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Banks’ duties to defrauded customers in authorised push payment fraud
- Oct 26, 2023
- Latest Journal
Philipp (Respondent) v Barclays Bank UK PLC (Appellant)  UKSC25.
Philipp: the facts
In Philipp, Mrs Philipp and Dr Philipp were the victims of a fraud in March 2018. The fraudsters claimed to be working for the Financial Conduct Authority and National Crime Agency and convinced Mrs Phillipp to transfer £700,000 of their money to “safe accounts” in the United Arab Emirates (the Transactions).
Prior to the Transactions, Barclays Bank (the Bank) telephoned Mrs Philipp to confirm that she had made the transfer request and wished to proceed. Mrs Philipp provided such confirmation. Upon realisation of the fraud the Bank later made attempts to recall the funds but were unsuccessful.
Mrs Philipp is the victim of ‘authorised push payment fraud’ (APP Fraud), being where a customer instructs (and gives its consent to) its bank to transfer money from its account to someone else.
Legal relationship between bank and customer
The starting point is that a bank, acting as its customer’s agent, is bound to act in accordance with the instructions or ‘mandate’ of its customer. This is a strict duty.
In exercising the payment instructions of its customer(s), banks owe their customers a duty to observe reasonable skill and care in and about executing their customer’s order, arising from common law and statute (being s13 of the Supply of Goods and Services Act 1982).
The Quincecare duty, constitutes an exception from a bank’s strict duty to comply with the mandate from its customer and carry out its payment instructions. Philipp considers whether the Quincecare duty extends to instances of APP Fraud.
Barclays Bank plc v Quincecare Ltd  4 All ER 363 clarified that, in circumstances where a bank suspects that the instruction was a fraud on the customer, a bank has a duty not to execute payment instructions.
The reliance on the Quincecare Duty in Philipp
Mrs Philipp issued proceedings against the Bank for allegedly failing to comply with the ‘Quincecare duty’, which she alleged was owed to her under the contract between her and her Bank.
Mrs Philipp formulated the Quincecare duty as being: “a duty [on her Bank] to refrain from executing an order of Mrs Philipp 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 from Mrs Philipp.” Mrs Philipps’ case was that, had the Quincecare duty been complied with, the Bank would have prevented the Transactions from taking place, by declining her instructions, stopping her from suffering financial loss.
If successful, the case would extend the application of the Quincecare duty to instances of APP Fraud. Consequences would include an onerous increase of the duties of banks to its customers. This outcome could open the floodgates to APP Fraud claims against banks. The Bank’s case was that the Quincecare duty did not extend to instances of APP Fraud. The Bank relied on previous Quincecare case law which imposed liability on a bank where an agent of a corporate customer (for example an officer of a company) instructed its bank to make a transaction on behalf of the company. Such transactions were fraudulent as it was made on behalf of a company which would not have authorised the agent to bind it in such a way. Philipp was different as Mrs Philipp herself authorised the transactions to her Bank a key feature of APP Fraud.
The Bank applied for strike out and/or summary judgment against Mrs Philipp on the primary basis that the Bank were not liable to Mrs Philipp for breach of the Quincecare duty as alleged.
Supreme Court Decision
The first instance Judge had rejected Mrs Phillipps’ case, finding that her argument invited the court to extend the scope of the Quincecare duty beyond its established boundaries. The Court of Appeal reversed this decision, finding It possible in principle that the relevant duty of care could arise in the context of APP Fraud. The Supreme Court then clarified that the Quincecare duty
“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. If the bank executes the instruction without making such inquiries and the instruction proves to have been given without the customer’s authority, the bank will be in breach of duty.”
The Supreme Court confirmed the agency requirement for the existence of the Quincecare duty (where an agent of a customer provides an instruction). Further it confirmed that where a bank has reasonable grounds to suspect fraud following an agent of a customer providing an instruction, it must first make inquiries to confirm with the customer that the instruction was authorised.
The Supreme Court went on to clarify that: “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”.
The Supreme Court confirmed that the Quincecare duty does not apply in the APP Fraud context. In such circumstances, a bank is under no duty to make inquiries of its customer and the bank complying with its strict mandate to carry out the instructions of its customer is paramount.
This decision will give banks guidance as to their duties to their customers and the extent of their duty to act with reasonable skill and care. It also re-emphasises the importance of the banks’ duties to execute its customers payment instructions. For victims of APP Fraud, the loss will likely lie with them and is not recoverable from their bank.
 Philipp (Respondent) v Barclays Bank UK PLC (Appellant)  UKSC 25
 The Bank cited alternative defences including causation which are outside the scope of this article
 Paragraph 97 of the Supreme Court judgment at https://www.supremecourt.uk/cases/docs/uksc-2022-0075-judgment.pdf
 Paragraph 98 of the Supreme Court judgment