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This case review was authored by Tessa Bremner, Trainee Solicitor, London.
On 12 July 2023, the UK Supreme Court handed down its highly anticipated final judgment in which it considered the duties owed by a bank to its customers in cases of Authorised Push Payment (APP) fraud.
Background
In 2018, Mrs Philipp and her husband were the victims of an APP fraud when a third party induced them to instruct their bank, Barclays Bank UK, to transfer £700,000 from Mrs Philipp’s current account to a bank account in the United Arab Emirates. Barclays followed the instructions and the money was never recovered.
Mrs Philipp brought a claim against Barclays in which she argued that Barclays owed her a contractual duty or a duty under common law not to follow her instructions to make the payment if, as alleged here, the bank had reasonable grounds to believe its customer was being defrauded.
Mrs Philipp’s argument relied heavily on the case of Barclays Bank Plc v Quincecare Ltd [1992]. The court held that a bank, receiving instructions from an agent on behalf of its customer to make a payment, owed a duty to the customer to refuse to make the payment. This was on condition that the bank had reasonable grounds to believe that the agent was defrauding the customer (the Quincecare duty).
The court’s reasoning for this was that whilst an agent has authority to give payment instructions and sign cheques, the agent does not have authority to defraud the customer. If the bank were to make the payment where they had grounds to believe the agent was defrauding the customer, the bank would be in breach of its duty to the customer. It would be making a payment which the customer had never authorised.
UK Supreme Court ruling
In this judgment, the Supreme Court unanimously allowed the Bank’s appeal and rejected Mrs Philipp’s attempt to widen the scope of the Quincecare duty so that it applied to circumstances where the customer had directly instructed the bank to make the payment, rather than through an agent.
In Mrs Philipp’s case, as there was no agent involved, there was no doubt that Mrs Philipp and her husband had unequivocally authorised and instructed Barclays to make the APP. Unless the parties expressly agreed otherwise, Barclays were not under a duty to refuse to make payment on the grounds of potential fraud. To argue otherwise would be inconsistent with the ordinary obligations owed by a bank to its customer.
The Supreme Court did, however, permit Mrs Philip’s alternative claim that Barclays had breached its duty of care by failing to act promptly in its attempts to recall the payments after they were notified of the fraud.
The case will continue to be of interest as the High Court decides arguments about the scope of any duty to attempt to claw back payments when a fraud comes to light.
Where does this leave victims of APP fraud?
The Supreme Court confirmed that, whether losses caused by APP fraud should be covered by the victims or reimbursed by the banks who made or received the payments, is a matter of social policy to be decided by regulators, government and Parliament.
The Financial Services and Markets Act 2023, which received Royal Assent on 29 June 2023 and will come into effect in 2024, creates an enhanced regulatory framework for protecting victims of APP scams. Under the Act, the Payment Systems Regulator will have the power to impose reimbursement requirements on banks via a mandatory reimbursement scheme where the payment has been executed subsequent to fraud or dishonesty. However, the scheme only applies to payments using the ‘Faster Payments Scheme’ and does not extend to APP fraud undertaken by payments using BACS, CHAPS, Mastercard and Visa. The scheme will also only apply to UK payments, unlike Mrs Philipp’s case which involved international payments.
Despite the limitations, the new legislation is undoubtedly a crackdown on APP fraud which banks and their insurers need to be prepared for.
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Banking and finance
Insurance and reinsurance
United Kingdom