Banks’ Quincecare duty in APP fraud cases extended

Out-Law News | 16 Mar 2022 | 3:47 pm | 3 min. read

A new ruling has developed the so-called Quincecare duty banks face in the context of preventing authorised push payment (APP) scams, but there is unlikely to be further clarity on the scope of the duty until a case on the issue is considered in a High Court trial.

The Quincecare duty, named after a 1992 case, requires banks "to observe reasonable care and skill in and about executing the customer's orders". The duty means banks must refrain from executing a payment order if they are "put on inquiry" in the sense that they have reasonable grounds for believing that the order is an attempt to misappropriate funds. However, how the duty applies in the context of APP fraud cases is the subject of ongoing litigation.

APP frauds occur where a victim authorises a bank transfer into an account which they believe is controlled by a legitimate payee, but actually belongs to a fraudster. This type of fraud has been on the rise in recent years.

In a ruling on Monday, the Court of Appeal held that the application of the Quincecare duty “does not depend on the fact that the bank is instructed by an agent of the customer of the bank” – sometimes described in terms of “internal” fraud within the customer. It said that it is “at least possible in principle” that the duty “could arise in the case of a customer instructing their bank to make a payment when that customer is the victim of APP fraud” – an “external” fraud. However, it said that is a matter for the High Court to determine following a trial in the underlying dispute.

Fiona Philipp is seeking to hold Barclays accountable for the loss she suffered by making two payments, totalling £700,000, to bank accounts in the UAE, having been deceived by a third party into believing she was assisting in an investigation by the National Crime Agency (NCA) and Financial Conduct Authority (FCA).

However, Barclays has maintained that its duty of care does not extend to a duty to protect Philipp against the consequences of her own decisions, where, as between herself and the bank, her payment instructions were valid ones and not in and of themselves fraudulently given.

The Court of Appeal’s ruling, which overturns an earlier High Court judgment, means Philipp’s case can proceed to trial. However, Pinsent Masons’ head of financial services disputes, Joanne Gillies, said that this wider duty hasn’t yet been examined in the context of the facts of this case: “There is still the opportunity for the bank to argue at trial that it took all necessary steps to discharge its duty, with the customer adamant that the payments be made. However, this case is interesting as there are no previous authorities directly supporting the imposition of the Quincecare duty in cases of external fraud; it will be interesting to see if the Court of Appeal’s decision is appealed to the Supreme Court.”

Michael Reading of Pinsent Masons, who also specialises in financial services claims, also said the practical consequences of the Court of Appeal’s judgment may be limited:

“Now that the Contingent Reimbursement Model (CRM) Code for APP frauds introduced by the Payment Systems Regulator in 2019 is in place, the Quincecare analysis is only relevant for payments that are not covered by this scheme – such as international payments or payments made by business customers or customers of banks that aren’t registered as part of the scheme,” Reading said.

“In essence, banks that follow good banking practice and conduct their inquiry diligently will be fine, and banks that don’t follow good practice and don’t ask the right questions when on inquiry will be at risk. But that was always the case,” Reading said.

Banking litigation expert Michael Hawthorne said: “It will be interesting to see to what extent the trial judge grapples with the question of what steps a reasonably competent banker must take to detect fraud. The Court of Appeal recognised that the Quincecare duty will calibrate to current banking standards, and the reality is that almost all payments are now handled electronically, with no human intervention. Customers also expect a quick, streamlined service and may well not wish to shoulder increased costs for additional verification measures. It would be unfortunate if rulings like this were to have wider ramifications for banks’ payments systems, without it being clear that customers would welcome that change.” 

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.