Defrauded by a fraudster: can you sue your bank?

A woman goes into a bank. She instructs the cashier to transfer half her life savings to an account in a country that is far, far away. The woman has no known connections with that country, and she has never sent money to that account before. The cashier acts in accordance with the instructions and transfers the money.

A fortnight later, the same woman goes into another branch of the same bank. She tells the cashier to send the rest of her life savings to the same account, in the foreign country. The cashier, again, acts in accordance with the instructions and transfers the money.

The woman has, in fact, been conned by a fraudster into requesting these transfers out of her bank account, into his account. The fraudster disappears. The money also disappears.

Does the woman have a claim against the bank? Even though she specifically told the bank to make the transfers?

In light of the recent decision of the Court of Appeal in Philipp v Barclays Bank UK PLC [2022] EWCA Civ 318, the answer is a qualified “yes”. 

This is because a bank does not simply provide an “execution only” service. It owes a duty of care to its customers. 

The bank has a duty to protect its customers

A bank has a duty to observe reasonable care and skill in and about executing a customer’s instruction.

This duty is called the “Quincecare duty of care”, after a case of that name (also involving Barclays) back in 1992. Lady Hale summarised the duty in these terms in a later case (Singularis Holdings v Daiwa Capital Markets [2019] UKSC 50) and added that the Quincecare duty is:

“…subject to the conflicting duty to execute those orders promptly so as to avoid causing financial loss to the customer; but there would be liability if the bank executed the order knowing it to be dishonestly given, or shut its eyes to the obvious fact of the dishonesty, or acted recklessly in failing to make such inquiries as an honest and reasonable man would make; and the bank should refrain from executing an order if and for so long as it was put on inquiry by having reasonable grounds for believing that the order was an attempt to misappropriate funds”.

What happened in the Philipp case? Who was defrauded?

Mrs Philipp was the victim of an “authorised push payment” (APP) fraud. In an APP fraud, a customer is deceived by a fraudster to instruct their bank to transfer money from their own account with a bank, into an account controlled by the fraudster.

In the Philipp case, Mrs Philipp was a teacher, and her husband, Dr Philipp, was a retired consultant occupational and public health physician. 

They were deceived by a fraudster (known as “JW”) into moving more than £700,000 of their savings into an account in Mrs Philipp’s name with Barclays. This was the bulk of their life savings. Mrs Philipp later instructed Barclays to transfer that money to a separate bank account in the United Arab Emirates, in two payments of £300,000 and £400,000. 

Dr and Mrs Philipp had been convinced by JW in a series of calls that they were cooperating with the Financial Conduct Authority and the National Crime Agency to bring fraudsters to justice.

Part of the deception involved Dr Philipp telephoning what he thought was the fraud department within HSBC, and being re-directed to JW. On another occasion JW arranged for someone else to telephone Dr and Mrs Philipp from what appeared to be the NCA’s telephone number shown on the NCA website (which JW had encouraged Dr Philipp to look up on the internet). The caller said he had worked with JW for nine years and that he was a senior person in the FCA who could be trusted.

As a result of this deception, Mrs Philipp made the first transfer from a branch of Barclays in Bristol, and the second at a different branch. By the time the fraud was discovered the money had gone.

Mrs Philipp sued Barclays. She did so for breach of duty. There was a live issue between her and the bank as to whether any safeguarding questions or scam warnings were given, when she made the transfers to the account in the UAE. She argued that Barclays ought to have had policies and procedures in place to detect and prevent potential APP fraud. She set out in detail as to what those policies and procedures should have been, to prevent such fraud, and reverse or reclaim the money.

How did Barclays respond?

Barclays applied to strike out the case, without a trial. It argued that there was no duty of care owed to Mrs Philipp in these circumstances. 

The bank argued, among other things, that the Quincecare duty only applies where the customer is a company, and the relevant instructions are given by an agent of the company. If the company’s agent is a fraudster (a rogue director, perhaps), their instructions to the bank would be vitiated by fraud. Accordingly, it cannot be said that the customer/company has given any valid instructions to the bank.

Barclays argued that, to extend the Quincecare duty to include people, customers that are not companies, would also impose onerous and unworkable obligations on banks to check and warn their customers.

What did the first judge do?

The judge who first heard Barclays’ application, in Bristol, agreed with Barclays, and struck out the claim. Mrs Philipp therefore appealed to the Court of Appeal.

What did the Court of Appeal do?

Three judges in the Court of Appeal unanimously held that the judge in Bristol was wrong, that the claim should not have been struck out, and that it should go to trial.

Lord Justice Birss specifically held that a Quincecare duty is a duty on a bank to make inquiries and refrain from acting on a payment instruction in the meantime; and, perhaps more importantly, for immediate purposes, does not depend on the bank having been instructed by an agent of the customer.

Given the nature of the application, Barclays have not been found liable to Mrs Philipp at this stage. The Court of Appeal has, however, set the stage for a full trial. 

It will be interesting to see whether the case now settles (as Barclays have now lost their strike out application); or whether it is fought to trial, at which a reasoned judgement is given.

If you wish to discuss any of the issues outlined in this article, then please contact Andrew Kinnison or another member of the Litigation and Dispute Resolution Team.