The Federal Republic of Nigeria v JP Morgan Chase Bank, NA

A bank must refrain from executing a customer's payment instruction while it has reasonable grounds, judged by the standard of an ordinary prudent banker, for believing that the instruction forms part of a scheme to defraud the customer. This Quincecare duty can apply to a special-purpose depository account as well as a current account.

The duty is a valuable right imposed by law. Clear contractual wording is therefore required to exclude it. Clauses removing any general duty to investigate do not necessarily exclude the core duty to refrain from payment once the bank is put on inquiry. A generally worded indemnity will not ordinarily protect a bank against its own negligent breach without sufficiently clear language.

The claimant sovereign state alleged that the defendant bank transferred approximately US$875.74 million from a depository account despite having reasonable grounds for believing that the authorised payment instructions formed part of a fraudulent scheme. Its contractual and tortious claim rested solely on breach of the Quincecare duty of care.

The bank applied for reverse summary judgment under rule 24.2 of the Civil Procedure Rules 1998 and to strike out the re-amended particulars under rule 3.4(2). It argued that the depository agreement excluded the duty, that the claimant had no realistic prospect of proving causation, and that a contractual indemnity made the claim circular. The court determined the contractual issues as points of law and considered whether causation had a realistic prospect of success.

1. The applications were dismissed. The bank had not established that the claimant lacked a real prospect of success under rule 24.2 of the Civil Procedure Rules 1998. The re-amended particulars disclosed reasonable grounds for bringing the claim, so the strike-out application under rule 3.4(2) also failed.

2. The core Quincecare duty requires a bank to refrain from payment while it has reasonable grounds, assessed by the standard of an ordinary prudent banker, for believing that payment would defraud its customer. There was no principled or policy reason to confine that duty to current accounts. It was capable of applying to the special-purpose depository account.

3. The duty arose through a term implied by law at common law, section 13 of the Supply of Goods and Services Act 1982, and/or the tort of negligence. Because it protected a valuable right and served the policy of combating fraud, clear words or clear inconsistency were required to exclude it. The depository agreement contained neither.

4. The clauses stating that the bank had no duty to enquire into or investigate instructions did not apply once the bank had reasonable grounds for believing that the customer was being defrauded. Alternatively, those clauses could exclude only an additional positive duty of enquiry. They left intact the core negative duty not to pay. The court strongly inclined to the view that, once put on inquiry, a bank also had to make such reasonable enquiries as an ordinary prudent banker would make, but it was unnecessary to decide that point.

5. The clauses concerning information contrary to the customer's best interests, compliance with law, and apparently genuine instructions did not exclude liability on the pleaded facts. In particular, a clause protecting reliance in good faith on apparently authorised instructions addressed false authority or non-genuine documents, not authorised instructions allegedly used to defraud the customer.

6. Causation required a trial. Compliance with the core duty would initially have prevented payment. Full factual and expert evidence was needed to decide what would then have happened, including whether the funds would have remained in the account or become subject to court directions or a freezing order.

7. The indemnity clause concerned liabilities to third parties, not the customer's claim against the bank. Otherwise it would undermine the agreement's separate allocation of liability between bank and customer. In any event, its general wording did not clearly protect the bank against its own negligent breach of the Quincecare duty.

This was a first-instance application within an existing claim. The claim was commenced on 29 November 2017 and subsequently amended. The bank applied for reverse summary judgment and strike-out, which the Commercial Court dismissed.