Court limits bank's liability for APP fraud

Out-Law News | 28 Jan 2021 | 3:00 pm | 2 min. read

A UK bank has been ruled not to be liable for losses suffered by a customer who was tricked by fraudsters into willingly instructing it to transfer large sums out of their account.

The High Court said that that to hold the bank liable for the customer's loss would have been "an unprincipled and impermissible extension" of the so-called 'Quincecare' duty of care that banks owe their customers. The Quincecare duty requires banks to "to observe reasonable care and skill in and about executing the customer's orders".

The court was considering the scope of the Quincecare duty in a case in the context of an authorised push payment (APP) fraud perpetuated on a couple in the Bristol area. 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 the case before the High Court, Fiona Philipp sought 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 – a man operating under the pseudonym Jonathan Watts (JW) – into believing she was assisting in an investigation by the National Crime Agency (NCA) and Financial Conduct Authority (FCA).

However, the bank maintained that's its duty of care did 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. It said this duty did not extend to protecting her from her own actions and that the bank was not "an insurer of last resort for fraud perpetrated against customers".

The High Court held that case law limits banks' Quincecare duty "to cases of attempted misappropriation by an agent of the customer" and does not currently extend to individual customers. 

His Honour Judge Russen QC, who was sitting as a High Court judge, said: "One cannot reasonably feel anything other than acute sympathy for Mrs and Dr Philipp who have fallen victim to the dishonesty of JW and any of his partners in crime. They have lost a very significant part of their personal savings to the fraudster. However, it would not be fair, just or reasonable to impose liability on the part of the bank in respect of the APP fraud perpetrated upon Mrs Philipp… Such liability could only rest upon what I regard to be an unprincipled and impermissible extension of the Quincecare duty."

According to the judgment, Phillipp is seeking permission to  appeal against the ruling.

A number of banks have signed a voluntary reimbursement code, which provides for the compensation of victims of APP frauds and is funded by banks for this purpose. Where a claim against a signatory of the code falls within the scope of that code, the code rather than the High Court's decision in this case, is likely to dictate whether reimbursement is owed.