UK bank wins appeal against finding of duty not to carry out suspected fraudulent transaction authorised by customer
The UK Supreme Court has held that a high street bank did not have a duty not to carry out a customer’s instructions if it had reasonable grounds for believing that customer was defrauded after an appeal against a decision of the Court of Appeal of England & Wales finding that such a duty could exist.
Respondent Fiona Philipp, along with her husband Dr Robin Philipp, lost £700,000 to an authorised push payment (APP) fraud, having required to authorise the payments in their local branch of Barclays Bank. The bank had sought summary dismissal of the claim on the ground that as a matter of law it did not owe her the alleged duty.
The appeal was heard by the President and Deputy President of the Supreme Court, Lord Reed and Lord Hodge, along with Lord Sales, Lord Hamblen, and Lord Leggatt. Patrick Goodall KC led the representation team for the appellant and Hugh Sims KC for the respondent.
In 2018, the respondent was deceived into transferring £700,000 in two payments to accounts in the UAE by someone who claimed to work for the Financial Conduct Authority. In order to make the international payments she attended a branch of the bank in person and gave the relevant instructions. The couple eventually realised they were the victims of fraud but by that time it was not possible to recover the funds.
The respondent’s position was that the appellant owed her a duty under its contract with her or at common law not to carry out her payment instructions if, as was alleged, it had reasonable grounds for believing that she was being defrauded. The appellant applied to have the claim summarily dismissed on the ground that as a matter of law it did not owe Mrs Philipp the alleged duty.
The High Court judge who first heard the case agreed with this submission and granted summary judgment in favour of the Bank, but an appeal by Mrs Philipp to the Court of Appeal was allowed. The Court of Appeal accepted her argument in principle, drawing from the reasoning in Barclays Bank v Quincecare Ltd (1988) with the question of whether that duty arose determinable on a case by case basis. The appellant subsequently challenged that decision.
As an alternative claim, the respondent had argued that the bank was in breach of duty in not acting promptly in trying to recover the funds after being notified of the fraud. The appellant’s position was that, if there was such a duty, there was no realistic chance that the money would have been recovered if attempts to recall the payments had been made sooner. This claim was summarily dismissed by the High Court judge but was not addressed by the Court of Appeal as it had decided the main issue in Mrs Philipp’s favour.
Lord Leggatt, in a judgment with which the other four judges agreed, observed: “The type of fraud which occurred here is a growing social problem and can undoubtedly cause great hardship to its victims, as the sad facts of this case make all too clear. Whether victims of such frauds should be left to bear the loss themselves or whether losses should be redistributed by requiring banks which have made or received the payments on behalf of customers to reimburse victims of such crimes is a question of social policy for regulators, government and ultimately for Parliament to consider. It is in fact the subject of new legislation. But it is not a question for the courts.”
Addressing whether the Quincecare duty applied in this case, he said: “The duty of a bank which has come to be referred to as the ‘Quincecare duty’ is not, as that epithet might suggest, some special or idiosyncratic rule of law. Properly understood, it is simply an application of the general duty of care owed by a bank to interpret, ascertain and act in accordance with its customer’s instructions. Where a bank is ‘put on inquiry’ in the sense of having reasonable grounds for believing that a payment instruction given by an agent purportedly on behalf of the customer is an attempt to defraud the customer, this duty requires the bank to refrain from executing the instruction without first making inquiries to verify that the instruction has actually been authorised by the customer.”
He continued: “These principles have no application to a situation where, as in the present case, the customer is a victim of APP fraud. In this situation the validity of the instruction is not in doubt. Provided the instruction is clear and is given by the customer personally or by an agent acting with apparent authority, no inquiries are needed to clarify or verify what the bank must do. The bank’s duty is to execute the instruction and any refusal or failure to do so will prima facie be a breach of duty by the bank.”
Addressing an argument that the payment instruction given by Mrs Philipp did not reflect a true intention, he added: “This argument is not a good one. The fact that an intention or desire results from a mistaken belief does not make it any less real or genuinely held. That is so however the mistaken belief has come about, including where it has been induced by another person’s deceit. The law will sometimes relieve a person from the consequences of a mistake. But it is untrue to say that in such cases the person did not ‘really’ intend to act as they did.”
On the alternative strand of the respondent’s case, Lord Leggatt concluded: “[The High Court judge] ultimately concluded that, despite his doubts about the Bank’s ability to recover the payments after 27 March 2018, ‘there are too many imponderables in this counterfactual scenario for the matter to be decided against Mrs Philipp on paper’. That was a matter of judgment on which I do not think it would be right for this court to override the view taken by the judge. Although the judge did not himself draw this inference, it seems to me logically to follow from that conclusion that the claim for the loss of a chance of recovering money from the UAE should not have been summarily dismissed.”
The appeal was therefore allowed and summary judgment in favour of the appellant was restored. However, that order was varied insofar as to refuse summary judgment on the alternative case.