Philipp v Barclays Bank: Back to Banking Law basics?

The start of a new year is a time to look forward to the months ahead, but it is also an opportunity for reflection. On that note, it is useful to revisit one of the most important decisions of last year, Philipp v Barclays Bank UK PLC [2023] UKSC 25

The Facts

Mrs Philipp was a customer of Barclays Bank. Mrs Philipp and her husband were unfortunate victims of a fraud based on ‘authorised push payments’, so called because the fraudsters induce victims to send (i.e. push) money to an account, rather than taking (i.e. pulling) the money themselves from the victim’s account. The fraudsters pretended to work with the Financial Conduct Authority/National Crime Agency and convinced the claimants to transfer £700,000 to bank accounts in the United Arab Emirates. The transfers were completed successfully, the sums paid out, and the Philipps lost their money to the fraud.

Mrs Philipp claimed against Barclays Bank, arguing they owed her a duty to observe reasonable care and skill when executing her banking instructions, including refraining from executing such instructions where there were reasonable grounds to believe such instructions were an attempt to misappropriate funds. Mrs Philipp largely relied upon the so-called ‘Quincecare duty’, as set out by Steyn J in Barclays Bank v Quincecare [1992] 4 All ER 363. Mrs Philipp argued the bank had breached the Quincecare duty by a) transferring the sums to the UAE accounts, and b) failing to take sufficient steps to recover the sums once they had been transferred.

Mrs Philipp’s claim was struck out at first instance, but this decision was reversed by the Court of Appeal. Barclays Bank appealed to the Supreme Court.

Issues

The Supreme court had to decide:

1.      Does the Quincecare duty extend to circumstances where an instruction was not given to the bank by an agent of the customer?

2.      If the answer to (1) is no, should the Quincecare duty be extended to the circumstances argued by Mrs Philipp in (a) and (b) above?

3.      Should these issues be determined summarily or by strike out?

The Decision

The Supreme Court unanimously allowed the appeal and held that the Quincecare duty did not extend to these circumstances, and nor should it.

In considering the Quincecare duty, the court noted that the duty concerned cases where the payment instruction was given to the bank by the agent of a customer. The justification for the duty rested on the rules of agency – an agent has authority to enact their principal’s instructions but does not have authority to defraud them. Thus, if a bank did make a payment which defrauded the customer, they would be enacting a transaction the customer had not authorised them to make. Apparent authority of the agent would only protect the bank if there were no reasonable grounds to believe the transaction was fraudulent. If those reasonable grounds existed, the bank was under a duty (the Quincecare duty) to refuse to execute the instructions. Separately, following these instructions in these circumstances would also mean the bank acted without authority – whether actual or apparent – when taking money from the customer’s account. Therefore, in answer to issue (1), the Quincecare duty did not apply to Mrs Philipp’s situation because the validity of her instruction was not in doubt and there were no reasonable grounds to believe the instruction was fraudulent.

The court held that neither should the Quincecare duty be extended to these circumstances. Unless otherwise expressly agreed, the bank’s duty is to execute the instruction and any refusal to do so will be a breach of duty by the bank.

However, the alternative claim – the failure to take sufficient steps to recover sums once transferred – could not be dealt with on a summary basis and needed a fuller assessment of the facts.

Discussion

This appeal concerned the fundamentals of banking law – when does a bank need to process a transaction? The conclusion of the court refers back to the bank’s primary duty, to execute a customer’s valid instructions. If the bank doesn’t do so, it breaches its obligations to the customer.

By focussing on the issues of fraud, the Court of Appeal became waylaid and failed to look at Barclays’ primary duties. The Quincecare duty is concerned with the validity of the instructions, not the underlying transaction. This is because the Quincecare duty is based on the doctrine of agency – a bank must not follow instructions it has reason to believe were not validly authorised by the principal. In practice, the duty does little more than restate these basic elements of banking law.

While in Quincecare that invalid authorisation was based on fraud, it could in theory extend to other circumstances. Where the customer does not appoint an agent, and makes the instruction themselves, the doctrine of agency does not apply to the instructions and the Quincecare duty is not engaged. The bank adopts no duty to protect the customer from issuing their own instructions where they have been conned, or indeed where they may simply be making a mistake. If they have validly issued the instructions, they must be followed. Trying to apply Quincecare to these circumstances is akin to trying to fit a square peg into a round hole.

As cyber-scams become ever more prevalent and fraudsters are harder to trace, we are likely to see more banking cases in 2024 and beyond where customers have initiated transactions with unknown third parties. This case shows that notwithstanding the policy justifications for compensating the victims of fraud, the fundamental principles of banking law must always come first.