The Quincecare Duty - 30 years on

This article was originally published in Butterworths’ Journal of International Banking and Financial Law, May 2022 and is reproduced with permission fromthe publisher.

In a sign of the times, the first quarter of this year has seen three cases on a bank’s duty to refrain from executing a payment instruction where it has reasonable grounds to suspect the transaction may be an attempt to misappropriate the account-holder’s funds. Until now, in the thirty years since it was first recognised, cases relating to the so-called Quincecare duty have been few and far between. This in itself indicates the narrow circumstances in which the Courts of England and Wales have found the duty has not only been breached, but even arisen in the first place.

In January, the Supreme Court heard Stanford International Bank’s appeal against the Court of Appeal’s judgment striking out most of Stanford’s GBP116.1 million claim that HSBC had negligently failed to spot that Stanford was being used to facilitate a large-scale Ponzi scheme. The Court of Appeal found that a bank owes the Quincecare duty to its customer alone, not to its customer’s creditors, and that a loss of funds which would otherwise have been available for distribution to creditors did not represent a loss which Stanford could recover.

In the Federal Republic of Nigeria’s claim against JP Morgan, the Nigerian state alleges that JP Morgan breached the Quincecare duty by executing payments totalling USD875.74 million on the instructions of authorised signatories, being Nigeria’s Minister of Finance and Accountant General. On JP Morgan’s reverse summary judgment application, the Court of Appeal upheld the High Court’s judgment that exclusionary wording in the contract between the two parties was insufficiently clear to exclude the Quincecare duty and the case was returned to the High Court for a trial which began in February.

In March, the Court of Appeal handed down judgment in Mrs Philipp’s appeal against Barclays’ successful application for summary judgment in another Quincecare duty claim. Mrs Philipp fell unfortunate victim to an Authorised Push Payment scam in which she transferred GBP700,000 to accounts held in the UAE. The Court of Appeal held that the Quincecare duty could arise where the instruction-giver for the payment is the account-holder and is not limited to circumstances where the account-holder is being defrauded by an agent, such as a company director. The case will now go back to the High Court for trial.

Despite the unique facts of the three cases, there is some overlap in the themes which emerge. Whilst the courts will examine whether the Quincecare duty arises in different factual scenarios, it is noteworthy that the context to each claim is rather extreme. That suggests (as did the 2019 case of Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd) that it still takes a high bar for the Quincecare duty to be engaged so as to displace a bank’s primary duty to act on its customer’s mandate. There is also a consensus between the three cases that the duty is only owed to the bank’s customer and not to a wider class of beneficiary. The appeal in Stanford is being argued on different grounds, namely whether the loss suffered is recoverable, not whether the duty is owed to the customer’s creditors. The limit on the class of beneficiary to whom the duty is owed has also recently been applied in Falk J’s decision in the crypto-assets case of Tulip Trading Ltd v Bitcoin Association for BSV.

The key point which will be of interest to lenders and fraud victims alike, will be the courts’ findings on the standards to which banks should be held to discharge their Quincecare duty obligations, if indeed it is found to arise. It has traditionally been perceived in the negative – a duty not to pay – rather than a positive duty to make enquiries about the transaction(s) concerned. In this regard, the Court of Appeal’s commentary in JP Morgan that in most cases a lender will need to do “something more” than simply decline to execute the payment is at odds with the first instance finding in Philipp that the bank is not required to “assum[e] the role of amateur detective”. Whilst the courts may reconcile this question by drawing a distinction between cases where the payment instruction is given by an agent of the customer rather than the customer itself, they will still have to grapple with the invidious position the bank is placed in where, if enquiries are made, the customer or its agent may well insist that the transaction is legitimate.

These cases are unlikely to see the end of the courts being called upon to protect victims of the ever-increasing problem of fraud but they will be an important barometer of whether existing legal duties will continue to be applied in a conservative and incremental manner or whether the courts perceive a radical new approach is needed thirty years on from Quincecare.