Quincecare Revisited: do banks have a duty to prevent authorised push payment fraud?

The Supreme Court handed down its unanimous and long-awaited judgment in the case of Philipp v Barclays Bank UK PLC on 12 July 2023. This case clarifies the nature and extent of the duties that a bank owes to its customers in relation to their payment instructions.

The facts

Mrs Philipp and her husband were contacted by a fraudster in early 2018 purporting to be working for the Financial Conduct Authority in conjunction with the National Crime Agency. The fraudster managed to convince them that they were at risk of a fraud in an investment firm where the Philipps had substantial savings and should move funds to “safe accounts” in the United Arab Emirates. The level of sophistication employed to convince the Philipps over time that this story was true was very high. Mrs Philipp duly instructed her bank, Barclays Bank UK PLC (Barclays), to effect transfers of £700,000 in total and Barclays, having checked her express instructions each time, duly did so. The funds disappeared from the “safe” account and could not be recovered.

Mrs Philipp contended that Barclays had a duty either in contract or at common law not to comply with her payment instructions where Barclays had reasonable grounds to believe that she was at risk of fraud and should have taken adequate steps to recover the payments once the fraud had been discovered. Therefore, Barclays should, she claimed, make good her £700,000 loss.

Why did Mrs Philipp take this view?

Mrs Philipp contended that a line of cases including Barclays Bank plc v Quincecare Ltd ([1992] 4 All ER 363) applied to the fraud she had suffered. This line of cases established the “Quincecare duty” on a bank to refuse to follow payment instructions given by a customer’s agent – being an authorised signatory on the account and including a corporate customer’s officers and shareholders – where the bank has reasonable grounds to suspect that the agent is defrauding the customer (e.g. instructions to pay off the agent’s own debts or to make payments that could not conceivably benefit the customer).

Mrs Philipp’s argument was that the “Quincecare duty” should either be extended in her case to apply to circumstances where a customer is a victim of an authorised push payment (APP) fraud or, alternatively, that Barclays had an implied contractual duty of reasonable skill and care in executing her orders and should have refused to execute an order without making inquiries where it had reasonable grounds to suspect fraud.

The Supreme Court’s decision

The Supreme Court held that the “Quincecare duty” did not apply in Mrs Philipp’s case and there was no express or implied term in the contract governing the operation of her bank account that would impose such a duty.

Lord Leggatt stated that the “Quincecare duty” is to protect a customer from fraud perpetrated by its agent and is a duty on the bank to verify that the agent’s instructions to the bank reflect the customer’s requirements. The facts were different in this case: Mrs Philipp was the customer giving the payment instructions to her bank and expected those instructions to be followed. As Lord Leggatt stated:

“Where the bank receives a valid payment order which is clear and leaves no room for interpretation or choice about what is required in order to carry out the order, the bank’s duty is simply to execute the order by making the requisite payment. The duty of care does not apply.”

He also stated that the “Quincecare duty” is not “some special or idiosyncratic rule of law” but is rather the application of a bank’s general duty of care to interpret, ascertain and act in accordance with its customer’s instructions.

Whilst sympathising with Mrs Philipp’s predicament, Lord Leggatt said that whether banks should be required to reimburse victims of fraud is a question of social policy for regulators, the Government and ultimately for Parliament to consider; it is not a question for the courts.

The only issue that the Supreme Court considered should not be dismissed was whether Barclays should have acted more quickly in trying to recover the payments once the fraud had been discovered. This question is likely to be the subject of more litigation.

Whilst the Supreme Court has made clear in this judgment that the “Quincecare duty” does not apply where customers have been duped into making payments, there are some protections for customers who have suffered APP fraud. A voluntary “Contingent Reimbursement Model Code” and the new Financial Services and Markets Act 2023 provide for the reimbursement of customers who are victims of such scams in certain cases, but their scope is limited and they do not apply to international payments such as those made by Mrs Philipp.

APP fraud is clearly a growing problem and fraudsters are becoming ever more sophisticated in their attempts to deceive victims. Sadly, Mrs Philipp’s case has shown that the safest course is for everyone to be highly sceptical of persons purporting to be from government agencies claiming that accounts or investments are at risk.

If you have questions or concerns about the issues arising from the Philipp v Barclays Bank UK PLC judgment, please contact Robert Spedding.