The Court of Appeal has ruled that the High Court should not have granted Barclays summary judgment in the case brought against it by ‘APP fraud’ victim Fiona Philipp. The judgment confirms the scope of potential claims that can be brought against banks on similar grounds.

Laura Jenkins and Harry Spendlove review the Court of Appeal decision in Philipp v Barclays and its broader implications.

Background

Fiona Philipp and her husband were victims of an authorised push payment (“APP”) fraud in March 2018 when they transferred more than £700,000 to bank accounts in the United Arab Emirates via Mrs Philipp’s Barclays bank account. An APP fraud occurs where a customer is tricked into instructing their bank to transfer money to a fraudster’s account, as happened in this case.

Mrs Philipp sued Barclays, claiming the bank had not exercised its common law duty to take reasonable care and skill when carrying out her instructions (the so-called Quincecare duty, derived from the case of Barclays Bank plc v Quincecare Ltd [1992]).

The High Court concluded that no such duty was owed, granted a reverse summary judgment to Barclays, and struck out the claim.

Quincecare claims

Victims of fraud may look to third parties such as banks to recover losses where those third parties have assisted in a fraud or received some part of the proceeds. It is often more straightforward to enforce against a third party than the fraudster themselves. The third parties will often be banks, as bank accounts are fundamental to the operation of most frauds.

In fraud cases, the most common causes of action pursued against third parties are dishonest assistance, knowing receipt and, to a lesser extent, unlawful means conspiracy. While these types of fraud claims can result in recoveries for claimants, they have a high evidential threshold as they require the claimant to establish an element of dishonesty on the defendant’s part or an intention to harm the claimant. Where this evidential threshold is not met, or as a further or alternate claim, we are increasingly seeing claimants bringing Quincecare negligence claims to recover their losses.

Quincecare negligence claims have been subject to judicial scrutiny in recent years. The underlying principles have been applied to the wide variety of situations presented by modern-day financial systems and business activities.

The clear principle underpinning Quincecare claims is that if you provide a bank account (and perhaps other products) to a customer and there is evidence that should give cause for concern that the customer is being defrauded, you should inhibit the account pending inquiries. The key question in cases of this type is whether there was evidence available that should have put the bank on notice.

Claim against Barclays

At first instance in Philipp v Barclays Bank UK Plc, the claimant’s Quincecare claim was struck out because it was held that the Quincecare duty only applied when an agent (such as a director) of the customer was defrauding the customer through the use of the bank account.

In those circumstances, the bank was under a duty to enquire that the agent was acting appropriately. Where the customer and person giving the payment instruction are one and the same (as was the case in Philipp, an APP fraud), it was deemed an unwarranted extension of the Quincecare duty to require a bank to go beyond the instructions given to it by its customer.

The Court of Appeal has rejected this conclusion and reaffirmed the principle noted above. Therefore, an individual customer can rely on the Quincecare duty, and it is not limited to circumstances where the customer is being defrauded by its agent.

The key question in Quincecare claims remains whether a bank should have been on notice of a potential fraud. In practice, it seems likely that a relatively significant marker of fraud would need to have arisen to put a bank on notice where the individual customer is the one giving them instructions. As a result of the Court of Appeal decision, the Philipp case can now proceed to trial. It will be interesting to see how high this bar is determined to be.

Conclusions

As the use of Quincecare claims increases and it is successfully applied to a wide variety of scenarios, we expect to see it more frequently used against financial institutions that have been caught up in a fraud, unwittingly or otherwise. To avoid future claims, banks will increasingly need to improve the processes by which fraud is identified and take appropriate steps to ensure there are safeguarding procedures in place (as it is alleged should have been applied by Barclays in the Philipp case).

The recent Court of Appeal decision in Philipp reinforces the potential scope of this cause of action, unwinding the limitations imposed by the first instance decision.

Press coverage

Laura Jenkins spoke to The Lawyer about the decision in Philipp. She said: “The recent Court of Appeal ruling reasserts the previous position [on this subject]. Quincecare claims do not require proof of dishonest conduct and can be brought against third parties, they are therefore a useful addition to the arsenal of a defrauded claimant.”

The full article is available to read here.