In an article last year, we outlined how English law is wrestling with the problem of how to do justice between a number of different parties who are all the victims of fraud. There has been an interesting development which offers some hope to victims of the fraud and will concern the banks that paid money out to the fraudster (the Paying Bank).
The development arises from the case of Philipp v Barclays Bank [2022] EWCA Civ 318. Mrs Philipp is a music teacher and her husband is a retired NHS doctor. The couple were thoroughly deceived by a fraudster and as a result moved £700,000, being the vast majority of their life savings, into an account in Mrs Philipp’s name with Barclays and then Mrs Philipp instructed Barclays to transfer that money to separate bank accounts in the UAE. The couple had been deceived into removing the money because ironically they believed that this would protect them from fraud.
At first instance the judge gave summary judgement for the bank on the basis that the bank owed no duty of care to its customer in the circumstances of the fraud. Mrs Philipp appealed arguing that the bank owed her a duty of care (at common law in tort or implied into the contract between her and the bank by section 13 of the Supply of Goods and Services Act 1982) to observe reasonable care and skill in and about executing her instructions.
This type of duty arises from another case concerning Barclays (Barclays Bank v Quincecare [1992] 4 All ER 363). In previous cases, the Paying Bank had always persuaded the court that the Quincecare duty had very limited application in respect of APP frauds because the duty related only to fraud by an agent acting for the customer. The Court of Appeal disagreed.
BIrss LJ gave the only judgment and revisited the reasoning in all of the previous cases and concluded that, despite the importance of the bank’s duty to execute orders promptly, the bank has another duty which operates in tension with that primary duty such that the bank may be required to refrain from executing an order if and for so long as the circumstances would put an ordinary prudent banker on enquiry. He therefore sent the case back for trial. “The important point is that the bank’s obligation is not simply and always to execute every payment instruction of whatever kind unthinkingly.”
It looks as if the scale of APP fraud and the advances made by banks in the detection of fraud have acted as strong public policy reasons to impose greater duties on the Paying Bank.