JP Morgan Chase Bank NA v The Federal Republic of Nigeria

A bank’s Quincecare duty is an incident of its obligation to exercise reasonable skill and care. When reasonable grounds indicate that an authorised payment instruction may defraud the customer, the bank must refrain from payment while those grounds persist. The appropriate response, including whether and what inquiries should be made, depends on the circumstances.

Contractual terms may modify or exclude that duty. Clear language is required because the duty is a valuable right arising by operation of law. Provisions governing authentication, investigation, conflicts, exclusions and indemnities do not displace the duty unless their language, read in context, demonstrates that intention. General words will not ordinarily make a customer indemnify a bank against liability for failing to protect that customer from a trusted officer’s fraud.

The Federal Republic of Nigeria claimed US$875.74 million from JP Morgan Chase Bank NA. The bank had transferred that money from a depository account on instructions given by authorised Nigerian officials. Nigeria alleged that the transfers formed part of a fraudulent and corrupt scheme and that the bank had reasonable grounds for believing that the instructions were an attempt to defraud it.

The bank applied for summary judgment or to strike out the claim. Professor Andrew Burrows QC, sitting as a Deputy High Court Judge, dismissed the application in [2019] EWHC 347 (Comm). For the application, the court assumed that the pleaded fraud and circumstances putting the bank on inquiry could be proved.

The appeal concerned the nature of the Quincecare duty and whether provisions of the depository agreement prevented that duty from arising, excluded liability for its breach, or required Nigeria to indemnify the bank against its own liability.

1. Appeal dismissed unanimously. The depository agreement contained nothing entitling the bank to terminate the proceedings by summary judgment or strike-out. The Court expressed no view on the ultimate merits of the claim.

2. The content of the Quincecare duty depends on the circumstances. Where a bank has reasonable grounds for believing that an authorised instruction attempts to misappropriate its customer’s funds, it must refrain from executing the instruction while those grounds persist. In most cases the reconciliation of the bank’s conflicting duties will require more than a decision not to pay. The appropriate inquiries or other response may depend on confidentiality, reporting restrictions, the customer’s internal structure and the available means of resolving the bank’s concerns. It was neither useful nor necessary to divide the duty into a core prohibition on payment and a separate or subsidiary duty of inquiry. The trial court should determine the required response after making findings of fact.

3. Contractual construction proceeds objectively from the agreement as understood when made, in its linguistic and commercial context. A duty to exercise reasonable skill and care is an ordinary incident of the bank-customer relationship. Parties may exclude the Quincecare duty, but sufficiently clear language is needed to show that they intended to abandon that valuable right.

4. Clause 5.1 did not exclude the duty. Its function was to make the depository agreement, rather than other agreements, the source of the bank’s responsibilities. References elsewhere to tortious liability, confidentiality and non-contractual obligations confirmed that duties arising by operation of law remained possible.

5. Clauses 7.2 and 7.4 governed authentication and the investigation of whether instructions were genuine or compliant with law or market practice. They did not address the different question whether the bank should obey a genuine instruction when circumstances indicated fraud against its customer. Clauses 5.8 and 11.5 respectively addressed group-held information and the depositor’s warranty concerning legal capacity. Neither negated the duty.

6. Clause 8.2(d), read with the surrounding exclusions, did not clearly exclude liability for breach of the Quincecare duty. Its language concerned instructions or documents believed in good faith to be genuine. Whether the bank acted in good faith remained a matter for trial.

7. Clause 10.1(a) did not indemnify the bank against the present claim. Such a construction would make the victim compensate the bank for facilitating the very fraud from which the duty was intended to protect it. That extraordinary result required very clear words, which the clause lacked.

• Court of Appeal (Civil Division): In [2019] EWCA Civ 1641, unanimously dismissed the bank’s appeal and upheld the refusal of summary judgment and strike-out.
• High Court, Business and Property Courts: Professor Andrew Burrows QC, sitting as a Deputy High Court Judge, dismissed the bank’s application for summary judgment or strike-out in [2019] EWHC 347 (Comm).