The other side of Quincecare: the route to recourse for account holders
Very few would disagree that it is important for borrowers, especially SMEs and individuals, to be afforded fair and appropriate protection against fraud, which is increasingly sophisticated and difficult to detect. The common law has already developed through tortious duties, and by extension the Quincecare duty, positive obligations to protect against harm.
The philosophy behind this protection is uncontroversial: those who are at a special disadvantage rightly require protection.
Our team has kept a close eye on the developments around the Quincecare duty and has shared their views on key decisions since 2021, as part of our Perspectives series. In this blog, we review what account holders can do when protective measures taken by financial institutions cause harm.
A tricky balancing act
The continuing development of the Quincecare duty has brought into spotlight the need to balance multiple factors for financial institutions, namely:
- fair and reasonable measures to reduce the risk of fraud
- compliance with anti-money laundering (AML) legislation
- the interests of maintaining a properly functioning and effective banking system and
- the autonomy of banking customers.
Inevitably there is a tension between these competing consideration as the common law position continues to evolve. In the meantime, the perfect recipe for ensuring fair outcomes for borrowers has not yet been written.
The unilateral imposition of overly rigorous protective measures by financial institutions risks disruption and harm. Financial institutions are not always competent or benevolent; not all users of financial institutions are equal. Unwanted intervention from a financial institution can result in significant financial loss where consenting parties are prevented from completing financial transactions. The inevitable uncertainty caused by this unwanted intervention, for example through frozen accounts, can compound this harm through a process that may be prolonged and is taken entirely out of the transacting parties’ control.
Methods of recourse and their challenges
The common law does not always provide a clear route for parties that are adversely impacted by proactive measures taken by financial institutions to protect against fraud or comply with AML rules, but this does not mean that legal recourse is unavailable. Claims may exist against financial institutions that cause account holders to suffer harm.
The Quincecare duty arises as part of a financial institution’s wider duty of care to account holders, which exists in tort and contract, to provide banking services with care and skill. It is important to remember that the standard of care to be applied, should be that of a reasonably competent bank. Therefore, malicious or unreasonable measures taken by financial institutions may give rise to claims, even where the financial institution purports to be acting in accordance with its Quincecare duty.
Claims in tort and contract may arise against the financial institution where it has failed to act with reasonable skill and care and the account holder has suffered loss. Claims in defamation may be available where the conduct of the financial institution has caused reputational harm. The central issue to determine in these circumstances is whether the financial institution has acted reasonably and fairly.
The voice of reason
The challenge for account holders is that they usually will not have visibility of the reasons relied upon by the financial institution. Financial institutions may be unable to explain the reason for the protective measures taken due to ‘tipping off’ risks, yet this does not provide institutions with a free pass to interfere with commercial transactions with impunity. The reasonableness or unreasonableness of the financial institution’s conduct can appropriately be explored through the pre-action protocols procedure, and proper engagement from both parties remains compulsory. Failure to engage properly in these processes by financial institutions will put them at risk of litigation and adverse costs.
As with all developing areas of the law, there is a risk of well-intended measures giving rise to adverse consequences. Borrowers who suffer loss as a result of unfair or unreasonable measures imposed by financial institutions should not simply accept this loss as an inevitable by-product of a changing relationship between financial institutions and account holders.
Instead, claims may be available against financial institutions that fail to discharge their duties lawfully, even under the guise of ‘protecting’ account holders from harm or complying with regulations.
 Maynard v West Midlands Regional Health Authority  1 WLR 634; Barclays Bank plc v Quincecare Ltd  4 All ER 363); Singularis Holdings Ltd (In Liquidation) v Daiwa Capital Markets Europe Ltd  UKSC 50; Philipp v Barclays Bank UK Plc  EWHC 10 (Comm); Philipp v Barclays Bank Plc  EWCA Civ 318.
 Lonsdale v National Westminster Bank Plc  EWHC 1843 (QB).