Court hands down judgment on the extent of the Quincecare duty in cases of APP fraud


A recent decision found that the Quincecare duty does not extend to authorised push payments. It neither imposes an obligation on the paying bank to question the customer’s own instruction nor the genuineness of the intended recipient (Fiona Lorraine Philipp v Barclays Bank UK PLC [2021] EWHC 10 (Comm)).

While APP fraud is an escalating issue, until now there has been few reported judgments to give banks a clear position. Read on for more on the detail of the case and what implications this has for you.

The facts

Mrs Philipp and her husband, Doctor Philipp, were victims of a sophisticated fraud. In February 2018 they were approached by a fraudster who persuaded them that he worked for the FCA in conjunction with the National Crime Agency. He advised them of a fraud being carried out at Dr Philipp’s bank and the firm in which he had invested his savings. They were encouraged to transfer Dr Philipp’s savings into “safe accounts” for which the fraudster would provide details. They were also warned to tell no one or it may prejudice the underlying investigation.

In March 2018, Dr Philipp transferred £950,000 to Mrs Philipp’s account at Barclays. On the same day, they received a visit from a police officer who advised that they may have been the victims of fraud. Acting on the instructions of the fraudster, they told the officer they did not wish to deal with her. Subsequently Mrs Philipp attended three separate branches of Barclays on separate occasions with her husband. She gave two separate instructions for two large international transfers to UAE accounts for which details were provided to her by the fraudster. It is said that during the visits, the fraudster listened in on Dr Philipp’s mobile phone. In answer to questions, the Philipps said they had previously dealt with one UAE recipient. On each occasion Mrs Philipp confirmed more than once that she wished to proceed with the transactions.

The scale of the fraud only became apparent some weeks later. After forceful intervention from their friends, Dr and Mrs Philipp eventually engaged with the Police and thereafter complained to Barclays seeking to recover the lost funds.

Mrs Philipps brought proceedings against Barclays alleging that the bank had breached its duty of care to her. Relying on the so-called Quincecare duty, she said the Bank was on inquiry as to the potential fraud, it should have asked her additional questions, blocked her account and prevented her loss. It had failed to comply with its duty of care to protect her from the consequences of making the transfers. Had it done so, she would not have made them. She also sought to rely on the doctrine of undue influence. 

The Bank applied to strike out the claim.

Summary of decision

HHJ Russen QC struck out the claim. In finding that the Quincecare duty did not apply, he found Mrs Philipp’s claim was an impermissible attempt to elevate the duty of care from a duty on the Bank to refrain from executing an order if and for as long as the banker is 'put on inquiry' in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate the funds of the customer, to a duty to protect the customer from the consequences of her own decisions where the payment instruction was authorised and valid (notwithstanding the underlying fraud).

The key points from the judgment are as follows:

The Bank owed a contractual duty of care to its customers to act in accordance with their mandates and to exercise reasonable care and skill in executing their instructions. That duty is subordinate to the bank’s contractual duties and a bank receiving instructions must balance both. Where a bank receives a payment instruction, its primary duty is to make that payment. The circumstances in which the bank can deviate from that instruction are limited. The Quincecare duty forms an integral part of the Bank’s duty to act on instructions. It does not impose a duty to decide not to follow instructions.

The consequence of Mrs Philipp’s submissions was that the Bank would come under a much wider legal duty to ensure that the outcome of each of Mrs Philipp’s visits to the branch was different and either the Bank would not act on her instruction, or if it made the transfers, it would need to later reflect and recoup the funds. 

The key conflict is this: the law should not impose too burdensome a duty on banks which will hamper effective banking transactions versus the proposition that the law should guard against the facilitation of fraud and the protection of bank customers and innocent third parties.

A banker must refrain from executing an order if, and for so long, as he is put on inquiry in the sense that it has reasonable grounds for believing that the order is an attempt to misappropriate funds. The question is when is a bank put on inquiry, bearing in mind that it is not required to act as an amateur detective. In other words, the question is not about the standard of care required by the Quincecare duty, but rather whether it applies at all when the customer was telling her bank how her money should be spent. 

The Judge dismissed the arguments put forward by Mrs Philipp’s legal team, that the Quincecare duty was one of a number of elements in a wider duty of care owed by the Bank to its customer which would be triggered by a suspicion of fraud and that no distinction should be drawn between a misuse of authority, money laundering or fraud for these purposes. Mrs Philipp argued that:

  • Following the Which? super-complaint and discussions about the Contingent Reimbursement Model code (which came into force in May 2019), the risks of APP fraud were already well known to banks by 2018 and the steps that the Bank was already required to have in place for Anti-Money Laundering purposes meant that it had a duty to exercise further caution in relation to suspicious payments.
  • In this case there were a number of red flags including the routing of payments through Mrs Philipp’s account from Dr Philipp, the speed of the transactions, the sums involved compared to the usual size of transactions on the account, the fact that the intended recipients were new payees and the use by the Philipps of branches which were not local to them. He suggested that taken collectively, those red flags put the Bank on inquiry in a way analogous to that of undue influence or constructive notice. The Judge considered this impractical and unworkable.

HHJ Russen QC accepted the Bank’s argument that Quincecare does not extend to a duty to protect Mrs Philipp from the consequences of her own decisions where, as between herself and the Bank, her payment instructions were valid and not in and of themselves fraudulently given. He agreed that there should be no extension of the Quincecare duty where the transfer is properly and lawfully authorised by the customer. Quincecare was confined to circumstances where the attempted misappropriation of funds is by the customer’s agent. In circumstances where the customer is an individual, the customer’s authority to make the payment is apparent and must also be taken by the bank to be real and genuine. He therefore accepted that the Bank should not be an insurer of the last resort. The Bank’s primary duty is contractual, that is to act on the customer’s payment instructions, which is what it did here.

Why is this an important result

APP fraud is an escalating problem. This decision provides banks with a clear position in the context of APP fraud, that at the time of these transactions, where a payment was authorised by the customer, there is limited scope to argue that their bank has a duty of care to prevent the consequences of that payment. 

The Quincecare duty is confined to cases where suspicions are raised, or ought to be raised, that there is a potential misappropriation of funds by a customer’s agent. It does not apply where the payment is authorised by the customer. An attempt to argue otherwise faces two problems:

  • It elevates the level of the duty to the need to inquire as to the purpose of the transaction which is subordinate to a bank’s primary duty to act on a customer’s instruction; and
  • It ignores the need for a clear (and probably statutory) framework of rules by reference to which any duty should operate.

Indeed in relation to the latter, the Judge commented that where the alleged duty is to second guess an outwardly genuine instruction from a customer, any bank would need a clear code to follow. 

Banks can rely on this decision to support their argument that Quincecare is limited to a common law duty which rests on a more general concept of a bank adhering to the standards of honest reasonable conduct and being alive to the possibility of fraud. That common law duty does not include an obligation on a bank to second-guess direct instructions from its customers. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions

By Rupal Nathwani and Clare Stothard, who acted for Barclays

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