Philipp v Barclays Bank UK plc: Supreme Court decides against imposing a so-called Quincecare duty for APP fraud victims: Key takeaways

Philipp v Barclays Bank [2] finally resolves the issue of whether this duty applies where customers authorise transactions as the result of fraud committed against them. The Supreme Court ruling that the Quincecare duty does not operate in the context of APP fraud [3] where the customer has unequivocally given the payment instruction (even if this was caused by fraud) will be welcome for payment services firms because:

• The Court of Appeal had previously accepted Mrs Philipp’s argument that, in principle, this so-called duty could be owed in the context of APP fraud even though there was no dispute that the customer had authorised the transaction and instructed the bank to make the relevant payments.

• If upheld, this decision would have led to considerable uncertainty as to the practical steps necessary for a payment service provider to take to avoid a potential liability.

The basic position of banker and customer is (for now, at least: see below) restored. It is clear that:

• So long as a customer’s account is in credit, the firm’s ordinary obligation, when instructed by its customer to make a payment from the account, is to carry out the instruction and make the payment. Unless otherwise agreed, the firm must execute the instruction and do so promptly. It is not for the firm to consider the wisdom or risks of its customer’s payment decisions.

• If a payment instruction is given by the customer’s agent, who is acting fraudulently, the firm would still generally be entitled to rely on the ostensible authority of the agent unless it has reasonable grounds to suspect that the instruction is an attempt to defraud the customer and is therefore given without the customer’s authority.

• These issues do not arise where there is no agent involved or any question about the absence of authority from the customer. In those circumstances, the firm’s duty is to execute the instruction promptly. Any refusal or failure to do so will be a breach of the ordinary obligation of the firm.

What are the practical implications of Philipp v Barclays Bank?

The Supreme Court’s decision has to be considered against the developing regulatory and legislative background. Section 72 of the Financial Services and Markets Act 2023, which received Royal Assent on 29 June 2023, provides for a mandatory reimbursement scheme for payments within the Faster Payment system. The Faster Payment system is where the vast majority of APP fraud happens, and the mandatory reimbursement scheme is due to come into effect in April 2024.

The mandatory reimbursement scheme builds on the aims of consumer protection established by Contingent Reimbursement Model Code (a voluntary scheme to which a considerable number of major payment service providers have signed up). The mandatory scheme will place greater onus on payment service providers to identify and stop fraud. Any APP fraud claim will therefore need to be considered against both Philipp and the wider regulatory and legislative environment.

However, Philipp v Barclays Bank provides significant help for resolving existing claims and for future claims which will not be caught by the mandatory scheme (for example, those involving international payments). The Court’s decision will therefore continue to have a significant impact for firms going forward, and is likely to provide considerable clarity.

In Philipp, there remains an issue of whether the firm acted promptly in trying to recall payments once it had been told of the fraud. This issue will still go to trial. However, our experience is that once payments are made to a third party account, the funds are then often quickly transferred on meaning (in such a case) any such claim is likely to face a significant uphill struggle of both (a) providing a duty to act and a breach of that duty and (b) the likely level of funds that could have been recovered and the percentage prospect of the chance of recovering that loss.

What were the facts of Philipp v Barclays Bank?

APP fraud has become increasingly common in recent years. The bank’s customer was tricked, by sophisticated fraudsters, into believing that she needed to transfer money – in this case some £700,000 – into what she thought were safe and genuine accounts. The money was lost. The customer brought a claim against the bank, alleging that the bank owed to her, and had breached, a duty (founded on the so-called Quincecare duty), not to carry out her express instructions because the bank had reasonable grounds for believing she was being defrauded. The customer also alleged that the bank failed in a wider duty to her, in that it did not act promptly in trying to recall payments once it had been told of the fraud.

The High Court granted summary judgment in the bank’s favour and dismissed the claim. The Court of Appeal overturned the High Court’s decision finding in principle such a duty could be owed. On 12 July 2023, the Supreme Court allowed the bank’s appeal and decided that there is no duty in the context of APP fraud where the customer has unequivocally given the payment instruction even though the customer’s payment instruction was caused by fraud.

APP and a firm’s duties to customers: How we can help

If you would like to discuss any of the issues covered in this article, please contact: Jeanette Burgess, Rob Payne or Russell Kelsall.

[1] A term which stems from the case of Barclays Bank plc v Quincecare Limited
[1992] 4 All ER 343

[2] [2023] UKSC 25

[3] See our earlier briefing for more information on APP fraud