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A recent Court of Appeal decision in the UK highlights the increasing obligations on banks to not only verify who is giving them instructions in respect to a particular account, but also review the nature of those instructions. Banks may not be able to defend their actions by simply saying they acted on the authority of the signatories of the account.
Case Summary: Fiona Lorraine Philipp vs Barclays Bank UK PLC EWCA Civ 318 
In March 2018, Dr, and Mrs. Philipp were fraudulently misled into transferring their lifesavings into a foreign account held in the United Arab Emirates (UAE). The duo were victims of an Authorized Push Payment (APP) fraud, which occurs when a customer is manipulated into directing their bank to transfer their funds into a fraudster’s account. A fraudster known as JW deceived the couple, over a period of time, into believing that they were assisting in an investigation by the Financial Conduct Authority and the National Crime Agency. As a result of this fraud, they moved over GDP 700,000 (approx. USD 920,000) of their savings held jointly into an account in Mrs. Philipp’s name with the respondent bank, Barclays Bank. Despite a police officer warning Mrs. Philipp about the potential for fraud she instructed the bank to transfer the money, in two payments of GDP 400,000 (approx. USD 520,000) and GDP 300,000 (approx. USD 390,000), to separate bank accounts in the UAE under the belief that she was moving the money into safe accounts to protect it from fraud. Mrs. Philipp brought a claim against Barclays Bank for breach of its duty of care in effecting the transfer of funds.
Mrs. Philipp argued that Barclays Bank owed her a duty to observe reasonable care and skill in executing customer instructions which duty emanates from the common law in tort, by an implied term of the contract between her and the bank and, under section 13 of the Supply of Goods and Services Act 1982. It was argued on her behalf that this duty is also a species of the duty identified by the High Court in Barclays Bank v Quincecare  4 All ER 363 (the Quincecare duty). Mrs. Philipp’s counsel argued that: i) there were various features of the payments made by Mrs. Philipp and of her situation which would have alerted an ordinary prudent bank acting with reasonable skill and care to a possibility of fraudulent activity, with the result that the bank would have delayed the transfers and investigated the matter before effecting the transfer; and ii) that Barclays ought to have had in place policies and procedures aimed at detecting and preventing potential APP fraud and reversing or reclaiming moneys subject to it.
Barclays Bank applied to strike the case out firstly, on the basis that the court could decide without a trial that as a matter of law, there was no duty of care in these circumstances and secondly, on the grounds of causation. The bank argued that Mrs. Philipp and her husband had been so thoroughly deceived that they were lying to the bank about the purpose of the transfers. Therefore, even if the Barclays Bank had exercised reasonable care, Mrs. Philipp would have issued instructions for the transfer anyway.
The court had to determine whether the Quincecare duty would apply in relation to payments made on instructions issued by individuals or customers. The court held that the Quincecare duty could only apply to agents of a customer (such as a director) attempting to authorize a transaction which results in a misappropriation of customer funds. The High Court issued judgement in favour of Barclays Bank stating that allowing the claim on this basis would amount to an unprincipled and prohibited extension of the scope of Quincecare duty in a manner that would be unworkable and “commercially unrealistic” in practice. It would therefore 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. She appealed the decision with the permission of the judge.
The question to be determined by the Court of Appeal was whether Barclays Bank owed Mrs. Philipp a duty of care in the circumstances. Mrs. Philipp’s counsel submitted that it was properly arguable that a duty of care did arise in the circumstances and that its existence ought to be seen as a proper application of the reasoning that supports the existence of the Quincecare duty, or else it should be recognized as a legitimate incremental development of that line of authority. Mrs. Philipp’s counsel also submitted that the High Court judge made an error in accepting the bank’s case that the duty would be unworkable and burdensome, as the duty reflected current banking practice and would therefore not be onerous.
Barclays Bank’s main submission was that the Quincecare duty is limited to cases in which there is fraud by an agent acting for the customer, because in such a case the fraud meant that there was in truth no authorisation by the customer for the transfer. The bank therefore argued that the Quincecare duty did not apply in its case as Mrs. Philipp herself had authorized the transfer, admittedly doing so as an unwitting victim of fraud.
The Court of Appeal took a different approach to the High Court. The appellate court stated that whilst the preceding cases that established and upheld the Quincecare duty involved instructions from a fraudulent agent acting for a company or firm, what mattered was the reasoning behind these cases, which was based on the following rationale:
The appellate court stated that this line of reasoning did not depend on whether the instruction is given by an agent and could apply with equal force in cases where instructions to a bank are given by the customer themselves who is the unwitting victim of APP fraud, provided the circumstances are such that the bank would be on inquiry that executing the order would result in the customer’s funds being misappropriated.
On the issue of the duty being inconvenient and unworkable, the appellate court highlighted the existence of voluntary codes of practice in the banking industry, which supported the submission that a duty of care which was triggered by circumstances that would put an ordinary careful banker on inquiry is practical and feasible. The appellate court held that:
This case expands the scope of duty and the standard of care to be exercised by banks in carrying out client instructions such that a bank may be found liable for breach of its Quincecare duty if the bank executes a transfer on the instructions of its customer that an ordinary careful bank would question. The issue of the inconvenience or workability of the enhanced duty of care is an issue that will be determined on full trial. Although the case is a decision of the UK courts the principles considered would equally apply in Kenya since UK decisions are considered persuasive authority in the country. As such, banks in Kenya should consider whether any changes in their internal policies are necessary considering the Philipp case and the Quincecare duty expounded in that decision.