Philipp v Barclays Bank UK PLC

The Supreme Court held that, as a matter of ordinary banking law, a bank’s primary contractual duty is to execute a valid payment instruction given by its customer promptly and strictly in accordance with the customer’s mandate. The court rejected the extension of the so-called Quincecare duty to the situation where the instruction is given by the customer herself after she has been induced by a third party to authorise the payment (authorised push payment fraud).

The Quincecare line of authority was explained as an application of the general duty of reasonable care to the particular situation where a bank is put on inquiry that an instruction given by an agent purporting to act for the customer may be an attempt by that agent to misappropriate the customer’s funds. That duty requires the bank to make enquiries before executing the agent’s instruction; it does not justify withholding performance of a clear, customer-authorised instruction.

The court emphasised agency principles: actual authority does not include authority to act dishonestly for the agent’s own benefit; apparent authority is defeated where the bank has reasonable grounds to be put on inquiry. Absent an express contractual term to the contrary, the court will not imply a term requiring banks to refuse or delay customer-authorised payments on suspicion of APP fraud.

Background and factual matrix. In early 2018 Mr and Mrs Philipp were the victims of an authorised push payment (APP) fraud. Acting on fraudulent representations, Dr Philipp transferred funds to his wife’s current account and Mrs Philipp attended her branch and instructed international payments totalling £700,000 to accounts in the UAE. The Bank telephoned Mrs Philipp to confirm the transfers and executed them. The police later informed the Bank that the account had been compromised; the Bank froze the account and later attempted unsuccessfully to recall funds.

Procedural history. The Bank obtained summary judgment at first instance (Russen QC) ([2021] EWHC 10 (Comm)). The Court of Appeal allowed an appeal by Mrs Philipp ([2022] EWCA Civ 318), holding in principle that a bank may owe a contractual duty not to execute a customer’s instruction where it has reasonable grounds to believe the customer is being defrauded. The Bank appealed to the Supreme Court.

Nature of the claim and relief sought. The claimant sought damages on the primary basis that the Bank was under a contractual or common law duty not to execute a payment instruction where the bank had reasonable grounds to believe the customer was the victim of fraud. As an alternative, she alleged the Bank was negligent in failing promptly to attempt to recover funds after the fraud was discovered.

Issues framed by the court. (i) Whether, as an incident of the contract between bank and customer, a bank owes a duty to refuse or delay execution of a payment instruction where the bank has reasonable grounds to believe the customer is being tricked into authorising the payment; (ii) the legal basis and scope of the Quincecare duty and whether it extends to customer-authorised APP fraud; (iii) whether bank terms or regulatory duties affected the position; and (iv) whether there was a triable issue about the Bank’s post-discovery conduct to recover funds.

Court’s reasoning and conclusions. The court explained established banking law: money deposited becomes the bank’s money and the bank’s strict contractual duty is to make payments in accordance with the customer’s mandate. The bank also owes a duty to exercise reasonable care and skill where there is scope for discretion or where instructions are ambiguous. The Quincecare line was analysed and recharacterised: its true juridical basis is the duty to verify that an agent’s instruction is within the agent’s authority where the bank is put on inquiry by reasonable grounds to suspect the agent is misappropriating funds. That duty protects the principal from payments made pursuant to an agent who lacks actual (because dishonesty precludes actual authority) or apparent authority (where the bank should have made enquiries). The court held that this reasoning does not support extending the duty to the quite different situation where the instruction is given personally by the customer who has been deceived. The court also stressed that policy choices about redistributing losses from APP fraud are for regulators and Parliament (and noted ongoing regulatory and statutory developments including the Payment Services Regulations 2017 and the Financial Services and Markets Act 2023), not the courts.

Disposition. The Supreme Court allowed the Bank’s appeal and restored the first instance order granting summary judgment for the Bank in respect of the pleaded duty not to execute a customer’s own instructions, but refused summary judgment on the claimant’s alternative pleading that the Bank was negligent after 27 March 2018 in failing to take adequate steps to attempt to recover the funds from the UAE.

The appeal was allowed in part. The Supreme Court concluded that, as a matter of contract and agency law, a bank’s strict duty is to execute a customer’s valid payment instruction and there is no implied contractual obligation to refuse or delay a customer’s own instruction on the ground that the bank has reasonable grounds to believe the customer is being defrauded. The Quincecare duty is confined to cases where the instruction is given by an agent who may be misappropriating funds and the bank is put on inquiry as to the agent’s authority. The Court restored summary judgment for the Bank insofar as the claim rested on a duty not to execute the customer’s instruction, but refused summary judgment on the claimant’s alternative negligence case about the Bank’s post-discovery recovery efforts, which remains for further investigation or trial.

First instance: summary judgment for the Bank (Russen QC) [2021] EWHC 10 (Comm). Court of Appeal: allowed claimant’s appeal, holding in principle that a duty might arise ([2022] EWCA Civ 318). Supreme Court: appeal allowed in part and first instance order restored as varied ([2023] UKSC 25).