that there is in fact no such conflict. The duty to exercise reasonable skill and care is subordinate to the bank's duty to carry out a customer's order to transfer money, and directed solely to the effective execution of the order. It cannot, therefore, provide an independent basis for failing or refusing to execute a valid payment order. Where a bank receives a valid payment order which is clear and leaves no room for interpretation or choice about what is required in order to carry out the order, the bank's duty is simply to execute the order by making the requisite payment and the duty of care does not apply. If, however, the validity or content of the customer's instruction is unclear or leaves the bank with a choice about how to carry out the instruction, the bank's duty to exercise reasonable skill and care will arise.
f. An agent's authority: The Supreme Court held that a third party (i.e. a bank) cannot rely on the apparent authority of an agent if it failed to make the inquiries that a reasonable person would have made in all the circumstances to verify that the agent had that authority. The authority conferred on an agent by a customer does not include authority to act dishonestly in pursuit of the agent's own interests and in fraud of the customer. The Supreme Court also held that there is no conflict between the bank's duty of care to verify the agent's authority and its duty to execute a valid order to transfer money promptly. The duty of care requires the bank, if put on inquiry, not to act without checking that the order is indeed a valid order of the customer to transfer money.
g. Conclusion on the Quincecare duty: Where a bank is put on inquiry, in the sense of having reasonable grounds for believing that a payment instruction is an attempt to defraud the customer, the Quincecare duty requires the bank to refrain from executing the instruction without verifying that the instruction has actually been authorised by the customer. However, the Supreme Court held that such principles have no application to a situation, such as that of Mrs Philipp, where the customer is a victim of APP fraud, since the validity of the instruction is not in doubt. Provided the instruction is clear and is given by the customer personally or by an agent with apparent authority (and no circumstances suggestive of dishonesty exist that would cause a reasonable banker to make inquiries to verify the agent's authority), no inquiries are needed to clarify or verify what the bank must do. 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.
Mrs Philipp's alternative case
Given that the Court of Appeal had decided Mrs Philipp's main claim in her favour, it did not consider it necessary to address her alternative case, namely that the Bank was in breach of duty after the fraud had been discovered in not taking adequate steps to recover the money which had been transferred to the UAE. The Supreme Court, however, addressed Mrs Philipp's alternative case given that it had granted summary judgment in the Bank's favour in respect of Mrs Philipp's main claim.
The Supreme Court refused to grant summary judgment in the Bank's favour in respect of Mrs Philipp's alternative case. It found that the fact that the Bank had made attempts on or about 31 May 2018 to recall the funds indicated that there were steps that could be taken, and that this raised the question of why the Bank did not take those steps sooner (Mrs Philipp having notified the Bank on 27 March 2018 that she had been induced by fraud to make the payments). The Supreme Court held that these matters were not capable of being resolved at this stage of the proceedings and that Mrs Philipp could therefore proceed with her alternative case against the Bank.
Social policy and regulatory reform
The Supreme Court acknowledged that APP fraud is a growing social problem. However, the Supreme Court's view is that it is for regulators, government and Parliament, not the courts, to navigate policy decisions about whether victims of such frauds should be left to bear such losses themselves or whether the losses should be redistributed by the banks.
Indeed, consistent with that view, there has, in recent years, been an increasing focus on the need to tackle APP fraud and to assist victims:
a. In 2019, a voluntary code for payment service providers was introduced, the "Contingent Reimbursement Model Code", covering measures aimed at reducing the incidence of APP fraud. It also provides reimbursement for victims of APP fraud in certain cases. However, this scheme does not cover international payments. Only 10 payment service providers have adopted this code to date, including the Bank.
b. The Financial Services and Markets Act 2023, which received Royal Asset on 29 June 2023, provides for a mandatory reimbursement scheme. Section 72 of the Act amends regulation 90 of the Payment Services Regulations to enable liability to be imposed on payment service providers where the payment order is executed subsequent to fraud or dishonesty and is executed over the Faster Payments Service (which, according to the Payment Systems Regulator, is the payment system through which the "vast majority" of payments resulting from APP fraud are processed). The scheme is confined to consumers, charities and "micro-enterprises" and does not extend to larger businesses. The scheme provides for a 50-50 allocation of losses between the sending and receiving providers. The regulatory obligations arising under the scheme will not be directly enforceable by bank customers.
4. Commentary
The Supreme Court's landmark and much-awaited decision brings welcome clarity in respect of the existence and scope of the Quincecare duty. The Supreme Court has reaffirmed the existence of the duty, but has highlighted that it is not "some special or idiosyncratic rule of law"; rather, it is simply an application of the general duty of care owed by a bank to interpret, ascertain and act in accordance with its customer's instructions. Further, the fact that the Quincecare duty is grounded in agency law principles – i.e. it applies where a bank has 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 – means that it cannot extend to victims of APP fraud. Whilst this will certainly have come as a relief to banks, it is evident, from a regulatory reform and social policy perspective, that there is an increased focus on tackling APP fraud and that banks will therefore need to remain vigilant and ensure they have sufficient safeguards in place.
Read the full judgment.
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