In a webinar for LexisNexis on 18 November 2022, Alex Jay and Harry Spendlove provided an overview of claims arising from a breach of the Quincecare duty, which is owed by banks and some other organisations to their customers in relation to the operation of bank accounts and processing of payment instructions. They discussed the origin and formulation of these claims and recent developments in this area of law.

The full webinar is available to view for subscribers. A short preview is free to view below.

What are Quincecare claims?

The Quincecare duty of care was established in Barclays Bank v Quincecare [1992] 4 All ER 363. In this case a company called Quincecare had a loan facility with Barclays. A director of Quincecare drew down the loan and misappropriated the funds. Barclays pursued Quincecare for the money when the loan was not repaid. Quincecare replied with a defence that Barclays was under a duty (which it had breached) to refrain from paying out the loan monies when evidence of fraud was available to the bank. In considering this defence, Mr Justice Steyn held that such a duty did exist and applied to banks processing payment instructions when sufficient evidence of fraud was available to them. However in the circumstances of the Quincecare case itself the duty had not been engaged or breached, so the defence failed.

A Quincecare claim typically arises as follows:

• A customer holds a bank account;
• The bank receives a payment instruction; and
• The money is paid away and it transpires a fraud has taken place and the customer’s money is lost.

In order to bring a Quincecare claim the claimant needs to establish that there was evidence available to the bank which would give a reasonable and honest banker reasonable grounds (but not necessarily proof) that the payment instruction may be an attempt to misappropriate the customer’s funds. In essence the bank is deemed ‘on inquiry’ by the availability of that evidence and the Quincecare duty of care is engaged, which requires the bank to do two things:

• Refrain from making the payment; and
• Make enquiries to satisfy itself the payment is not a misappropriation.

Quincecare claims are very fact specific. The key question for the Court is whether evidence of fraud was available to put the bank on notice and trigger the duty. If the duty is engaged and the bank proceeds to execute the payment without making enquiries then it will have breached the duty and will be liable for any loss caused to the customer.

A Quincecare claim is a negligence claim and so the tortious measure of loss applies to put the claimant/customer in the position they would have been had the breach of duty not occurred. This will usually result in losses equivalent to the amount of the payment(s) made in breach of duty subject to any deduction for contributory negligence.

Case law developments

Since the Quincecare duty was established in 1992 there have been relatively few reported judgment of claims involving a breach of the Quincecare duty of care. However, that is beginning to change and in recent years there have been a number of high profile cases that have focused attention on these claims and consolidated the related law. These cases include:

• Singularis v Daiwa – a successful claim for damages of $204 million with 25% deduction for contributory negligence. This case put Quincecare claims firmly on the radar of practitioners, and with appeals of the first instance judgment being heard at the Court of Appeal and Supreme Court these proceedings provided clarity on the application of ex turpi causa and rules of attribution in the context of Quincecare
• Federal Republic of Nigeria v JP Morgan – an unsuccessful Quincecare claim that failed at trial because the payments that were subject to the claim were not themselves vitiated by the fraud alleged by the claimant.
• Philip v Barclays – Barclays successfully struck out the claim on the basis that no duty of care should be owed where the fraudulent instruction was not given by an agent of the customer (but rather by an individual customer giving a payment instruction on their own behalf). This decision was overturned by the Court of Appeal which confirmed that the duty is not limited to situations where an agent was giving instructions to defraud their principal.

The next case to keep an eye on in the Quincecare space is Stanford Bank International Ltd (in liquidation) v HSBC Bank plc where the parties are awaiting a decision from the Supreme Court on whether fraudulent preferences that arise through the operation of a Ponzi scheme can be recovered as losses pursuant to a Quincecare claim.

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