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The Quincecare Duty and APP fraud

Author: Nicola Sharp  18 February 2021
3 min read

Posted in: Commercial Litigation.

Nicola Sharp of Rahman Ravelli considers a recent case that examined banks’ duties to prevent customers falling victim to push payment fraud.

In the case of Philipp v Barclays Bank [2021] EWHC 10 (Comm), the court held that the Quincecare duty does not extend to authorised push payment (APP) fraud.

The case explored the scope of the Quincecare duty and its applicability in APP fraud. APP fraud is a fast-growing type of crime which occurs when a fraudster tricks an innocent account holder into willingly making genuinely authorised payment transfers to another account. The destination account belongs to the fraudster. Once the money lands in the destination account, the sender loses their money and becomes a victim of APP fraud. 

With such cases becoming increasingly common, this case is of particular significance.

What is the Quincecare Duty?

Almost 30 years ago, the case of Barclays Bank Plc v Quincecare [1992] 4 All ER 363 established that banks owe their customers a duty of care to take “reasonable skill and care” executing a payment on the instructions of the customer.

A consequence of the bank’s fiduciary duty to its customers is that it must hold back on executing a payment on its customer’s instruction if the payment may be fraudulent. This is not a high standard - a bank can typically assume a director of a corporate customer is not a fraudster. However, it was not until the Supreme Court judgment of Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2019] UKSC 50 that a bank in the UK (Daiwa) was actually found to be in breach of the Quincecare duty owed to its customer (Singularis). 

Philipp v Barclays Bank

The claimant (Mrs Philipp) and her husband (Dr Philipp) became victims of APP fraud in March 2018 when she was persuaded by the fraudsters to make substantial payments to them from her bank account that she held with Barclays. The fraudsters deceived her into believing that they were assisting an investigation run by the Financial Conduct Authority (FCA) and the National Crime Agency (NCA) into fraud at HSBC (Dr Philipp’s bank), and that their monies would be held safely after transfer. They convinced her to transfer £700,000 to accounts in the United Arab Emirates, which were run by those committing the fraud. 

Mrs Philipp brought a claim against Barclays, stating that it had breached the Quincecare duty of care it owed her. The claimant asserted that Barclays should have made more inquiries and prevented the payments from being made. It was put by the claimant that, by 2018, banks were very much aware of APP fraud and that Barclays should have had an appropriate system for detecting such fraud. Due to this, the claimant argued, Barclays should have done more to prevent the fraud that was committed against her. 

The bank applied to strike out the claim. Barclays’ main argument was that Mrs Philipp gave instructions to the bank to make the payment out of her account – and so it follows that the Quincecare duty did not extend to a duty to protect the claimant from the consequences of her actions, where there were no suspicious circumstances regarding her genuine instructions (even where the payments were in fact induced by fraud).

The court struck out Mrs Philipp’s claim and granted Barclays summary judgment. The judge agreed with the bank that, when the money was paid out, there were no reasonable grounds to believe that there was a fraud. It was said of banks that they “cannot be expected to carry out such urgent detective work, or treated as a gatekeeper [of] the commercial wisdom of the customer’s decision”. There was, therefore, no Quincecare duty for the bank to make inquiries and prevent the payments from being made – and, therefore, there was no breach of duty by the bank. Banks have a primary contractual duty to act upon their customer's payment instructions by making the payment.

Conclusion

In bringing this claim, the claimant sought to extend the duty to individual customers (as opposed to just corporate customers) and aimed to convince the court that the bank had breached the duty it owed to her in circumstances where she had genuinely and properly authorised the payment to the fraudsters. Such arguments were always going to be a challenge. This decision in Philipp v Barclays Bank has consequently helped to confirm that the Quincecare duty does not extend to individuals in APP fraud. 

The court’s unwillingness to extend the duty any further is unsurprising in the circumstances. But it once again raises the question of what banks could and should be doing to protect customers against those looking to commit fraud. This case precedes the FCA’s consultation on proposals to introduce an extensive duty of care owed by financial services providers to consumers, which is due in spring 2021. Any forthcoming appeal of Philipp v Barclays Bank and the FCA consultation will give further clarity on this contentious matter. 

 

Nicola Sharp C 09983

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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