On 12 July 2023, the Supreme Court delivered its widely anticipated judgment in Philipp v Barclays Bank UK PLC. In doing so, the Court has gone back to basics to explain the basis for and scope of a bank’s duty to its customers, and has brought the Quincecare duty back to a narrower footing.
By overturning the Court of Appeal (covered in our previous blog here), and varying the original High Court ruling (which we addressed in another previous blog post), the Supreme Court has again shown that it will not hesitate to redraw the boundaries of duty where it deems them to have been overly broadened. The case also offers useful clarification on the extent of the Quincecare duty, and of banks’ obligations to their customers more generally.
The decision should be a welcome one for banks, notwithstanding that the Financial Services and Markets Act 2023 will soon provide victims of many APP frauds with a different route to recompense (as well as the Contingent Reimbursement Model Code).
Our previous blog posts covered the events giving rise to this case. In summary, however, Mrs Philipp’s claim against Barclays stemmed from two payments which she had instructed Barclays to make from her bank accounts, to accounts in the United Arab Emirates. Mrs Philipp was defrauded into making those payments, having been led by the fraudsters to believe that she needed to move her funds to a ‘safe’ account to assist an investigation by the FCA and National Crime Agency. When the funds were then lost, Mrs Philipp sought to claim against Barclays, principally on the basis that the bank had acted in breach of duty in allowing the payments to be made.
The Court of Appeal, overturning the High Court, had found that Barclays’ duty to exercise reasonable care and skill in executing customer orders could extend to a duty to refrain from executing a payment order if “put on inquiry” that the payment instruction was an attempt to defraud the customer. It had therefore dismissed the summary dismissal of Mrs Philipp’s claim. The Supreme Court has reversed that decision.
The Quincecare duty – back to basics
The Quincecare duty (which takes its name from Barclays Bank v Quincecare Ltd  4 All E.R. 363) is the principle that a bank which receives instruction from an agent of the customer to make a payment owes a duty to that customer not to carry out the instruction if the bank has reasonable grounds to believe that the agent is defrauding the customer.
Interestingly, while upholding the principle of the Quincecare duty, the Supreme Court has shifted away from the reasoning behind it, as set out in its originating case. The origin of the duty is, says the Supreme Court, actually to be found in whether the instructions to the bank are given with the authority of the customer. It is therefore part and parcel of banks’ duties to their customers to carry out their customers’ instructions.
As such, the Quincecare duty applies only where the bank is dealing with an agent of the customer giving the instruction, and the bank has reasonable grounds to believe that the agent is defrauding the customer. In such circumstances, the agent’s authority does not extend to having authority to defraud the customer; the bank has reasonable grounds to question whether the agent has authority; and so no ostensible authority exists on which the bank can rely in processing the transaction.
The Supreme Court noted that, in those circumstances, the bank itself would also be acting without actual or apparent authority from the customer in seeking to debit the customer’s account. As such, the customer would be entitled to require the account to be credited with the sums transferred. Whilst not relevant to this particular case, where the Quincecare duty is engaged this re-formulation of the basis for the duty can be expected to affect the legal basis on which such claims are pursued.
In the current case, though, where Mrs Philipp gave the instruction herself (and, indeed, confirmed that instruction when queried by Barclays), no Quincecare duty framed in such a way could arise. Rather, Mrs. Philipp had personally, directly and unquestionably requested the payment, which was reconfirmed before being processed, and Barclays’ duty was to carry out those clear instruction from its customer. No breach of duty could therefore exist.
What does the decision mean?
For banks and other payment services providers, the Supreme Court having confined the Quincecare duty should be a welcome development. The Court of Appeal’s reformulation of the duty would have opened the door to claims in a wider array of circumstances than this tightened test will allow.
In the context of APP fraud, however, the dismissal of Mrs Philipp’s claim does not operate as a clean break for payment services providers. For those already signed up to the Contingent Reimbursement Model Code for APP scams, a voluntary obligation to repatriate or reimburse funds in certain circumstances where there has been an APP fraud already exists. For others, following the recent passing of the Financial Services and Markets Act 2023, the Payment Systems Regulator is already well on the way to establishing a mandatory reimbursement mechanism for victims of APP fraud committed within the UK through Faster Payments (although this would not have assisted Mrs Philipp). In circumstances where APP scams continue to be a major source of fraud on consumers, these regulatory interventions will arguably have a wider impact than institutions dealing with claims from individual customers had Mrs Philipp’s claim succeeded.
As for Mrs Philipps, the Supreme Court has left one door open. It found that her claim that Barclays had failed to act promptly to try and recall the payments after the fraud was discovered was not one which could be disposed of summarily. That claim will therefore proceed to trial, albeit the Supreme Court considered the likelihood that funds could have been recovered seemed ‘slim’.