Quincecare duty of care not confined to companies and agents
The law around the Quincecare duty continues to evolve at pace, following our recent review of Stanford International Bank Limited v HSBC Bank plc  EWCA Civ 535. In summary, the general principle is that a bank can be liable if it has breached a duty to exercise reasonable care and skill in carrying out a customer’s instructions, where the relevant bank is put on enquiry that it may facilitate a fraud on the customer.
In a recent Court of Appeal judgment, Philipp v Barclays Bank UK Plc  EWCA Civ 318, the Court concluded that whether the bank owed such a duty does not depend on whether it was instructed by a customer company’s agent. The Court also decided that it is arguable that the duty also extends to individual customers whose funds are the target of attempted misappropriation by a third party.
The claimant, Mrs Philipp, was the victim of ‘authorised push payment’ (APP) fraud in spring 2018, where she was deceived by a fraudster to instruct her bank to transfer money from her account into an account controlled by the fraudster. It is referred to as ‘authorised’ because, from the bank’s perspective, the customer has instructed the bank to make payment.
In this particular case, Mrs Philipp was defrauded of a majority of her and her husband’s life savings, over £700,000, after being convinced by the assailant that she was cooperating with the Financial Conduct Authority (FCA) and National Crime Agency (NCA). Mrs Philipp visited a bank branch to make two transfers from her account to recipients’ accounts in the United Arab Emirates, on the instruction of the fraudster, because she had been convinced that this would assist the FCA and NCA and protect her savings from an alleged fraud.
Mrs Philipp brought a claim against Barclays for breach of duty, based either in tort, statute, or on an implied term in the contract with the bank. The duty was characterised as one to observe reasonable care and skill in and about executing her instructions, of the Quincecare type.
The Quincecare duty
The duty arises from the eponymous Barclays Bank plc V Quincecare Limited  4 All ER 363, in which it was held that a bank owes an implied duty to exercise reasonable care and skill when executing a customer’s instructions, which includes not executing payment instructions if there are reasonable grounds for believing they are an attempt to misappropriate funds. Originally, the duty was intended to strike a balance between the desire to protect customers from fraud without imposing overly burdensome obligations on banking transactions. Whilst dormant in the courts for over two decades, since the Singularis judgment in the Supreme Court, it is now seeing a resurgence and is evolving rapidly, as the courts continue to determine the careful calibration of the competing interests.
Circuit Commercial Court decision
Barclays argued that the case should be struck out on a summary basis given that, as a matter of law, there was no duty of care in these circumstances. The bank also relied on causation, arguing that Mrs Philipp had been so thoroughly deceived that she did not trust the police or bank and was, in fact, lying about the purpose of the transfers to the bank. Therefore, even if the bank had taken the steps it was alleged to have been required to have taken (i.e. delayed the transfers, made inquiries to understand what was happening and warned Mrs Philipp of the risks), the transfers would have taken place in any event. The Court accepted the bank’s primary argument in relation to the duty of care, but considered that if that ground had been rejected causation would be a matter for trial.
The Circuit Commercial Court concluded it would otherwise be an “unprincipled and impermissible extension” of the Quincecare duty, partly on the basis of the bank’s submissions that such a duty would be unworkable in practice and inquiries of the nature suggested by Mrs Philipp would be commercially unrealistic. Mrs Philipp’s case was struck out.
Court of Appeal decision
The extent of the Quincecare duty
Mrs Phillip then appealed to the Court of Appeal. She argued the existence of the pleaded duty ought to be seen as a proper application of the reasoning which supports the existence of such a duty, or else it should be recognised as a legitimate incremental development of that line of authority.
The Consumers Association, Which?, successfully applied for permission to intervene in the appeal and contended (among other things) that:
- the Quincecare duty is unremarkable and it would be illogical to confine it to companies or agents; and
- (ii) Barclays was wrong to suggest the duty would be unworkable, when ordinary banking practice at the relevant time was more advanced than the Circuit Commercial Court judge had appreciated.
The bank argued its duty only related to interpreting, ascertaining and acting in accordance with a customer’s instructions, which on the facts, was to make the transfers. The Quincecare duty was irrelevant, as it was only concerned with the proper ascertainment of instructions and arises when the instructions are given by an agent, usually of a company. As if the agents’ instructions are vitiated by fraud, then the bank has no proper instructions, triggering the Quincecare duty.
The Court of Appeal dismissed the application and overturned the Circuit Commercial Court judgment, concluding that the Quincecare duty is not dependent upon the bank being instructed by an agent of the customer of the bank. Therefore, it was “at least possible in principle that a relevant duty of care could arise in the case of a customer instructing their bank to make a payment when that customer is the victim of APP fraud”. Whether such a duty arises in the case could only be determined at trial.
The Court of Appeal noted that whilst the facts in the major Quincecare cases had involved instructions from a fraudulent agent acting for a company or firm, it was the reasoning of those cases which mattered, which did not depend on whether an agent was giving the instruction. Instead, it was capable of applying equally to an individual customer who was the victim of APP fraud, provided the circumstances were such that the bank was on inquiry that executing the order would result in the customer’s funds being misappropriated (relying directly on the opening passages of Lady Hale’s judgment in Singularis).
The Court of Appeal confirmed the duty might assist the bank to save it from liability caused by acting without instructions, but it did not exist to protect the bank. The Court acknowledged the tension between a bank’s duty to execute transactions and exercise reasonable skill and care, concluding that the case law clearly recognised that the bank’s duty to execute the customer’s instruction is not absolute but is subject to its duty of care when carrying out those instructions. The bank’s obligation is not “simply and always to execute every payment instruction of whatever kind unthinkingly”.
In relation to the bank’s arguments about the workability of the duty, the Court emphasised the duty was conditioned by whatever ordinary banking practice is at the relevant time – it is what would have put an ordinary prudent banker on inquiry about an attempt to misappropriate funds. Whilst Barclays argued that allowing the appeal would involve identifying a novel duty of care, or at least an unwarranted extension of Quincecare, the right way to approach the Quincecare duty was not to limit it only to instructions being given by agents.
Applications for summary judgment
The Court of Appeal summarised the accepted authorities on the correct approach to such applications as warning against carrying out a mini trial, but also recognising that if a short point of law arises which can be decided because all the evidence necessary to decide it is before the court, then the court can do so. The Court of Appeal concluded that the Circuit Commercial Court had been drawn into a mini trial, in part due to the persuasive nature of the submissions made by the bank in relation to the workability of the duty. Where a court is asked whether to develop an area of law or not, and in circumstances where the duty and standard of care are so closely related, these should be indicators that the matter should be dealt with at trial.
This case could potentially have far-reaching ramifications for the banking industry. Financial fraud presents an ever-increasing risk, and APP fraud, in particular, is very common. Even if this case settles before trial, the stance taken by the Court of Appeal is likely to encourage other victims of fraud to bring forward Quincecare-based claims. If the case proceeds to trial and the duty is found to exist, it may open the gates for many claims against banks, both for individuals and companies who fall victim to fraud.
Whilst the Court of Appeal only had to determine the test applicable to summary judgment, it demonstrates the courts’ continued willingness to engage in a balancing act between the interests of banks in carrying out transactions without onerous requirements and risk, whilst protecting customers from the perils of fraud. The judgment also serves as a reminder of the appropriate parameters of summary judgment applications and reinforces the courts’ reluctance to determine questions of law of this sort in a summary procedure, when instead they should be “decided on the basis of actual facts”. The outcome of this case is awaited with interest.
Hausfeld continues to work on a number of instructions in relation to this area, and we expect claimants to present an increasing number of Quincecare-related claims. The English courts will continue to grapple with these issues over the coming years and there is the potential for case law to provide guidance on a wider range of circumstances where the Quincecare duty will apply.