High Court upholds APP fraud victims' rights in landmark derivative action against PSP

Introduction

In a landmark decision, the High Court has ruled in favour of two victims of an authorised push payment (APP) fraud against a payment services provider (PSP), Moorwand Ltd, in the case Hamblin & Anor v Moorwand Ltd & Anor 2025 EWHC 817 (Ch). This case represents a novel attempt to bring an APP fraud claim against a financial services firm following the Supreme Court's decision in Philipp v Barclays Bank UK plc UKSC 25, which effectively barred such claims against a victim's own bank.

Moorwand Ltd, a PSP and Electronic Money Institution regulated by the Financial Conduct Authority, offered services including an "electronic wallet" under the name "UPayCard". RND Global Ltd, a company registered in England and Wales, held an account with Moorwand and was permitted to operate an electronic wallet enabling it to make and receive payments in various currencies, including bitcoin. This case relates to an APP fraud perpetrated against the Appellants, Mr. and Mrs. Hamblin, who were defrauded into making a payment to RND, which was then held as a credit in RND’s electronic wallet with Moorwand. The Appellants sought to recover the £160,000 through various legal avenues, including a derivative action on behalf of RND against the PSP.

Key issues and Court's findings:

Derivative claim

The Appellants were granted permission to bring a derivative action on behalf of RND against the PSP, alleging that the PSP breached its mandate by debiting RND's account without proper authorisation.

The High Court found that the PSP was on inquiry and should have verified the payment instructions given on behalf of RND. The court held that the PSP breached its Quincecare duty by failing to make necessary inquiries, thus acting outside the scope of its mandate.

Consequently, the PSP was ordered to restore the £160,000 to RND's account.

Exclusion clause

The agreement between RND and the PSP contained an exclusion clause that the High Court held applied only to claims for damages and not to the obligation to reinstate the account where a payment was made in breach of mandate.

The court ruled that interpreting the exclusion clause to cover the reinstatement obligation would effectively re-write the PSP's primary contractual duties.

Payment Services Regulations 2009

The Appellants contended that the payments made from RND's account were unauthorised under the 2009 Regulations.

The High Court dismissed this part of the appeal, holding that the PSP had observed the purely mechanical provisions regarding payment instructions. The Payment Services Regulations are concerned with transactional speed and efficiency, rather than the Quincecare duty.

Concluding remarks

Mr and Mrs Hamblin adopted an innovative approach by seeking redress indirectly through a derivative action. The case delves into such actions within the Quincecare framework, as well as the specific conditions that could alert a PSP to the need for further investigation, thereby activating their duty. The decision underscores the importance of financial institutions adhering to their mandates and exercising due diligence when handling payment instructions, especially in cases involving potential fraud.

The High Court's ruling in this case marks a significant development in the legal landscape for APP fraud victims, providing a potential pathway for claims against financial services firms through derivative actions. This decision highlights the need for PSPs to exercise reasonable skill and care in processing agent led payment instructions and reinforces the Quincecare duty's applicability in protecting corporate customers from fraudulent activities.