The Quincecare duty has engaged the Supreme Court three times in the last six years. In Philipp v Barclays, the issue was whether the duty could extend beyond what has been referred to as the ‘internal fraud paradigm’ or the role of the trusted agent, and apply to a push payment fraud authorised directly by the bank’s customer.
Mr and Mrs Philipp were persuaded by a fraudster to transfer £700,000 to bank accounts operated by the fraudster based in the United Arab Emirates. Despite a warning from a police officer who had visited them at home that a fraud was being perpetrated against them, Mrs Philipp went into a branch of Barclays and authorised the payments to be made. Later, having been warned by the police, Barclays froze the bank account, which was in accordance with the contractual terms. This prevented Mrs Philipp from making a further payment to the fraudster of £250,000, though it did not stop her from trying to make a third payment.
Eventually, having finally been persuaded that she had been defrauded, Mrs Philipp sued the bank. She claimed that the bank was in breach of its duty of care not to carry out her instructions when it had reasonable grounds for believing that she was being defrauded.
The Courts below
At first instance, the High Court granted summary judgment in favour of the bank, because as a matter of law, the bank did not owe such a duty. However, on appeal, the Court of Appeal accepted that the bank did, as a matter of principle, owe a contractual duty as alleged, but that whether it applied on the facts was a matter for trial. The bank appealed this decision because it would have represented an expansion of the bank’s duty of care and it would effectively mean that victims of payment fraud could make a claim against a bank, when they had authorised the payments to the fraudster themselves, there being no agent. This was important to Mrs Philipp because otherwise she would not be able to recover the £700,000 from the bank.
The Supreme Court
Lord Leggatt (for the unanimous Court) decided:
- ‘It is a basic duty of a bank under its contract with a customer who has a current account in credit to make payments from the account in compliance with the customer’s instructions. This duty is strict. Where the customer has authorised and instructed the bank to make a payment, the bank must carry out the instruction promptly. It is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions.’ (Paragraph 3.)
- The reasoning in Barclays Bank plc v Quincecare Ltd, (the leading case) was ‘wrong.’ Steyn J had accepted that the bank faced two conflicting duties. The first was to act on the customer’s payment instructions promptly, the second was to refrain from doing so when it had reasonable grounds for believing that the instruction was an attempt by the customer’s agent to misappropriate the customer’s money. The reconciliation of these competing duties required the Court to balance the policy considerations.
Lord Leggatt held that this reasoning glossed over the distinction between an agent giving an instruction in an attempt to misappropriate the customer’s funds and the customer themselves giving a lawful instruction to the bank to make a payment to a third party.
‘A customer who is tricked by a fraudster into instructing her bank to make a payment is not attempting to misappropriate funds. She is attempting to cause the bank to transfer funds which are hers to dispose of in accordance with her own wishes.’ (Paragraph 59).
The bank’s duties do not conflict. When the customer’s instructions are clear, the duty to exercise reasonable skill and care does not apply.
Resorting to policy considerations in an effort to reconcile the apparent conflict is a second flaw in the reasoning that flows from the first. That is a matter for policy makers, not the Court.
- The Quincecare line of authorities are about ‘agency.’ They are agency cases. Properly understood the authority to act as an agent only includes the authority to act honestly in pursuit of the interests of the principal. Furthermore, a third party cannot rely upon the apparent authority of the agent if it failed to make enquiries that a reasonable person would have made in all the circumstances to verify that the agent had that authority.
Properly understood, the ‘Quincecare Duty’ is not a rule of law. It is simply part of the bank’s contractual duty to act on the customer’s instructions. When the bank is put on enquiry that the instruction of an agent is an attempt to misappropriate the funds of the customer, the bank must refrain from executing the instructions whilst checking with the customer that the instructions are authorised by the customer.
- Where a payment is made in breach of mandate, the bank is not entitled to debit the customer’s account. If it does so this gives rise to a debt claim, not a damages claim.
These principles had no application to Mrs Philipp’s claim. The validity of her instructions were not in doubt. The Court restored the summary judgment in favour of Barclays, though not in relation to an alternative claim that the bank was in breach of duty in not taking adequate steps to attempt to recover the money transferred to the UAE (though the prospect of any recovery had swift action been taken was described as ‘slim.’)
The judgment is helpful in clarifying the reasoning behind the Quincecare line of authorities. It was perhaps ambitious on the part of Mrs Philips to expect the Court to effectively reverse what Lady Hale had said in Singularis about the crucial role of the agent in these cases. This judgment emphasises why the role of the agent is paramount. Even then, the ‘Quincecare Duty’ is simply part of a bank’s contractual duty to act on a customer’s instructions. It does not have a life of its own.
The Financial Services and Markets Act 2023 provides for a mandatory reimbursement scheme, where a payment is executed by way of the Faster Payments Scheme within the UK, subsequent to fraud or dishonesty. This would not have assisted Mrs Philipp even if it had been in force at the time that she made her payments to the fraudster. It may however assist other victims and it may also have buttressed the Court’s decision in electing not to expand the duty, because the existence of a statutory scheme funded by the banks should mean that there will be far fewer incidents of such fraud.