The Court of Appeal’s decision in Philip v Barclays Bank is one which all financial advisers should note with interest. The case concerned ‘authorised push payment’ or ‘APP’ fraud, a scenario in which a fraudster tricks a customer into instructing its bank to transfer its money to an account controlled by the fraudster.
The term ‘authorised’ is used as, from the bank’s perspective, the transaction has been authorised by the customer. The Court of Appeal addressed the extent of the scope of the Quincecare duty in these types of circumstances.
What is the Quincecare duty?
In brief terms, the ‘Quincecare duty’ is part of a bank’s implied duty of reasonable care and skill in executing the customer’s instructions and means that the bank should not proceed to execute a customer’s instruction if it has been put on inquiry that it could be an attempt to misappropriate funds.
What happened in this case?
In this particular case, a customer transferred over £700k from their Barclays account into two separate bank accounts in the UAE, under the false impression that they were doing so in order to protect their money. By the time the fraud was discovered, the money was gone.
The customer brought a claim against Barclays for breach of duty alleging that Barclays owed her a duty to apply reasonable skill and care in executing her instructions – said to be a species of the so called ‘Quincecare’ duty which has evolved to protect the customer in certain circumstances. Barclays applied to strike out the claim, succeeded in doing so at first instance and the case went on appeal to the Court of Appeal.
The Court of Appeal found in favour of the customer and set aside the original decision. The court explored the tension between the importance of the bank’s duty to execute orders promptly on the one hand and its duty to refrain from executing an order if and for so long as the circumstances would put an ordinary prudent banker on inquiry on the other.
Lord Justice Birss noted that “The duty is not to execute the order while on inquiry, and to make inquiries. The objective standard is expressed in different ways in different cases but they are equivalent: the ordinary prudent banker, the reasonable bank manager, and the honest and reasonable banker are the same person.
The bank’s arguments that the Quincecare duty only applies in circumstances where the bank is instructed by an agent of the customer (such as a director of a corporate customer) and not when instructed directly by the individual customer themselves, and that the duty of care contended for would represent an onerous and unworkable burden on banks, were both dismissed. Lord Justice Birss observed that there was “ample support for the conclusion that it is reasonably arguable that that duty would arise in any case when a bank was on inquiry that the order was an attempt to misappropriate funds”.
What happens now?
It should be noted that this case still has some way to go. The Court of Appeal has only decided that the claimant customer’s case is one which should be fully heard and argued at trial as opposed to being decided on an interim basis. This decision therefore does not necessarily mean that the customer will be successful at trial, once disclosure of documents has taken place and witness evidence given. However, it is certainly one to keep an eye over the coming months in view of the potentially wide-reaching consequences of its outcome.
Why is this relevant to financial advisers?
APP fraud has been on the rise in recent years and is now one of the most common types of fraud. Whilst the Quincecare duty seems most likely to manifest itself in the context of banks holding funds on behalf of their customers (such as the case in question), it is conceivable that it could also arise in other circumstances – such as where financial advisers are holding money on behalf of their clients.
If the customer is successful in Philips v Barclays Bank at trial, this has the potential for some fairly wide-reaching consequences not just in terms of the duty on banks but also, by extension, possibly on other fiduciaries who provide facilities similar to banks as well.
There is no reason in principle why the logic of imposing such a duty on banks could not extend to any fiduciary holding funds on behalf of clients. Steps should therefore be taken to ensure that any financial advisers who are holding client funds are alive to the possibility of APP or similar frauds, and have policies and procedures in place to mitigate the risk of such frauds being successful. A close eye should also be kept on the decision at trial in Philips v Barclays Bank in order to understand whether any such policies and procedures need to be modified or improved in any way.
