Author: Syedur Rahman
24 July 2023
4 min read
Syed Rahman assesses the ruling that means victims of authorised push payment fraud cannot seek reimbursement from their bank.
The Supreme Court handed down its judgment in Philipp v Barclays Bank UK PLC  UKSC 25 and unanimously ruled against extending the Quincecare duty.
The matter concerned a fraud that occurred in 2018 whereby Mrs Fiona Philipp and her husband, Dr Robin Philipp, were convinced to instruct Barclays to transfer over £700,000 to a UAE bank account. The basis of Mrs Philipp’s claim was that the bank owed a duty of care to her not to make the transfers if it had reasonable grounds to believe that she was being defrauded.
But the Supreme Court disagreed with the Court of Appeal’s decision and ruled in favour of Barclays. It means that victims of authorised push payment (APP) fraud cannot call on a long-established duty of care known as the Quincecare duty to seek reimbursement of funds from their bank or other payment service provider.
Whilst this matter concerned an issue of law - and not necessarily the facts - it should be noted that this was an incredibly sophisticated fraud scheme. The fraudster convinced Mrs Philipp that they worked for the Financial Conduct Authority (FCA) and even convinced her not to cooperate with the police. Two months after being notified of the fraudulent activity, the bank attempted to recall the funds. But its attempts were unsuccessful.
As the judgment sets out, fraud such as APP is a growing social issue with potentially devastating effects. It has grown to be such a problem that it has become, in part, the subject of recent legislative reform under Section 72 of the Financial Services and Markets Act 2023, which received Royal Assent on 29 June 2023. Whilst this provision is not without its limitations, it does provide some protection to consumers by introducing a requirement to reimburse payments which were made “subsequent to fraud or dishonesty”. It is worth noting that the court made it expressly clear that it is not the role of the courts to address or remedy this social issue - it is the role of parliament.
There is an interesting comparison to be made in light of the Law Commission’s recent recommendation in relation to crypto assets. In this instance, the Commission took the view that the court should continue to regulate this sector. Whilst they are not direct comparisons, it does nonetheless seem that both government and the courts are reluctant to take on the responsibility of further regulatory development.
The premise of the Supreme Court’s decision in this case to reverse the Court of Appeal’s position is that, should the bank have refused to act on the customer’s direct instructions, it would have been in breach of its fiduciary duties and thus a breach of trust would thereby be committed. The bank’s obligation to act in accordance with its mandate is strict.
The factual difference – and, therefore, the difference in application of principle of law - in this case compared to that which was established in Barclays Bank plc v Quincecare Ltd  4 AII ER 363 is that where the bank received instructions directly from the consumer, and not via an agent, they are to act in accordance with the consumer’s instructions.
The duty of care to prevent fraudulent transfers in instances where instructions are received by an agent arises from the principle that the bank owes a duty to ensure such transfers are indeed in accordance with the consumer’s intentions, in circumstances where the bank has reasonable grounds to believe such transfers might be resulting from fraudulent activity.
In this present matter, given that the instructions came directly from Mrs Philipp, there was no duty on the bank to ensure the instructions were as she had intended - and thus no requirement to prevent the transaction.
A point to note is that the bank’s limitation to execute a valid payment mandate would exist where there are circumstances that alert the bank to the need to prevent the payment – circumstances that the account holder themselves was not aware of. But in this case, Mrs Philipp was aware that the transfer was for a significant sum of money, to a UAE bank account and to an entity with which she had no historic dealings, so it was not for the bank to assume these risks on Mrs Philipp’s behalf.
This is not, however, the end of this case. Mrs Philipp has made further arguments that the bank was in breach of duty after the fraud had been discovered, in not taking adequate steps to recover the money which had been transferred to the UAE. Mrs Philipp alleges that the bank should have taken steps to recall the funds once they received the tip-off from the police regarding the fraud.
However, the bank did not do so for over two and a half months, by which point it was too late. This is, however, an issue for trial and so this point remains to be decided.
There is, quite clearly, a conflict between a bank’s duty to act in accordance with an account holder’s instructions and its need to not be aiding fraud. However, this ruling is clear in that “it is not for the bank to concern itself with the wisdom of risks of its customer’s payment decision.”
Whilst this will be a welcome ruling for banks, this judgment is not without its criticisms. With fraud on the rise, this places yet further onus on the individual to take steps to avoid falling foul of fraudulent activity.
This is, arguably, a high order given those who find themselves victims of these types of fraud are not aware in the first instance of either what the fraud is that they are facing or what tactics are used to facilitate such fraud.
Given that banks operate in a sector where this is rife, there are arguments to be made that the onus should be on them, rather than the uneducated individual, to prevent such fraud.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.