.svg)
Barclays Bank will not be liable for a £700,000 authorised push payment (APP) scam against one of its customers following a victory in the UK’s highest court.
In the case of Philipp v Barclays Bank, the Supreme Court confirmed there is no duty for a bank to prevent a transaction on the grounds that it may be fraudulent.
The decision on Wednesday (July 12) overturns an earlier Appeals Court ruling.
“Where the customer has authorised and instructed the bank to make a payment, the bank must carry out the instruction promptly,” said Judge George Leggatt in a written ruling.
"It is not for the bank to concern itself with the wisdom or risks of its customer's payment decisions."
This case was brought to the courts by Fiona Philipp, a customer of Barclays.
Between February and March 2018, both she and her husband, a retired music teacher and a retired medical consultant respectively, were victims of a social engineering scam.
The criminal was able to convince the couple that he was an employee at the Financial Conduct Authority and National Crime Agency investigating fraudulent behaviour at HSBC, the husband's bank, and Tilney, who managed his investments.
Consequently, Dr. Philipp was persuaded to transfer his savings into his wife's accounts.
Upon the direction of the fraudster and Dr. Philipp, Fiona Philipp instructed three international payments of £400k, £350k and £250k, the latter of which was blocked by Barclays following police intervention, to accounts held at two Middle Eastern banks, which have since not recovered or returned the funds.
“I am not surprised by this decision as it appears to be a conventional statement of what the bank-side of the market always considered to be the law,” Mike Hawthorne, partner at Pinsent Masons, told VIXIO.
“Obviously everyone has sympathy for this customer, and indeed all customers who lose money to fraud, but the Supreme Court was right in my view to apply the law as it stands now, and leave it to parliament and the regulators to change the rules if they think that banks should be made more liable to compensate customers for fraud losses.”
With the Supreme Court unanimously upholding Barclays' appeal, the judges have determined that the so-called Quincecare duty does not extend to circumstances where the customer is defrauded upon their own instruction.
The Quincecare Duty
This itself originates from the case of Barclays v Quincecare.
The duty requires a bank to refrain from carrying out its customer's instructions if it has reasonable grounds to believe that the instructions are the result of fraud and would have the effect of misappropriating funds.
"The duty has no application where the payment instruction is authorised by the customer," said Matthew Dibb, legal director at Addleshaw Goddard law firm.
Dibb pointed out that if the customer has clearly authorised and instructed the bank to make a payment, the bank has a strict duty to make those payments, in compliance with the customer’s instructions.
It must carry out the instruction promptly unless expressly agreed by the parties.
Dibb said that the decision "underlines the law in this area as one of traditional agency and authority".
"The so-called 'Quincecare duty' is owed only where the bank has reasonable grounds to believe that an agent of the customer is attempting to defraud the customer or where an agent acting fraudulently exceeds the authority given to it by the customer," Dibb said.
Given the steps being taken by the UK's Payment Systems Regulator to introduce mandatory reimbursement for APP fraud victims, the Supreme Court also underlined that the bank's liability to compensate victims of APP fraud is a question of social policy for regulators, government, and ultimately for parliament to consider.
"It is not the role of the courts to formulate such policy, still less to impose on the parties to a contract an obligation to which they have not consented," said Judge Leggatt.
Meanwhile, the Supreme Court determined Philipp's alternative claim as to whether the bank had a duty to act more promptly to recover the sums lost requires a full investigation at trial.
So although the case has scope to continue, Dibb said that financial institutions will welcome the clarification of the obligations owed by banks when executing a customer's payment instructions.
"This decision draws to a close the recent line of authority that sought to widen the Quincecare duty," he said. "Victims of APP fraud will no longer be able to pursue their banks for breach of duty through the courts."
Although financial institutions may be pleased with this outcome, the consumer body Which? said it was disappointing.
Rocio Concha, Which? director of policy and advocacy, said the ruling was a "missed opportunity to enhance consumer protections against bank transfer scams and encourage banks to put in place better systems to protect their customers".
"Banks should do the right by their customers and proactively extend enforceable reimbursement to all payments, and government and regulators should act to close any loopholes to ensure all scam victims have equal and effective protection," said Concha.
