Philipp v Barclays Bank UK PLC

A bank holding a current account in credit must promptly execute a clear payment instruction personally authorised by its customer. Its implied duty of reasonable skill and care governs how it interprets, ascertains and carries out instructions. It does not permit the bank to refuse a valid instruction merely because it suspects that fraud induced the customer to give it.

The so-called Quincecare duty applies where an agent purports to instruct the bank and reasonable grounds suggest that the agent is defrauding the customer. The bank must then inquire because the instruction may lack actual and apparent authority. Fraud inducing the customer’s own instruction does not negate the customer’s intention or invalidate the mandate to the bank. Any broader reimbursement regime is a matter for legislation or regulation. A distinct claim based on failure to act promptly after the customer reported the fraud remained arguable.

Criminals deceived Mrs Philipp and her husband into believing that they needed to transfer their savings to safe accounts. Mrs Philipp personally instructed Barclays Bank to make two international payments totalling £700,000 and confirmed both instructions. The funds were lost to the fraudsters.

The Bank obtained summary judgment in the High Court: [2021] EWHC 10 (Comm), [2021] Bus LR 451. The Court of Appeal allowed Mrs Philipp’s appeal: [2022] EWCA Civ 318, [2022] QB 578. It held that a bank might in principle owe a contractual duty to refrain from executing a customer’s own instruction where it had reasonable grounds for believing that the customer was being defrauded.

The central issue before the Supreme Court was whether that duty formed an ordinary incident of the contract between a bank and its customer. A separate issue concerned the Bank’s alleged failure to take adequate recovery steps after Mrs Philipp reported the fraud.

1. Appeal allowed unanimously. Lord Leggatt delivered the judgment, with which Lord Reed, Lord Hodge, Lord Sales and Lord Hamblen agreed. The Court of Appeal’s order was set aside and the High Court’s summary judgment restored, but varied so that only the claim based on a duty not to execute Mrs Philipp’s payment instructions was dismissed. Summary judgment was refused on the alternative post-notification recovery claim.

2. A bank receiving money into a current account ordinarily becomes its customer’s debtor, not a trustee of the money. When making payments, it acts as the customer’s agent. Subject to the mandate and any lawful contractual qualification, its duty to execute a clear and authorised payment instruction is strict and requires prompt compliance.

3. The contractual duty of reasonable skill and care applies where the instruction is ambiguous or leaves the bank latitude as to how it should be performed. It assists the bank in interpreting, ascertaining and carrying out the customer’s instruction. It cannot coherently create an independent duty to refuse a clear and valid instruction.

4. The reasoning in Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 was disapproved insofar as it treated the duty of care and the duty to execute an instruction as conflicting duties to be reconciled through policy balancing. Its conclusion was preserved on a different basis. A dishonest agent lacks actual authority to defraud the principal. If circumstances apparent to the bank would cause a reasonable banker to inquire, the agent also lacks apparent authority unless reasonable verification is undertaken. The bank must then inquire to ascertain whether the customer actually authorised the instruction.

5. That principle does not apply where the customer personally gives a clear payment instruction while deceived by a third party. Fraud does not negate the customer’s intention. It may make the underlying transaction voidable against the fraudster, but it does not invalidate the separate mandate to an innocent bank. No term requiring the Bank to protect customers from authorised push payment fraud could be implied through broad policy considerations. Reallocation of such losses is a matter for Parliament and regulators.

6. The Bank’s express terms gave it a right to refuse a payment reasonably thought to be connected with fraud. A contractual right to refuse was not a duty to do so. The warning signs relied upon before 16 March 2018 were circumstances already known to Mrs Philipp, who remained adamant that the payments be made.

7. Before Mrs Philipp reported the fraud on 27 March 2018, the Bank had neither authority nor an obligation to reverse payments contrary to her continuing instructions. After notification, however, it was arguable that the Bank should have sought her instructions and promptly attempted recovery. Whether earlier action would have preserved a substantial chance of recovery involved factual and counterfactual questions unsuitable for summary judgment.

1. United Kingdom Supreme Court: In Philipp v Barclays Bank UK PLC [2023] UKSC 25, the court unanimously allowed the Bank’s appeal. It restored the High Court’s summary judgment but limited it to the alleged duty not to execute the customer’s payment instructions. The alternative post-notification recovery claim was allowed to continue.

2. Court of Appeal: In [2022] EWCA Civ 318, [2022] QB 578, the court allowed Mrs Philipp’s appeal. It held that the alleged duty could arise in principle and that its application required a trial.

3. High Court: In [2021] EWHC 10 (Comm), [2021] Bus LR 451, Judge Russen QC granted the Bank summary judgment. He nevertheless considered that factual imponderables prevented paper determination of whether delay after notification caused the loss of a chance to recover the funds.