What is expected from banks to tackle fraud? The Supreme Court’s Decision On the so-called Quincecare Duty

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What is expected from banks to tackle fraud? The Supreme Court’s Decision On the so-called Quincecare Duty

Good news for banks, but limited relief for Authorised Push Payment fraud victims – we unpack the implications of Philipp v Barclays Bank UK PLC [2023].

Key contacts: Aisha Wardell

Author: Beth Gilbert

The Supreme Court recently handed down its judgment in Philipp v Barclays Bank UK PLC [2023] UKSC 25, finding that Barclays did not owe a duty to protect a customer against fraud by refusing to carry out payment instructions, even in circumstances where the bank had reasonable grounds to believe that the customer was being defrauded by an “Authorised Push Payment” (APP) scam.

What is Authorised Push Payment Fraud?

An APP fraud occurs where a bank’s customer is induced by fraudulent means to authorise its bank to transfer money to a bank account that is controlled by a fraudster. Fraudsters commonly masquerade as legitimate companies to induce individuals to authorise their bank to make such transfers.

Effective relief from APP fraud had until recently been difficult to obtain because the payments are authorised by the individual customer. However, recent case law appeared to signal a departure from this principle and it seemed that banks were increasingly expected by the courts to play a significant role in preventing financial crime, even when the customer authorised the payment- the so called Quincecare duty.

The judgment will be welcome news for banks as the Supreme Court set out the scope of the Quincecare duty and in so doing clarified the relationship between banks and their customers. The Court drew a subtle but key distinction between instances of fraud where a customer unequivocally authorises the bank to make the payment and those where a customer’s agent (such as a director of a corporate customer) acts dishonestly to defraud the customer. In the first scenario, the bank is duty-bound to execute the payment instructions promptly and is not required to enquire further into the transfer, even with reasonable grounds for believing the customer is being defrauded. In the latter, the customer’s agent will lack actual authority to give the instruction and so the bank may rely on the agent’s apparent authority but only in circumstances where there is no apparent dishonesty that would cause a reasonable banker to make inquiries to verify the agent’s authority.

Future victims of APP fraud will now need to look to the new legislative framework of the Financial Services and Markets Act 2023 for any potential reimbursement, rather than seeking redress for any breach of common law duty owed by the bank. This is consistent with the Supreme Court’s view that it is Parliament and the regulators’ role, not the courts, to navigate how losses in APP fraud cases should be shared.

If you need advice on the implications of this ruling for your business, contact our Litigation & Dispute Resolution team.

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