Royal Bank of Scotland International Ltd v JP SPC 4 and another (Isle of Man)

A bank’s Quincecare duty is owed only to its customer. It arises from the bank’s implied contractual duty, and its co-extensive tortious duty, to exercise reasonable skill and care when executing the customer’s instructions. Knowledge that money in a customer’s account belongs beneficially to a third party does not extend that duty to the beneficial owner.

A duty to a non-customer suffering pure economic loss may arise exceptionally through an objective assumption of responsibility or an incremental development of negligence. Relevant considerations include the purpose of the service, known reliance and the reasonableness of that reliance. Liability for failing to prevent another person’s wrongdoing ordinarily also requires an assumption of responsibility or a special level of control over the danger.

An investment fund alleged that money beneficially belonging to it had been fraudulently misappropriated from accounts held with the respondent bank by an Isle of Man company. The fund claimed that the bank knew or ought to have known of its beneficial ownership and of a real possibility of fraud. It alleged that the bank should therefore have stopped payments and made inquiries.

The bank sought strike-out or summary judgment on the ground that it owed no arguable duty of care to the fund. Deemster Wild dismissed the application. On 9 March 2020 the High Court of Justice of the Isle of Man, Staff of Government Division, allowed the bank’s appeal. The central issue before the Board was whether an existing Quincecare duty, an assumption of responsibility, or a permissible incremental development of negligence imposed a duty upon the bank to protect a non-customer beneficial owner from the customer’s fraud.

1. Appeal dismissed. Lord Hamblen and Lord Burrows delivered the judgment, with which Lord Briggs, Lord Kitchin and Lady Rose agreed. The claim was bound to fail because the bank owed no duty of care to the fund on the pleaded and assumed facts.

2. The Quincecare duty is an aspect of a bank’s implied contractual duty, and co-extensive tortious duty, to exercise reasonable skill and care when executing its customer’s instructions. It requires the bank to refrain temporarily from executing an apparently valid instruction when reasonable grounds indicate that it may be an attempt to defraud the customer. Quincecare and the later authorities confined that duty to the customer. They did not support its extension to a beneficial owner who was not the bank’s customer.

3. Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1993] 1 WLR 509 had recognised a duty to known beneficiaries of a trust account. That conclusion could not stand as good law. It depended upon the foreseeability-led two-stage approach in Anns v Merton London Borough Council [1978] AC 728, which subsequent authority rejected. The approach also failed to give the necessary caution to pure economic loss and liability for an omission.

4. An assumption of responsibility is assessed objectively. Particular attention is paid to communications or conduct crossing the line between defendant and claimant, the purpose of the relevant service, the defendant’s knowledge of reliance and whether the claimant’s reliance was reasonable. The bank undertook no service for the fund, had no dealings with it and did no more than provide banking services to its customer. Renaming the accounts and knowledge of beneficial ownership did not establish an assumption of responsibility.

5. Exceptionally, a professional may owe a duty concerning pure economic loss to a non-client. The exceptional authorities involved a service intended to benefit the claimant, known and reasonable reliance, or a remedial lacuna. None existed here. The customer could itself claim against the bank and the fund could claim against the customer for breach of fiduciary duty. Extending the duty would impose an unacceptable burden on banks and would not be fair, just and reasonable.

6. The claim also concerned an omission: failure to prevent fraud by a third party. Such liability ordinarily requires a special level of control over the source of danger or an assumption of responsibility to protect the claimant. The bank controlled neither the fraudsters nor the danger and had assumed no responsibility to the fund. Negligence liability would also undermine the rule that assistance in a breach of fiduciary duty attracts accessory liability only where the assistant is dishonest.

• Privy Council: Dismissed the fund’s appeal and upheld the conclusion that the claim was bound to fail: [2022] UKPC 18.
• High Court of Justice of the Isle of Man, Staff of Government Division: On 9 March 2020 allowed the bank’s appeal from Deemster Wild and held that the alleged duty of care could not be established.
• High Court of Justice of the Isle of Man: On 15 October 2019 Deemster Wild dismissed the bank’s application to strike out or summarily dismiss the claim.