knowledge 21 July 2023 |

A Bank’s Duty of Care: UK Supreme Court Clarifies Scope of the Quincecare Duty in the UK

On 12 July 2023, the UK Supreme Court delivered its judgment in Philipp v Barclays Bank UK plc¹, clarifying the scope of the so-called Quincecare duty in English law². The Court refused to extend the duty to cases involving authorised push payment (“APP”) fraud³, where the victim is tricked into authorising payments from his or her bank account into that belonging to a fraudster.

Background

The claimant brought proceedings against Barclays Bank UK after falling victim to APP fraud. She had been convinced by fraudsters, who claimed to be investigators working for the UK Financial Conduct Authority (the “FCA”), to instruct the Bank to transfer £700,000 from her account into accounts based in the United Arab Emirates. The Bank processed the transfers in accordance with her instructions, having first telephoned to obtain verbal confirmation. When the fraudulent scheme came to light, the Bank attempted to recall the funds. However, it was unable to do so and the money was lost to Mrs Philipp.

The claimant sued the Bank, arguing that it owed her a duty, either under contract or at common law, to refrain from acting upon her payment instructions, for as long as it had reasonable grounds (as she maintained it did) to believe that she was being defrauded.

Procedural History

At first instance, the High Court rejected Mrs Philipp’s claim. The Court of Appeal disagreed, holding that a bank could in principle owe such a contractual duty, but that whether the duty arose on the facts could only be decided at trial.  The Bank appealed.

Decision by the UK Supreme Court

The UK Supreme Court allowed the appeal unanimously, holding that the Bank had not been obliged to refrain from carrying out the instructions given to it by Mrs Philipp.

The decision will be of interest to banks in Ireland too.  Key points from the judgment are:

• The Bank’s duty of care
  
  A bank owes a general duty to exercise reasonable care and skill when executing orders to transfer funds, or in providing other services.  However, this general duty applies only insofar as the bank has latitude to decide how the relevant services are executed.  The obligation to carry out payment instructions in accordance with a customer’s expressed wishes leaves little discretion.  In such a case, the duty to exercise care and skill is confined to actions relating to “interpreting, ascertaining and acting in accordance with the instructions of the customer”.

• Duty to comply with instructions
  
  Banks are under a strict contractual obligation to process transactions in compliance with their customers’ lawful wishes.  Where a customer has validly authorised a payment, those instructions must be acted upon promptly.  It is not for a bank to concern itself with the wisdom or risks of a customer’s payment decisions, provided it receives clear and lawful instructions, either from the customer personally or from an agent of the customer acting with apparent authority.  Failing to comply with those instructions would constitute a breach of duty on the part of the bank.

• Alleged duty to refrain from processing the transaction
  
  In theory, it would be possible for a bank to agree to an express contractual term where it undertook not to comply with a customer’s payment instructions where it believed that those instructions had been induced by fraud on the part of a third party.
  
  However, the contract between Mrs Philipp and the Bank did not contain any such term.  In the absence of an express contractual term, no such obligation can be implied or be said to be inherent in the relationship between a bank and a customer.  Rather, such an obligation would be inconsistent with the normal contractual basis upon which banking transactions are conducted.

• Scope of the Quincecare duty
  
  The UK Supreme Court provided welcome clarification on the so-called Quincecare duty, which requires a bank to refrain from acting on payment instructions, given by a customer’s agent, if it has reasonable grounds to believe that the agent is defrauding the customer.  The standard by which the duty is measured is that of “the likely perception of an ordinary prudent banker”⁴.
  
  The Court explained that the Quincecare duty is simply an offshoot of the general duty of care owed by a bank to its customers. Authority conferred on an agent to provide payment instructions on behalf of a customer does not include authority to act dishonestly or fraudulently in pursuit of the agent’s own interests.  Therefore, an agent acting in such manner will lack actual authority to provide instructions on behalf of the customer.
  
  Where a bank is “put on inquiry” (in the sense of having reasonable grounds to believe that an agent’s instructions purporting to be on behalf of the customer are an attempt to defraud the customer), it must make reasonable inquiries to verify that the instructions have in fact been authorised by the customer.  Carrying out instructions that in fact have not been authorised by the customer would constitute a breach of duty by the bank.
  
  In this case, however, the instructions were provided by the customer herself, without the involvement of an agent.  No common law duty, analogous to the one recognised in Quincecare, arises when a bank receives clear payment instructions from the customer that is being defrauded.  The Bank was simply acting upon clear and lawful instructions that Mrs Philipp had provided to it.  The fact that the instructions from Mrs Philipp had been induced by fraud did not render the instructions themselves invalid.  Such instances of fraud would entitle the victim to claim repayment from the third party fraudster, but that did not invalidate the instructions to the bank, nor would it give rise to a claim against the relevant bank.

Conclusion

The UK Supreme Court has provided welcome clarification on the scope of the so-called Quincecare duty in cases of APP in the UK.  That said, increasingly sophisticated forms of fraud, often facilitated by new technologies, are a pressing public policy concern and, since the judgment in Philipp v Barclays, the UK Parliament has enacted a mandatory reimbursement scheme for certain instances of APP fraud⁵.

Under EU law, there is no comparable requirement for a payment service provider to compensate victims of APP fraud, but proposals recently advanced by the European Commission (here) as part of the planned revision of the Payment Services Directive (“PSD2”)⁶ include measures to combat and mitigate novel forms of fraud.  It remains to be seen whether Irish courts, which have cited the Quincecare principle with approval⁷, will follow the path of the UK Supreme Court.  However, it is interesting to note that decisions of the Financial Services and Pensions Ombudsman in Ireland (for example, here) suggest a similar approach to that in Philipp v Barclays.

Also contributed to by David O’Keeffe Ioiart