It's out! The Supreme Court has handed down its keenly awaited judgment on whether banks owe a Quincecare duty not to carry out a customer's instructions in cases of suspected fraud. Our previous article on this case can be found here. The Supreme Court has unanimously overturned the Court of Appeal's ruling and has stated that a bank's Quincecare duty is not extended in cases where a customer themselves has authorised a transfer, even if the customer was unaware that a fraud was being perpetrated upon them.
Mr and Mrs Philipp fell victim to an APP fraud, having been deceived by criminals to instruct Barclays to transfer £7,00,000 to bank accounts in the UAE. The money was lost. The question is whether Barclays was responsible for the loss. Was the bank under a duty not to carry out Mrs Philipp's payment instructions if it could be shown that it had reasonable grounds for believing Mrs Philipp was being defrauded?
- Losses suffered by victims of APP fraud is now the subject of legislation. The Financial Services and Markets Act 2023 (FSMA), which received royal assent on 29 June, makes provision for a mandatory reimbursement scheme. However, this scheme does not extend to international payments, and so does not apply in this case (as Mrs Phillip instructed the payments to be sent to UAE).
- In the absence of such a scheme that can be relied upon, the relationship between a bank and its customer is a contractual one. The bank's main and well-established mandate under such a contract is to follow a customer's instructions to make a payment and to do so promptly. In circumstances where a customer has authorised a payment themselves (and not via an agent), and where there is no express provision written into a contract that a bank will not comply with a payment instruction if it has reasonable belief that a customer is being defrauded, it is not for a bank to concern itself with the wisdom or risks of a customer's payment decisions. There is no such implied term into a contract between a bank and its customer – to imply such a term would be inconsistent with the ordinary and strict duty of a bank to carry out a customer's instruction.
- The original purpose of the established Quincecare duty was to protect a customer in circumstances where a bank received a payment instruction from an agent of a customer and, in those circumstances, if the bank has reasonable grounds to believe that the agent is defrauding the customer, it owes a duty not to carry out that instruction. This remains good law. This reasoning does not apply in this case, where there was no agent involved and the customer herself personally gave instructions. The validity of the instructions is not in doubt and it is not in dispute that Mrs Phillip authorised the bank to make the payments.
- Mrs Phillip has an alternative claim – that the bank was in breach of duty in not acting promptly to try to recall the payments after being notified of the fraud. This cannot be considered by the courts without a full investigation of the facts, which requires a trial. The Supreme Court therefore restored the order granting Barclays summary judgment, but varied the order to permit Mrs Phillip to maintain her alternative claim based on the bank's alleged failure to act promptly to try to recall the payments.
This landmark decision clarifies the scope of the Quincecare duty, reverting to the previous understanding that the Quincecare duty is there to protect customers where an agent is involved. It does not extend to situations where a customer gives a payment instruction to a bank themselves. This decision will give comfort to banks, at least for the time being. Banks can continue to act in the knowledge that it is their duty to follow a customer's payment instruction, without the need to concern itself with the wisdom of any such instruction. (Albeit a bank will still need to watch out for UK to UK transactions).
Most victims of APP fraud will only able to rely upon the new mandatory reimbursement scheme to seek to recover their losses, which will only apply if they are UK based and have made a payment to another UK bank account.
But it is not over yet. Mrs Phillip has permission to proceed with her alternative claim against Barclays that it failed to act promptly to recall her payments when it was notified of the fraud. Whilst the scope of the Quincecare duty has been clarified, Barclays may still be found to be liable under the alternative claim. Watch this space.