Court of Appeal finds Quincecare duty is not limited to corporate customers and can (in principle) extend to protecting individuals

This week, the Court of Appeal handed down an important judgment considering the scope of the so-called Quincecare duty: Philipp v Barclays Bank UK plc [2022] EWCA Civ 318.

Historically, the Quincecare duty has arisen where a bank receives a payment instruction from an authorised signatory of its customer, and executes the order, in circumstances where (allegedly) there were red flags to suggest that the order was an attempt to misappropriate the funds of the customer.

The factual circumstances of the major cases in which the duty has been considered have all involved instructions made by an authorised signatory (acting fraudulently) on behalf of a company or firm. In particular, this was the factual scenario in Barclays Bank v Quincecare [1992] 4 All ER 363 itself, and it was also the factual basis for the only case to date in which the duty has been found to have been owed and breached, Singularis Holdings v Daiwa Capital Markets [2019] UKSC 50 (see our blog post).

However, in the present case the Court of Appeal found, as a point of law, that the Quincecare duty is not limited to the situation where instructions have been given by an agent/authorised signatory on behalf of the customer of the bank. This means the duty is not limited to protecting corporate customers and can, in principle, extend to protecting individuals.

While recognising previous statements in the authorities as to the purpose of the Quincecare duty, the Court of Appeal focused instead on the reasoning behind the duty given in those cases. Crucially, the Court of Appeal found that the line of reasoning in the authorities: (a) did not depend on whether the instruction was being given by an agent of the customer; (b) was not limited to the factual circumstances of those cases; and (c) could properly be applied on a wider basis.

Turning to the facts of the present claim, the proceedings were brought by the victim of an authorised push payment (APP) fraud, who was deceived by a fraudster to instruct the bank to transfer money from her account and pay into an account controlled by the fraudster. The Court of Appeal held that, whether or not the Quincecare duty arose in these circumstances was a question to be determined at trial, but confirmed that this was at least possible in principle. Accordingly, the Court of Appeal held that summary judgment granted by the High Court in favour of the bank was wrongly entered and should be set aside.

Notwithstanding the Court of Appeal's analysis in this case, its conclusions on the parameters of the Quincecare duty appear to extend the application of the duty beyond the strict boundaries established in previous authorities. Without the need for the agency relationship described above, there is a risk that the Quincecare duty could now (in principle) apply to a wider range of payment processing scenarios, with repercussions outside of the APP fraud context at the centre of this dispute.

We consider the decision in further detail below.

Background

The background to this decision is more fully set out in our blog post on the High Court's decision, here.

In summary, the claimant was the victim of an APP fraud. As part of an elaborate deception by a third-party fraudster, the claimant transferred £700,000 in two separate tranches from her account with the defendant bank (the Bank) to international bank accounts, in the belief that the money would be safe and that she was assisting an investigation by the Financial Conduct Authority and the National Crime Agency.

The claimant brought a claim against the Bank to recover damages for the loss she suffered by making the two payments, alleging that the Bank owed and breached a Quincecare duty of care to protect her from the consequences of the payments.

The Bank denied the claim and brought an application for strike out / reverse summary judgment, arguing that it did not owe a legal duty of the kind alleged by the claimant and that (even if such a duty was owed and breached) the claimant’s case on causation was fanciful.

High Court decision

The High Court’s reasoning is discussed in our previous blog post, here.

In summary, the High Court struck out the claim, finding that the Bank did not owe the Quincecare duty in respect of the APP fraud perpetrated upon the claimant.

In the view of the High Court, the existing authorities limited the Quincecare duty to protecting corporate customers or unincorporated associations such as partnerships (i.e. where the instruction to the bank has been given by a trusted agent of the customer). The High Court confirmed that the Quincecare duty did not extend to individual customers, and it was not persuaded to extend the Quincecare duty to protect an individual customer in the context of an APP fraud, saying to do so would be contrary to the principles underpinning the duty.

Grounds of appeal and intervener application

The High Court granted the claimant permission to appeal to the Court of Appeal. The claimant/appellant submitted that:

1. It was at least properly arguable that a duty of care did arise in this case and that the matter ought to have gone to trial.
2. The duty was a species of the duty arising under section 13 of the Supply of Goods and Services Act 1982 or at common law, and its existence ought to be seen as a proper application of reasoning which supports the existence of the Quincecare duty.
3. Alternatively, the duty of care arising in this case should be recognised as a legitimate incremental development of that line of authority.

Following the High Court's judgment, the Consumers' Association (also known as "Which?") applied to intervene in this appeal and permission was granted. The intervener supported the appeal, contending that the courts should recognise a duty of care in these circumstances, that the Quincecare duty was unremarkable and that it would be illogical to confine it to companies or agents. The intervener also contended that the Bank was wrong to say that the duty would impose onerous and unworkable obligations on banks.

Court of Appeal decision

The Court of Appeal allowed the appeal. The key elements of the Court of Appeal's analysis are discussed further below.

Scope of the Quincecare duty

The Bank argued that no Quincecare duty existed in the circumstances of this case as a matter of law, because the duty was limited to cases where the instructions were given by an agent, usually an agent of a company. Accordingly, the Bank said that the Quincecare duty could not extend to the present case where the customer herself authorised the transfer.

In support of this argument, the Bank placed emphasis on two particular passages in Singularis in which Lady Hale explained the purpose of the Quincecare duty as being:

• "…to protect a bank's customers from the harm caused by people for whom the customer is, one way or another, responsible" (paragraph 23 of Singularis); and
• "…to protect the company against…misappropriation of its funds…by definition, this is done by a trusted agent of the company who is authorised to withdraw its money from the account" (paragraph 35 of Singularis).

The Court of Appeal accepted that the factual circumstances of the major cases in which the Quincecare duty has been considered to date have involved instructions from a fraudulent agent acting for a company or firm: see in particular, Quincecare, Lipkin Gorman v Karpnale [1989] 1 WLR 1340 and Singularis.

However, in the Court of Appeal's view, statements about the purpose of the duty should be seen in the context of the case in which they were made, and what mattered was the reasoning in those cases. The judgment highlighted three steps to the reasoning underpinning the Quincecare duty in these cases, as follows:

1. What is the relationship between the customer and the bank? The Court of Appeal said the starting point was the correct identification of the relationship between the customer and the bank in the context of an instruction to pay. The answer was that the bank was the agent for the customer as principal.
2. Is the bank's duty to execute the customer's instruction absolute? Notwithstanding the bank's primary obligation to execute a payment instruction, the Court of Appeal noted acceptance in the authorities that the bank would be liable for breach of a duty to use reasonable skill and care in executing the customer's orders, if it knew that the relevant instruction was an attempt to misappropriate funds and executed the instruction notwithstanding that knowledge.
3. What level of knowledge on behalf of the bank would give rise to liability for breach of the duty to use reasonable skill and care in executing the customer's orders? Once the second step was accepted, the Court of Appeal said the final question was, what lesser state of knowledge would put the bank under a legal obligation? It said this has been expressed in the case law (and confirmed by the Supreme Court in Singularis) as being the level at which an ordinary prudent banker would be “on inquiry”. The Court of Appeal noted that the duty was not to execute the order while on inquiry, and to make inquiries.

In the judgment of the Court of Appeal, the reasoning set out above led to the conclusion that, despite the importance of the bank’s duty to execute orders promptly, the bank had another duty which operated in tension with that primary duty. This opposing duty meant that the bank may be required to refrain from executing an order if and for so long as the circumstances would put an ordinary prudent banker on inquiry. To reinforce this point, the Court of Appeal proceeded to consider a number of authorities confirming that a banker's duty when presented with a payment instruction was not unqualified. The important point was that the bank’s obligation was not simply and always to execute every payment instruction of whatever kind unthinkingly. It noted that the purpose of the duty identified by this logic was to protect the customer and not the bank.

Crucially, the Court of Appeal found that the line of reasoning identified in the authorities: (a) did not depend on whether the instruction was being given by an agent of the customer; (b) was not limited to the factual circumstances of those cases; and (c) could properly be applied on a wider basis. Accordingly, as a matter of law, the Court of Appeal held that the Quincecare duty of care did not depend on the fact that the bank was instructed by an agent of the customer. It said this was the only legal conclusion necessary to resolve the appeal.

In reaching its decision, the Court of Appeal also rejected the following arguments made by the Bank.

• The Bank submitted that the Quincecare duty (as articulated by the Bank) did not cut across the absolute duty to execute the customer's order. This was because - if the agent’s instruction was an attempt by the agent to misappropriate its principal’s funds - the bank did not in fact have an instruction from the true customer at all, and therefore was not in breach of a genuine instruction by delaying and making inquiries or refusing it altogether. However, the Court of Appeal found that the Bank's case about the scope of the Quincecare duty was wrong, and so this point did not go anywhere.
• The Bank argued that to recognise a Quincecare duty in this case would impose onerous and unworkable obligations on banks. In its judgment, the Court of Appeal said this issue clearly involved disputed facts and was not capable of being resolved in a summary way. It said that this point alone was enough to indicate that the court below erred in accepting the absence of the duty of care without a trial.
• The Court of Appeal rejected the argument that allowing the appeal would involve either identifying a novel duty of care or an unwarranted extension of the existing duty, given its finding that the Quincecare duty was not limited in the manner contended for by the Bank.

Application of the Quincecare duty in the context of an APP fraud

Given its findings on the scope of the Quincecare duty, the Court of Appeal held that it was 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. In the view of the Court of Appeal the right occasion on which to decide whether such a duty in fact arose in this case was at trial. Whether this case succeeds at trial or not will depend on the evidence and findings of fact at trial about ordinary banking practice both in terms of what would put an ordinary prudent banker on inquiry and what such a banker would then have done about it if they were.

Accordingly, the Court of Appeal held that summary judgment in favour of the Bank was wrongly entered and should be set aside.

Correct approach to summary judgment applications

It is worth highlighting some commentary by the Court of Appeal as to the correct approach in law to applications for summary judgment, as established in EasyAir Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch). In EasyAir, the court warned against carrying out a mini trial but also recognised that if a short point of law arose which could be decided (because all the evidence necessary to decide it was before the court), then the court could do so. The Court of Appeal said it was regrettable that the trial judge had been drawn into conducting a mini trial on whether recognising a Quincecare duty in this case would impose onerous and unworkable obligations on banks, contrary to the warnings against doing so.

The Court of Appeal also referred to AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804, in which the Privy Council held that: (i) it is not normally appropriate to use a summary procedure for the determination of controversial questions of law; and (ii) that it is generally desirable that such issues of law are decided on the basis of actual rather than hypothetical facts and with the benefit of detailed argument and mature consideration. In the view of the Court of Appeal, this case bore out the warning in Kyrgyz Mobil that questions of law of this sort are best decided on the basis of actual facts rather than by a summary procedure. Although the incidence of a duty of care is a matter of law, the Court of Appeal commented that when duty and standard of care were so closely related as they were in this case (and particularly when the court was being asked to decide whether to develop the law or not), these ought to be indicators that the best course was to bring the matter to trial rather than decide aspects of these points on a summary basis.

Note: In October 2022, the Supreme Court allowed the defendant's application for permission to appeal.