Yesterday, the Supreme Court (SC) handed down judgment in Philipp v Barclays Bank UK Plc  UKSC 25. In summary, the SC found that banks do not owe a duty to refrain from executing customers’ direct payment instructions where there may be an attempt to defraud the customer.
We have previously commented on Philipp v Barclays and the Court of Appeal’s (CoA) decision last year in respect of the Quincecare duty – the duty on banks to refrain from executing a payment instruction where the bank has grounds to believe that the instruction is an attempt to misappropriate the account holder’s funds.
Traditionally, the Quincecare duty is considered to arise when an agent of a customer (for example, the director of a corporate account holder) attempts to instruct a transfer which results in a misappropriation of the customer’s funds. In Philipp v Barclays the CoA found that the Quincecare duty could equally apply to instructions received directly from a customer, where the bank has reasonable grounds for believing that there may be an attempt to misappropriate funds from the customer. This decision had broad ramifications for financial institutions, potentially opening an avenue for defrauded customers (including individuals) to claim against their bank for executing payment instructions.
However, the SC has overturned the CoA’s decision, finding that Barclays could not have owed any duty not to execute its customer’s payment instruction. The SC’s decision is based on the following points.
- The ordinary duty of a bank is to promptly carry out its customer’s payment instructions. It is not for the bank to concern itself with the risk of the customer’s payment decisions.
- The Quincecare duty does not arise where a customer directly instructs a bank. The Quincecare duty arises where a bank receives an instruction from an agent of the customer and the bank has reasonable grounds for believing that the agent is defrauding the customer. The Quincecare duty is limited to this scenario on the basis that the agent does not have authority to defraud the customer and so the bank would be executing a payment that the customer has not actually authorised. Even if an agent is defrauding a customer, there is still a requirement that the bank has reasonable grounds for believing that the agent is attempting to defraud the customer.
This decision may be helpful for financial institutions in limiting the extent to which they can be held liable for fraud committed against their customers. However, as acknowledged by the SC, the extent to which banks should reimburse victims of fraud is a question of policy for regulators and legislators. The Financial Services and Market Act 2023, which received Royal Assent on 29 June 2023, provides for the Payment Systems Regulator (PSR) to impose a mandatory reimbursement scheme (albeit not covering international payments). The PSR has published a recent paper on the new reimbursement requirement, which includes measures such as 50/50 liability for compensation between sending and receiving banks. The PSR will conduct consultations on how these reimbursement obligations will be effected in practice. Despite the SC’s decision, there is a clear movement in support of the reimbursement of fraud victims. This is an area that we will continue to watch with interest.