Quincecare Duty Recast by the Supreme Court: Philipp v Barclays
On 12 July 2023, the Supreme Court handed down its eagerly awaited judgment in Philipp v Barclays (2023) UKSC 25. The Court unanimously allowed Barclays’ appeal on the main issue, namely that the so-called ‘Quincecare duty’ is not owed to an individual in the circumstances alleged. Lord Leggatt gave the only judgment and his conclusion is neatly expressed as early as paragraph 3:
It is a basic duty of a bank under its contract with a customer who has a current account in credit to make payments from the account in compliance with the customer’s instructions. This duty is strict. Where the customer has authorised and instructed the bank to make a payment, the bank must carry out the instruction promptly. It is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions.
The judgment overturns the Court of Appeal decision1 that the Quincecare duty owed by a bank, not to execute payment instructions when on inquiry of a potential fraud, could in principle arise even where the customer is giving direct payment instructions and not via an agent. If the Supreme Court had approved the Court of Appeal decision, it would have led to a significant widening of the duty.
The route by which Lord Leggatt got to his decision is of interest and has major implications for individual bank customers.
Mrs Philipp, customer of Barclays, was a victim of APP fraud. She was duped by a third party fraudster into transferring GBP700,000 to a fraudulent account in the UAE. She gave instructions in branch to transfer the money. It was claimed that Barclays breached its Quincecare duty not to execute her payment instructions as it was on reasonable notice that the instructions were an attempt to misappropriate funds. She claimed that the features of the payments would have put an ordinary prudent banker on inquiry. The Bank ought to have delayed the transfers and asked questions.
The High Court initially granted summary judgment for Barclays. This decision was overturned by the Court of Appeal as described above. Barclays obtained permission to appeal to the Supreme Court.
Questions for the Supreme Court
The Supreme Court had to consider:
- Whether the Quincecare duty applies when the payment instruction is issued by the customer and not an agent of the customer.
- If it doesn’t apply, whether it should be extended to apply.
- Should the above questions have been determined summarily?
- In Lord Leggatt’s view, the Quincecare case was rightly decided in 1988 but for all the wrong reasons. He traced the history of the duty up to the Singularis case in 2017. He rejected the analysis of Steyn J in Quincecare that a bank is under two competing duties – the duty to execute payment instructions and the duty to inquire if there were reasonable grounds to think the payment was fraudulent. Instead, the only duty where a bank is faced with a valid instruction in accordance with the mandate is to pay. Any additional duty only applies when the bank is put on inquiry of fraud following instructions by an agent of the customer. If the bank fails to take steps to clarify the customer’s intention, it will be acting outside of the scope of its mandate.
- The key word in the preceding paragraph is “valid”; the critical point in the passage by Lord Leggatt (as quoted above) is “where the customer has authorised and instructed the bank”. All the cases before Philipp involved companies whose representatives purported to give a valid instruction but where it was tainted by an element of fraud on the part of the representative. Lord Leggatt treats this as a question of agency and the apparent authority of a customer’s agent. If a representative of a company, whose name is on the mandate, gives instructions to make a payment then that person has apparent authority to do so; provided the bank is not put on inquiry as to any suggestion of dishonesty then it is entitled to act on the instructions and debit the account. Conversely, if the bank is on notice of something untoward then it must make inquiries and satisfy itself that all is well; if it does not do so, the instruction will not bind the customer and the bank cannot debit the account.
- For corporate cases this is essentially another way of coming to the same place as Steyn J in Quincecare. The jurisprudential journey by the Supreme Court may have been different but the destination for the scope of the duty owed by the bank where instructions are provided by agents, is the same.
- However, in the case of Mrs Philipp, an individual, the difference is critical. Questions of agency do not arise and the rejection of the original Quincecare duty on the bank to make inquiries in the event of a questionable transaction leaves her primary case dismissed. As expressed at paragraph 100 of the judgment: ‘these principles have no application to a situation where, as in the present case, the customer is a victim of APP fraud. Provided the instruction is clear and is given by the customer personally or by an agent acting with apparent authority, no inquiries are needed to clarify or verify what the bank must do. The bank’s duty is to execute the instruction…’
- Mrs Philipp advanced the point that her instructions did not reflect her true intention so they could not be valid, but Lord Leggatt did not find favour with this argument. The fraud or any lack of intention did not invalidate the instruction or give rise to a claim against the bank.
- The judgment notes that the principles discussed apply whenever a person is given authority to give payment instructions on behalf of another – including for a joint account. Lord Leggatt sees this as indicative that the duty protects not just corporates but individuals as well, although it is difficult to see how it assists sole account holders.
- Lord Leggatt made clear that the question of whether victims of APP fraud should be reimbursed is a question of social policy for Parliament, observing that the Financial Services and Markets Act 2023 provides for a reimbursement scheme, on which the Payment Services Regulator (PSR) is currently consulting.
- Mrs Philipp’s secondary case is that once the fraud came to light, there was a delay by Barclays in attempting to retrieve payments from the receiving bank in the UAE. This was considered a fact sensitive claim which Lord Leggatt decided should be the subject of a trial and should not have been determined summarily.
This is a very significant and welcome decision for banks. If the Court of Appeal decision had been upheld, banks would have been under an additional burden to consider the veracity of payment instructions from individuals.
The rise in incidence of APP fraud, particularly in the context of the acceleration of digital payments take-up and accompanying policy scrutiny has been the subject of considerable attention. Gaps in payments legislation which pre-dates this market shift, together with a particular regulatory focus on consumer protection (including as part of the FCA’s Consumer Duty implementation) have given rise to a lack of certainty about the expectations placed on banks and non-bank payment service providers (PSPs) in the event of APP fraud. This is particularly so where an account holder authorises a payment but has been a victim of fraud.
The Supreme Court decision should be noted by PSPs, who are also in-scope of the PSR’s proposed reimbursement requirements for APP fraud. We are aware that there have been attempts to extend the scope of the Quincecare duty more broadly than for banks to PSPs.
There is an expectation that the decision will be met with criticism from consumer groups and politicians and may hasten the implementation of the mandatory reimbursement scheme provided for in FSMA 2023 which is already under consultation. For now though, it is business as usual.
1(2022) EWCA Civ 318