The Supreme Court pulls away from pushing the law on push payments

In its recent decision in Phillip (Respondent) -v- Barclays Bank UK PLC (Appellant) [2023] UKSC 25, the Supreme Court refused to extend the Quincecare duty of care, in circumstances where an individual had authorised payment instructions to Barclays Bank (‘Bank’) having been induced to do so by a fraudster. In this article we look at the rationale for the decision and also Section 72 of the  Financial Services and Markets Act 2023

What is an authorised push payment scam?

An authorised push payment (‘APP’) is where a criminal tricks an individual into transferring money to a nominated account. With APP scams, criminals often try to persuade the victim into taking urgent action  before he or she has time think it through properly often using impersonation tactics. Unfortunately, such instances are on the rise and cause great hardship to their victims.  

What is the Quincecare duty?

The Quincecare duty (established in Barclays Bank PLC -v- Quincecare Ltd [1992] 4 All ER 363) prevents financial institutions from executing a payment order from a customer, where it has reasonable grounds to believe that an order is an attempt to misappropriate funds.  

Phillip (Respondent) -v- Barclays Bank UK PLC (Appellant) [2023] UKSC 25

In 2018, the claimant fell victim to a fraud whereby she (and her husband) were deceived by criminals into instructing the Bank to transfer £700,000 in two payments from her account to accounts held in the UAE. The payments were made and the money was ultimately lost.

The claimant commenced proceedings against the Bank claiming damages and seeking to hold it liable for her losses. The claimant pleaded that it had breached its alleged Quincecare duty of care towards her as it was on inquiry as to the potential fraud and should have protected her from the consequences of the payments. The claimant considered that the Bank had an obligation to question her about the validity of both payments and should have had in place appropriate APP fraud detection and prevention policies. The claimant also presented an alternative case regarding an alleged loss of chance and pleaded that if the two payments had been delayed by the Bank she would have been afforded the opportunity to recover the funds before they reached the fraudster.

The Bank duly filed an Application for Summary Judgment and/or Strike Out upon the basis of no reasonable grounds for bringing the claim and/or no real prospect of success. The High Court approved the Bank’s application and struck out the claimant’s claim, ruling that the Quincecare duty of care did not extend to protect the claimant from the consequences of her genuine instructions. The decision was later reversed by the Court of Appeal.

The Supreme Court held that the Court of Appeal was wrong. Where a customer is in funds in a current account, a basic duty of a bank under its contract with that customer is to facilitate payments from the account pursuant to customer instruction. This duty is strict. Where the customer has instructed the bank to make payment, it must do so promptly. It is not for a bank to concern itself with the risks of its customer’s direction. The Supreme Court clarified that the bank owed duties to its customers to make necessary inquiries so as to not make a payment which the customer has not authorised. Here, the customer unequivocally authorised and instructed the Bank to make payment.

This decision will be welcomed by financial institutions. They do not face extensive new duties to prevent APP fraud; their primary duty remains to deal with payment instructions from individuals to follow a customer’s mandate. The upshot of this is that banks will not be held liable for fraudulent transactions requested by customers, avoiding a potential wave of fraud litigation.  

The Financial Services and Markets Act 2023

As set out in paragraph 21 of its judgment, the Supreme Court stated that some solace for victims may be found by the recent introduction of the Financial Services and Markets Act 2023 (which received royal assent in June 2023).

Section 72 requires the Payment Systems Regulator to impose a requirement for reimbursement by payment service providers in such ‘qualifying cases’ of payment orders executed subsequent to fraud or dishonesty, as the Regulator considers should be eligible for reimbursement. It provides (subject to potential adjustment through a dispute resolution process) for a 50-50 allocation of losses between the sending and receiving providers. The proposed new scheme is however confined to faster payments, consumers, charities and ‘micro-enterprises’ are not included and it does not extend to international payments. Such limitations ensures that it remains critical that when a fraud is discovered, victims act quickly and effectively to preserve assets.

How Hill Dickinson can help

Our team at Hill Dickinson LLP is responsive, will quickly investigate matters and take all necessary steps to prevent further losses and recover any losses already incurred. We have extensive experience of obtaining freezing orders and Norwich Pharmacal Orders which are essential to maximise potential recoveries. We understand the disruption that fraud can have on your personal life or business and are here to help mitigate this. We use all available tools to get you the right result which may include negotiation, mediation, or litigation. 

For further information, please contact Jon Scally.