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The Supreme Court decision in Philipp v Barclays Bank UK Plc, handed down earlier this month, has prompted reams of legal commentary, as is to be expected for a judgment from our highest court.
This is because of its implications for banks’ obligations to reimburse the victims of fraud at a time when reports of fraud are soaring.
The case has been rumbling through the courts for several years now in a dispute dating back to 2018.
Back then Mrs and Dr Philipp were persuaded by a particularly sophisticated fraudster to transfer funds to third-party accounts (in the United Arab Emirates) supposedly in order to assist the Financial Conduct Authority and National Crime Agency with an investigation.
Dr Philipp was convinced to transfer funds from his investment account to an account held by Mrs Philipp with Barclays.
Telephone numbers were cloned to look like they were coming from the NCA, and the Philipps were so thoroughly and absolutely deceived that when Barclays froze Mrs Philipp’s account to prevent more funds being dissipated, the Philipps tried to persuade Barclays to lift the block by claiming falsely that they had an urgent contractual payment to make.
In the end, at Mrs Philipp’s instruction, the sizeable sum of £700,000 was transferred to the fraudsters.
The nub of the case
Mrs Philipp sued Barclays claiming that it had a duty not to accept her instructions if it had reasonable grounds for believing (as Barclays did in this case) that she was being defrauded.
Barclays disagreed.
The excitement about the Supreme Court judgment relates to its analysis of the “Quincecare” duty, which is whether or not the source of this duty lies with agency or if the bank was negligent.
In his judgment, representing a unanimous decision ruling against Philipp, Judge George Leggatt said: “Where the customer has authorised and instructed the bank to make a payment, the bank must carry out the instruction promptly. It is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions.”
The Supreme Court explained that the duty to make enquiries about a payment instruction is in fact a duty to ensure that the instruction is authorised.
Implications
The significance of this is that the scope of banks’ Quincecare duty has not been expanded; where a customer has been persuaded to transfer money out of his or her own account, there is no question about that customer’s authority to give that instruction.
Bank accounts are operated under mandates that specify signatories who can operate the account by providing instructions to the bank.
In circumstances in which a bank is dealing with its customer and that customer gives an unequivocal instruction, there can be no question of lack of authority.
For banks, the Supreme Court’s decision is no doubt a sigh of relief.
The consumer group Which?, however, has described the ruling as a “missed opportunity to enhance consumer protections against bank transfer scams and to encourage banks to put in place better systems to protect their customers”.
But in my view that could have been a minefield.
Had a duty been established requiring banks to make enquiries of customers’ payment instructions, it would have had a fundamental impact on the banking system.
Such a duty would have involved considerable resource, expense and no doubt delays in transaction execution when we have come to expect (and often rely on) the ability to make immediate and instant transfers.
The potential for litigation and liability for banks could also have been enormous.
Where the victims of fraud will be assisted in the future is via recently passed legislation – the Financial Services and Markets Act 2023 – which provides for a new mandatory reimbursement scheme where payments are executed due to fraud or dishonesty.
This is arguably a more workable route to enhancing customer protection, although it remains to be seen what practical effect this has.
In the meantime, what we have with the Supreme Court decision is a perfect (and dare I say rare) crossover of intricate legal analysis with common sense and pragmatism.
The Supreme Court has helpfully clarified banks’ obligations in relation to their Quincecare duty and thankfully did not extend the scope of this.
This article was first published in FTAdviser on July 28 2023.
Further information
For further information on the issues raised in this blog, please contact Mary Young in our Dispute Resolution team.
about the authors
Mary Young has worked in commercial litigation since qualifying as a solicitor in 2009. Her practice covers a wide range of areas but Mary’s particular interests and expertise lie in civil fraud and asset tracing as well as claims against professionals in negligence, breach of fiduciary duty and breach of trust. Mary is recommended in Who's Who Legal: Asset Recovery Global Guide 2022.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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