In 2018, Mrs Philipp and her husband, Dr Robin Philipp, fell victim to an authorised push payment (APP) fraud when they were deceived into instructing two payments totalling £700,000 from their Barclays account to bank accounts in the United Arab Emirates. Mrs Philipp and her husband had received calls from unidentified individuals, purporting to be from the Financial Conduct Authority, warning them that their money was in danger and needed to be urgently transferred to secure accounts. Mrs Philipp acted upon these calls and instructed Barclays to make the payments. Although attempts were made to recall the transfers, the sums were ultimately lost.
Mrs Philipp went on to claim that Barclays owed her a duty not to carry out her instructions if there were reasonable grounds to believe that she was being defrauded. The bank, however, argued that they had no such duty when clear instructions had been provided to them.
The main question for the Court was therefore to establish if Barclays were liable to Mrs Philipp for processing these payments which were made as a result of fraud.
Mrs Philipp based her claim on the “Quincecare duty”, established in Barclays Bank plc v Quincecare Ltd  4 All ER 363. This duty relates to carrying out a customer’s payment orders and requires that “a banker must refrain from executing an order if and for so long as the banker is ‘put on inquiry’ in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate the funds”. In Quincecare, an authorised agent made the instructions in order to perpetrate a fraud against the customer. Mrs Philipp claimed that this duty did not solely apply to cases in which the transfer of funds was instructed by an agent but that it was also applicable to situations in which the customer is unknowingly a victim of APP fraud.
Mrs Philipp also argued that the Quincecare duty was simply one aspect of Barclays’ duty of reasonable skill and care, both express and implied into such contracts between a bank and their customer, to make inquiries if it has reasonable grounds to believe that the customer is a victim of fraud.
Barclays denied that they were bound by the Quincecare duty as a matter of law and further argued that there were no express contractual provisions requiring them to carry out investigations in the circumstances of the case.
The Supreme Court unanimously rejected Mrs Philipp’s arguments. The Court stated that, where an account is in credit, a bank is obliged to make payments in accordance with the customer’s instructions. Unless otherwise agreed, the bank’s duty to comply with this mandate is strict. The Court therefore held that the Quincecare duty cannot arise where the customer has “unequivocally authorised and instructed the bank to make the payment”, as Mrs Philipp had done. Indeed, had the bank refused to carry out Mrs Philipp’s instructions, they would have been acting in breach of their contractual duties owed to her.
The Court further clarified that the Quincecare duty is only applicable to the law of agency and stated that “the characterisation of the present case as falling within what was decided in Quincecare therefore cannot be accepted”.
Finally, in respect of express contractual terms, the Court considered Barclay’s terms and conditions, which were accepted by both parties to be incorporated into the contract between Barclays and Mrs Philipp. The Court accepted that certain terms gave Barclays the right to decline to carry out an instruction but highlighted that this did not extend to Barclays having a duty to do so in this situation. Mrs Philipp was therefore unable to rely on the terms of the contract to recover the sums transferred.
While an English case, this judgment from the Supreme Court will no doubt be followed in Scotland and will thus come as a relief for banks UK-wide. The decision has reinforced the limitations of the Quincecare duty and the resultant liability of banks and other payment providers in respect of APP fraud. A finding against Barclays in this case may have led to a considerable number of claims against banks and so the floodgates have remained closed for now.
The Court did, however, make reference to the regulatory reforms currently ongoing in this area, including the Financial Services and Markets Act 2023 which received Royal Assent on 29 June 2023. This provides for a mandatory reimbursement scheme and amends regulation 90 of the Payment Services Regulations to allow liability to be imposed “where the payment order is executed subsequent to fraud or dishonesty” and is executed by an individual, charity or “micro-enterprises” using the Faster Payment Scheme. Although the circumstances are clearly limited, this provides some comfort for consumers moving forward against what is becoming an ever more prevalent risk.
This article was co-written by Fiona Hunt, Trainee Solicitor.