APP Fraud: Court of Appeal overturns Barclays’ judgment
In an important decision concerning authorised push payment (“APP”) fraud, the Court of Appeal has overturned a High Court judgment which limited a bank’s Quincecare duty to circumstances where a bank was instructed by an agent of the customer of the bank (effectively limiting the duty to corporate customers).
The decision at the time was a disappointment to non-corporate victims of APP fraud for whom it is incredibly difficult to recover their losses. On the other hand, banks breathed a sigh of relief that the potentially onerous Quincecare duty had been restricted in scope.
The Court of Appeal has allowed Mrs Philipps’ appeal against Barclays Bank acknowledging that it is “…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.”
The case will now proceed to trial.
- Philipp v Barclays Bank UK PLC (and the Consumers’ Association Intervening Party)  EWCA Civ 318
- The case arises as a result of a fraud on Dr and Mrs Philipp which persuaded them to transfer payments of £400,000 and £300,000 to accounts in the United Arab Emirates in the belief that in doing so they were assisting the authorities to bring fraudsters to justice and protecting their funds from fraud.
- Mrs Philipp instructed Barclays Bank plc (“Barclays”) to transfer the funds in person at two different branches, neither of which were her account holding bank. The payments were made, and the funds were lost to fraudsters.
- Mrs Philipp brought an action against Barclays for breach of duty, specifically breach of the Quincecare duty (see our previous article on the Quincecare duty).
- It is alleged that general banking practice at the time meant that Barclays ought to have in place policies and procedures for the purpose of detecting and preventing potential APP fraud.
- The High Court granted summary judgment in favour of Barclays striking out Mrs Philipp’s case.
- The issue on appeal relates generally to the question of whether the bank owes the customer a duty of care in these circumstances.
High Court decision
The case of Barclays Bank v Quincecare  4 All ER 363 held that it was:
- “…an implied term of the contract between a bank and its customer that the bank would use reasonable skill and care in and about executing the customer’s orders; this was subject to the conflicting duty to execute those orders promptly so as to avoid causing financial loss to the customer;
- But there would be liability if the bank executed the order knowing it to be dishonestly given, or shut its eyes to the obvious fact of the dishonesty, or acted recklessly in failing to make such inquiries as an honest and reasonable man would make; and the bank should refrain from executing an order if and for so long as it was put on inquiry by having reasonable grounds for believing that the order was an attempt to misappropriate funds.” (our emphasis)
The argument brought on behalf of Mrs Philipp was that there are various features of the payments and of Mrs Philipp’s situation that would have alerted an ordinary prudent banker to the problem (i.e. to the fraud that was being perpetrated against the Philipps), with the result that the payments would have been delayed and questions asked to get to the bottom of what was going on.
In the High Court, the judge was persuaded by the bank’s argument that to impose a duty of care in these circumstances would be unworkable and “commercially unrealistic” in practice. He stated that: “…it would not be fair, just or reasonable to impose liability on the part of the Bank in respect of the APP fraud perpetrated upon Mrs Philipp.”
It was submitted on behalf of Mrs Philipp that it is (at least) properly arguable that a duty of care does arise and therefore the matter ought to have proceeded to trial rather than be dealt with summarily. Mrs Philipp argued that the duty of care is a species of the duty to act with reasonable care and skill in executing her instructions, and its existence ought to be seen as a proper application of the reasoning that supports the existence of the Quincecare duty or else it should be recognised as a legitimate development of that line of authority.
Barclays argued that the only relevant duty relates to “…properly interpreting, ascertaining and acting in accordance with those [the customer’s] instructions.” Barclays also argued that on the basis of the Quincecare case authorities, the Quincecare duty “…is only concerned with the proper ascertainment of instructions and arises when the instructions are being given by an agent, usually an agent of a company.” Barclays argued that where an agent’s instructions were based on fraud, then the bank is, in effect, without proper instructions which gives rise to circumstances where a duty not to execute those instructions can arise.
Which? Consumer Group was also given permission to make submissions and contended that Barclays was wrong to say that the duty would be onerous or unworkable, and that by 2018 ordinary banking practices were more advanced than was appreciated by the judge.
Court of Appeal decision
Lord Justice Birss gave the leading judgment and rejected Barclays’ analysis of the Quincecare case authorities. He stated that although the factual circumstances of the major Quincecare cases have involved instructions from a fraudulent agent acting for a company or firm, the reasoning in these cases is not limited to such circumstances. He explains that the line of reasoning “…does not depend on whether the instruction is being given by an agent. It is capable of applying with equal force to a case in which the instruction to the bank is given by a customer themselves…”. (our emphasis)
This is an important acknowledgement that the Quincecare duty can, in principle, apply where an individual customer (upon whom the fraud is being perpetrated) authorises a payment; the only caveat being that the circumstances are such that the bank is “on inquiry” that executing the instructions would result in the customer’s funds being misappropriated.
Birss LJ stated that the purpose of the duty “…is to protect the customer… It does not exist to protect the bank.” He goes on to state that: “The important point is that the bank’s obligation is not simply and always to execute every payment instruction of whatever kind unthinkingly.” He explains: “…the point is that the cases clearly recognise 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.”
As to the issue of the duty being “onerous and unworkable”, Birss LJ concluded that this issue could not have been decided without a trial and cited ample evidence to make it arguable that the duty of care was neither unworkable nor onerous. Birss LJ also dismissed concerns that the duty would be unworkable in the context of the huge number of banking transactions executed every day. He explained that the Quincecare duty is “…a duty conditioned by whatever ordinary banking practice is at the relevant time.” Birss LJ also rejected the argument that recognising a duty in these circumstances would be to identify a novel duty of care, or an unwarranted extension of the Quincecare duty.
Impact on banks and other financial services providers
Birss LJ stated that the purpose of the Quincecare duty is to protect the customer and not the bank. The decision also recognises the importance of the role of banks in the fight against fraud with Birss LJ giving a nod to the judgment of Andrew Burrows QC in Nigeria v JP Morgan Chase Bank NA  EWHC 347 (Comm) in which he stated that “…in the fight to combat fraud, banks with the relevant reasonable grounds for belief should not sit back and do nothing.”
It is fair to say that banks and other financial service providers do recognise their significant role in preventing fraud and are making great advances in fraud detection with the assistance of the latest technology. However, there is still ground to be gained in the fight against fraud, and for banks and financial services providers this includes:
- Enhanced fraud monitoring through greater use of technology
- Heightened awareness of the red flags of fraud amongst staff and customers – the importance of training and education cannot be underestimated here
- Ensuring that fraud analysts (and indeed banking staff that interact with customers) record in sufficient detail on their internal analysis notes why they did not take a view that a particular transaction was suspect (those notes will feed into resisting a Quincecare claim)
- More guidance on when transactions may be suspended if a bank considers a customer may have been tricked into a transaction
These last two points are important as there are circumstances where the victim is so persuaded by fraudsters that they become involved in deceiving the very institutions that are trying to protect them. In the case of Mrs Philipp, she had been so “thoroughly deceived” that she did not trust the police or the bank and lied to the bank about the purpose of the transfers. It will be interesting to see what impact these facts have at trial.
This decision is hugely significant for individual victims of APP fraud who have faced many hurdles in recovering losses suffered as a result of this type of fraud, especially in circumstances where (as is so often the case) payments are transferred to overseas accounts.
The decision reverses the limitation of the scope of the Quincecare duty advocated by the High Court in the Philipp’s claim, however whether or not the duty arises in a particular case and whether or not there was a breach of such duty will come down to the particular facts of the case including the ordinary banking practice at the time, knowledge of the bank accounts involved, and the facts presented to the banking staff at the time when instructions for payment were provided.
It will be interesting to see which way this case will be decided at trial – watch this space!