Banks beware – the scope of the Quincecare Duty applies to individuals 

March, 2022 - Shoosmiths LLP

On 14 March 2022 in Philipp v Barclays Bank UK Plc [2022] EWCA Civ 318 the Court of Appeal gave further guidance on the extent of the Quincecare duty owed by banks to their customers.


 


What is a Quincecare duty?

It is well established that banks have a duty to use reasonable skill and care in carrying out customers’ orders which includes not complying with instructions if they have reasonable grounds for believing the order was an attempt to misappropriate funds.


This duty, called the Quincecare Duty (after Barclays Bank PLC v Quincecare Limited) establishes that banks will be liable if they:


  • execute an order knowing it to be dishonestly given;
  • shut their eyes to the obvious fact of dishonesty; or
  • act recklessly in failing to make the inquiries that a prudent banker would.

The facts

Mrs Philipp and her husband had been defrauded of almost all of their life’s savings in a sophisticated authorised push payment fraud (APP Fraud) by fraudsters posing as the representatives of the Financial Conduct Authority and the National Crime Agency. Mrs Philipp had attended two of the bank’s branches and authorised payments of £400,000 and £300,000 having recently transferred the funds in from her and her husband’s savings.


Mrs Philipp brought proceedings against Barclays arguing that it had breached its duty to observe reasonable care in carrying out her instructions.


In January 2021 Barclays obtained reverse summary judgment against Mrs Philipp, in part on the basis that the duty only extends to circumstances where the attempted misappropriation is by the customer’s agent (for example where a dishonest director seeks to defraud the company of which they are a director ).


The decision

Mrs Philipp appealed, and the Court of Appeal has overturned the summary judgment ruling.


In addition to Mrs Philipp’s submissions the Court of Appeal also heard from the Consumers Association, which had been granted the right to make submissions as an intervening party.


To date, case law on the Quincecare Duty had concerned scenarios where agents of the customers (corporate entities) had sought to defraud them. However, Birss LJ’s judgment in Philipp v Barclays considered the key cases on the Quincecare Duty and confirmed that an agent is not required for the Quincecare Duty to be engaged. At [29 – 30] Birss LJ explains:


It is worth noting that the purpose of the duty identified by this logic is to protect the customer. Although from the bank’s point of view one can see that in the cases of instructions by agents, the duty also works for the benefit of the bank to save it from liability caused by acting without instructions, that is not the reason the duty exists. It does not exist to protect the bank.


Crucially the line of reasoning identified does not depend on whether the instruction is being given by an agent. It is capable of applying with equal force to a case in which the instruction to the bank is given by a customer themselves who is the unwitting victim of APP fraud provided the circumstances are such that the bank is on inquiry that executing the order would result in the customer’s funds being misappropriated.


In reaching the decision to overturn the summary judgment ruling, Birss LJ considered a number of other factors which indicated that the matter should be dealt with at trial rather than on a summary basis, At [73] Birss LJ stated:


Whether this case succeeds at trial or not will depend on the evidence and findings of fact at trial about ordinary banking practice both in terms of what would put an ordinary prudent banker on inquiry and what such a banker would then have done about it if they were. Of course one can always pose a question of duty in the abstract, but another way of looking at this is to say that the relevant duty to do something or refrain from doing something (make inquiries and/or refrain from paying out in the meantime) only kicks in when the circumstances are such that the ordinary prudent banker is put on inquiry. Put that way it is manifest that one cannot decide whether there was actually a duty in this case until one examines the question of fact as to what facts were manifest at the time, and also what facts an ordinary prudent banker would have expected to be aware of. This again illustrates why this case ought not be decided on a summary basis. [emphasis added]


Comment

This decision will likely have significant ramifications for financial institutions and consumers. By confirming that the Quincecare Duty is not reliant upon an agency relationship, it opens the scope of the duty to a much wider range of customers who may have suffered from a fraud. With recent rises in fraud and computer misuse  and UK Finance reporting a 71% increase in APP fraud during the first half of 2021 , this could prove significant.


Equally, Birss LJ’s comments suggest that claims involving the Quincecare Duty are unlikely to be suitable to for summary judgment given the need (amongst other things) for factual evidence on banking practice. This may make it more challenging for Financial Institutions to deal with Quincecare claims at an early stage.


 



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