THE QUINCECARE DUTY OF CARE STORY CONTINUES

Given the sophistication and resources of banks and customers' high expectations of their banks, as well as the fact that frauds are a constant evil in which banks are used by fraudsters, banks need to be even more mindful of what would put them on inquiry of something awry

Introduction

In our article in the March 2022 edition of this magazine, we reviewed a number of decisions in the English courts illustrating the renewed interest in the applicability of the Quincecare duty of care in claims against banks. The Quincecare duty was first articulated by Steyn J (as he then was) in Barclays Bank v Quincecare Limited [1992] 4 All ER 363. The uptick in cases considering these legal principles, after a considerable fallow period, has arisen as a consequence of the noticeable rise in claims against banks due to an increase in frauds of different types orchestrated by fraudsters where banks are used as vehicles to perpetuate those frauds.

As we explained in our previous article, whilst there have been a number of significant decisions in the last three years which have helped to develop the law, there was still room for development in the law in this area. On 14 March 2022, the Court of Appeal handed down its judgment in Philipp v Barclays Bank UK Plc [2022] EWCA Civ 318. We had covered the High Court's decision in that case in our previous article, but this article enables us to provide an update on the upshot of the Court of Appeal's decision which overturned the High Court's decision and laid down some important principles in so doing. We will not repeat here the analysis of the other cases dealing with the Quincecare duty which we previously covered and would direct readers to our earlier article in the March edition of this journal for that analysis.

Background facts in the Philipp case

In 2018, Mrs Philipp and her husband, Dr Philipp, were the victims of "Authorized Push Payment" (APP) fraud and were persuaded by a fraudster to make payments from Mrs Philipp's account to various accounts in the UAE totalling GBP 700,000. APP fraud occurs when the customer of a bank has been deceived by a fraudster to instruct their bank to transfer money from their account into an account controlled by the fraudster. The money transferred, in this case, represented the majority of the retired couple's life savings. The fraudster convinced Mrs Philipp that making these payments would assist an investigation by U.K. regulatory bodies. By the time the fraud was discovered, the money had all gone.

Mrs Philipp argued that the bank owed her a duty of care at common law or implied into the contract between her and the bank, or by statute under s13 of the Supply of Goods and Services Act 1982. Mrs Philipp argued that, in order for the bank to discharge its duty to comply with her instructions with reasonable care and skill, the bank ought to have had policies and procedures in place for the purposes of detecting the fraud.

The High Court decision in Philipp v Barclays Bank UK Plc [2021] EWHC 10 (Comm)

Barclays applied for summary judgment on the basis that it owed no duty of care as a matter of law. The bank also argued that the claim should be struck out because of a break of causation; however, this head of its claim was not successful.

The High Court, although sympathetic to Mrs and Dr Philipp, granted the bank's application for summary judgment holding that it would not be fair, just or reasonable to impose liability on the bank as a result of the APP fraud. In reaching this conclusion, the judge found that requiring the bank to take the preventative measures suggested by Mrs Philipp would result in too much doubt being cast over the effectiveness of a customer's instructions and would also make the Quincecare duty unduly onerous for banks.

The Court of Appeal decision in Philipp v Barclays Bank UK Plc [2022] EWCA Civ 318

Mrs Philipp appealed the decision to the Court of Appeal. She submitted that it was at least properly arguable that a duty of care did arise in this case and that the matter ought to have gone to trial. Her argument was that the existence of the duty ought to be seen as the proper application of the principles supporting the existence of the Quincecare duty or else it should be recognized as a legitimate incremental development of that line of authority.

The bank argued that no duty existed in these circumstances as a matter of law, as the Quincecare duty only arose when an agent, usually an agent of a company, was giving instructions. If the agent's instructions were tarnished by fraud then the bank had no proper instructions at all, and therefore to recognize a duty in this case would impose onerous and unworkable obligations on banks.

Which?, a well-known UK Consumers' Association, applied for permission to intervene in the appeal. In its capacity as intervener, Which? argued primarily that the Quincecare duty was unremarkable and it would be illogical to confine it to companies or agents. Furthermore, Which? argued that the bank was wrong to suggest the duty would be unworkable when ordinary banking practice in 2018 was more advanced than the judge had appreciated.

The Court of Appeal overturned the High Court's decision, concluding that the Quincecare duty was not dependent upon the bank being instructed by an agent of the bank's customer. It noted that whilst all the major cases in which the Quincecare duty had been considered to date had involved instructions from a fraudulent agent acting for a company, it was "at least possible in principle that a relevant duty of care could arise in the case of a customer instructing their bank to make a payment when that customer is the victim of APP fraud".

The Court of Appeal ruled that the Quincecare duty could apply to a victim of APP fraud provided that, based on the facts, the bank was put on inquiry that executing the order would result in the customer's funds being misappropriated. What this amounts to is the existence of "reasonable grounds for believing that the order was an attempt to misappropriate funds", as stated by Lady Hale in paragraph 1 of her judgment in the Supreme Court's decision in Singularis [2019] UKSC 50.

Whilst the bank submitted that the duty of care contended for would represent an onerous and unworkable burden on banks, the Court of Appeal found that the duty was conditioned by the banking practice at the relevant time and the policies and procedures which banks in fact would have had. The Court of Appeal also concluded that the evidence before the High Court made it arguable that the duty of care would be neither unworkable nor onerous in terms of banking practice in March 2018. Moreover, it found that allowing the appeal would not involve an unwarranted extension of the Quincecare duty or identifying a novel duty of care. The right way to approach the Quincecare duty was therefore not to limit it only to instructions being given by agents. The Court of Appeal's decision and reasoning are important given the modern day relevance of the sorts of situations in which the Quincecare duty might be engaged. As always, the facts of each case are key.

Conclusions

As frauds, and in particular APP frauds, continue to rise, the Court of Appeal's judgment could have significant consequences for banks and the victims of fraud in their claims against banks. As this is the first case in which it has been found that it is not relevant whether the bank was instructed by an agent of the customer or the customer themselves in assessing whether the Quincecare duty applies, it may encourage victims of fraud to bring claims against banks in similar situations. Banks will as a matter of prudence need to ensure that they review, and as necessary strengthen, their internal processes and procedures. Given the sophistication and resources of banks and customers' high expectations of their banks, as well as the fact that frauds are a constant evil in which banks are used by fraudsters, banks need to be even more mindful of what would put them on inquiry of something awry. There remains, as before, further scope for the law to develop in this area.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.