The eagerly anticipated judgment in Philipp v Barclays Bank UK plc was handed down by the Supreme Court early last month and it confirmed that banks do not owe a duty of care to individual customers who have given the bank a valid payment instruction even if the instructions were given because of fraud.
Fact of the Case
The facts of the case are complicated but in summary, Mr. and Mrs. Philipp were the victims of a fraudster who posed as an employee of the Financial Conduct Authority and said he was working with the National Crime Agency.
The fraudster persuaded Mrs. Philipp to transfer £700,000 to various accounts in the United Arab Emirates and she did so believing the funds were at risk in her bank account in the UK.
When Mrs. Philipp realised that she had been the victim of a fraud, she asked Barclays to recall the funds that had been transferred but Barclays was unable to do so.
Mrs. Philipp then bought a claim against Barclays alleging it had failed in its duty to her to exercise reasonable care and skill in carrying out her instructions, relying on the duty that was established by the High Court in 1992 in Barclays Bank plc v Quincecare Ltd (known as the ‘Quincecare duty’). Mrs Phillip alleged that the Quincecare duty meant that Barclays had a duty to refrain from carrying out her instructions to transfer the funds if it had reasonable grounds for believing the instructions were an attempt to misappropriate the funds belonging to her.
Mrs. Philipp also alleged as an alternative claim that Barclays was in breach of its duty to her by failing to promptly recall the funds once Barclays had been notified that the payments were fraudulent.
The Decision
The court analysed the nature of the contract between Mrs. Philipp and Barclays and held that it was the Bank’s duty to carry out a payment instruction for a customer as long as the customer’s account is in credit. In carrying out the payment instruction, the bank acts as the agent of the customer and its duty is to carry out the instruction promptly unless the contract provides otherwise. It is not for the bank to question the wisdom or otherwise of any payment instruction.
The court held that the Quincecare duty was not applicable in this case as the payment instructions were given by Mrs. Philipp and not an agent on her behalf so there was no doubt that Mrs. Philipp had authorised the payments.
In those cases where the courts have held the Quincecare duty to exist, the bank had executed payment instructions without first making inquiries of the customer to check that the instructions had been authorised by the customer, and in those cases the payment instructions had been given by the customer’s agent without the customer’s authority.
Whilst Mrs. Philipp’s claim alleging a breach of the Quincecare duty was struck out, the court did not strike out Mrs. Philipp’s alternative claim that Barclays did not act promptly to recover the funds, and it is expected that this claim will proceed to trial.
Implications of the Case
The scope of the Quincecare duty is now very clear and banks will be relieved (even if that relief is short lived) that the scope is now narrower and does not apply to individual customers executing payment instructions even if those payment instructions are made on the instigation of a fraudster. It is only if those payment instructions are executed by an agent on behalf of a customer will the Quinecare duty be applicable and arguably the customer has adequate remedy under the principles of agency against the rogue agent.
Changes in the Law
If nothing else the facts of this case show the elaborate and extensive ways in which fraudsters operate, even posing as regulators and other officials. Whilst the facts of this case are bizarre, they are not uncommon and in recent years it has been acknowledged that these kind of scams will become ever more elaborate and complex and as a result there is a need to provide protection to customers of banks and payment companies that are defrauded in this way.
The Financial Services and Markets Act 2023 which received royal assent on 29 June 2023, provides for a mandatory reimbursement scheme for victims of authorised push payment fraud (‘APP’).
APP fraud occurs when fraudsters deceive customers or individuals at a business to send them a payment under false pretences to a bank account controlled by the fraudster. The mandatory reimbursement scheme is due to come into force in 2024 but it does not apply to international payments so it would not have assisted Mrs. Philipp in her claim if it had been in force.
