Following the Supreme Court judgment in Singularis v Daiwa and a number of high-profile interim judgments on the so-called “Quincecare” duty during the course of 2020, we take a look at how the law is developing in this area and what we can expect from the case law going forward.
In Barclays Bank Plc v Quincecare  4 All ER 363 it was established that it is an implied term of the contract between a bank and its customer that the bank owes the customer a duty of care to take reasonable care when making a payment on the instructions of the customer. In that case Steyn J explained the scope of the duty as follows: “…a banker must refrain from executing an order if and for as long as the banker is “put on enquiry” in the sense that he has reasonable grounds for believing that the order is an attempt to misappropriate the funds of the company…”.
At the time, a bank’s duty of care had been narrowly interpreted, for example, in Lipkin Gorman v Karpnale Limited  1 WLR 1340, Lord Justice May stated that: “The principal obligation is upon the bank to honour its customers’ cheques in accordance with its mandate on instructions. There is nothing in such a contract, express or implied, which could require a banker to consider the commercial wisdom or otherwise of the particular transaction. Nor is there normally any express term in the contract requiring the banker to exercise any degree of care in deciding whether to honour a customer’s cheque which his instructions require him to pay. In my opinion any implied term requiring the banker to exercise care must be limited. To a substantial extent the banker’s obligation under such a contract is largely automatic or mechanical. Presented with a cheque drawn in accordance with the terms of that contract, the banker must honour it save in what I would expect to be exceptional circumstances.”
Even in Quincecare itself, the bank was not held liable as it was held that in the absence of telling considerations to the contrary, a banker was entitled to assume that a director of a corporate customer was not attempting to defraud the company. In Quincecare, there was nothing sufficient in the circumstances known to the bank to put them on notice that the Chairman of the company intended to misappropriate the loan monies. Furthermore, it was not possible to impute to the employees of the Barclays branch dealing with the loan, matters known to another of Barclay’s branches which might have put them on enquiry.
Despite its acceptance as an implied term of the contract between bank and customer, there had been no successful claim against a bank for breach of the Quincecare duty until the Supreme Court judgment of Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd in 2019. We consider this judgment in our article: https://tenetlaw.co.uk/articles/can-banks-escape-their-duty-of-care-to-customers-when-fraud-is-in-play/.
With financial crime rising year on year, it was almost inconceivable that banks (often the facilitators of such activity) would remain untouched by the law in this area. Therefore, the judgment in Singularis was a welcome step in the fight against fraud and financial crime. Even though the fraud perpetrated in Singularis was so obvious that the fact that the bank had breached its Quincecare duty was described as “incontrovertible”, the judgments do acknowledge the public interest in requiring banks to play an important part in uncovering fraud and financial crime. It had been anticipated that the case signified a shift in the approach of the courts to a bank’s duty of care, and until recently we had begun to see this play out in the case law.
 Barclays Bank Plc v Quincecare  4 All ER 363 per 376G
In October 2019, the Court of Appeal affirmed the decision of a first instance judge in refusing to grant summary judgment to JP Morgan Chase Bank NA (the “Bank”) in respect of its defence against a claim brought by the Federal Republic of Nigeria (the “State”) for breach of its Quincecare duty. The Bank had held US$875m of funds in a depository account which it had then transferred to companies controlled by the State’s former oil minister, Dan Etete (who had been convicted of money laundering), on the instructions of authorised persons. The State alleges that the fraud went right to the top of government, and the Bank ignored red flags in relation to the transactions. It was held that the Bank could not rely on the terms of the depository agreement governing the relationship between the Bank and the State to escape liability.
The case has recently come before the courts again where it was held that the Bank must identify any bank officials who signed off on the transfers. The case is expected to go to trial in early 2022.
The facts behind this case revolve around a sophisticated investment fraud. The Claimants were persuaded to transfer £140,000 to an account in the name of Moorwand NL Ltd (the Second Defendant) (a shell company with no directors which was hijacked by unknown fraudsters). The account was held with World First Ltd (the First Defendant) (“WF”) which was a payment services provider providing foreign exchange services. No allegation of fraud was made against WF, however, the Claimants brought a derivative action against WF of claims belonging to Moorwand NL. It was argued that such action was possible on the grounds that Moorwand NL was a trustee of the Claimants’ funds and that the Claimants (as beneficiaries of the trust) had standing to bring representative proceedings (i.e. claims belonging to Moorwand NL) directly against WF. It was held that both the claims brought, and the Claimants’ standing were arguable and could not be dismissed in an application for strike out or reverse summary judgment.
The principle highlighted by Lady Hale in Singularis followed that the Quincecare duty is owed to the company not to those in control of it. Therefore, even a shell company (without any directors) that had been hijacked by fraudsters could benefit from the Quincecare duty.
This case arises out of operation of a Ponzi scheme involving Stanford International Bank Ltd (“SIB”). SIB was run by Robert Allen Stanford (the ultimate beneficial owner of SIB), who was later convicted in the US for a $7 billion Ponzi scheme. The liquidators of SIB claimed that HSBC ought to have been aware of SIB’s fraudulent activity by 1 August 2008. However, payments continued to be made from its accounts until February 2009, when Mr Stanford was charged by the US authorities.
The claims brought against HSBC were for breach of its Quincecare duty and dishonest assistance in respect of alleged breaches of fiduciary duty by Mr Stanford. It was argued by HSBC that SIB had suffered no loss as payments made extinguished SIB’s liabilities to deposit holders, and as SIB was insolvent on a net asset basis it was no worse off as a result of the Bank’s actions. Despite describing HSBC’s argument as “attractive”, the Court refused to strike out the claim for breach of HSBC’s Quincecare duty. The Court analysed the counterfactual scenario and concluded that had HSBC frozen SIB’s bank accounts in August 2008, although SIB would have still been heavily insolvent, SIB would have had £80m available for the liquidators to pursue claims and for distribution to its creditors. Therefore, the loss of £80m was a real loss.
The claim for dishonest assistance was struck out in the absence of proof of knowledge on the part of HSBC. The case is likely to be heard in October 2021.
In 2018, Mrs Philipp and her husband were duped into believing that a fraudster worked for the FCA and was working on a secret investigation with the National Crime Agency to uncover a fraud within HSBC. They were persuaded to transfer £700,000 to accounts in the United Arab Emirates, believing that their money would be safe there. On each occasion Mrs Philipp and her husband went in branch to affect the transfer, and when questioned about whether they had had previous dealings with the UAE account holder, they confirmed they had.
Mrs Philipp brought a claim against her bank alleging it had breached its duty of care to her. HHJ Russen QC decided that to hold Mrs Philipp’s bank liable for her loss would be a step too far requiring the bank to act as “detective” in circumstances where the payment instruction was authorised and valid (despite the underlying fraud). HHJ Russen QC stated:
“I do not accept that the Quincecare duty can properly be used to impose a higher (or more specific) set of standards which dictate that, in certain defined circumstances, the bank is obliged to question the customer’s instructions. It is a duty of care framed by concepts of knowledge (actual or constructive) rather than further negligence in failing to follow the rules of some code. If a bank is to be held to the standards of something equivalent to a code for intervention – for present purposes, in the case of suspected APP fraud – then it needs to know its terms. There was no such code in March 2018……”
It was noted that previous case law on the Quincecare duty limited its scope to circumstances where the attempted misappropriation of funds is by the customer’s agent, and banks should not be under an automatic duty to protect a customer from the consequences of their own decisions.
The judgment continued:
“In my judgment, the observations of Lady Hale in Singularis about the purpose of the duty (in the context of both causation and corporate attribution) have no resonance where the cause of the customer’s loss is her own desire to make the payments to their intended recipients. The Supreme Court said nothing about a bank protecting an individual customer (and her monies) from her own intentional decision. If the Quincecare duty was to be supported by matters going beyond the honest and reasonable conduct of the ordinary prudent banker then in my judgment it would have to be by reference to some form of industry-recognised rules from which a bank could identify the particular circumstances in which it should not act (or act immediately) upon its customer’s genuine instructions.”
The decision may be subject to appeal.
Whilst cases shall remain fact specific, this case will undoubtedly assist banks to resist claims unless a Claimant can point to factors to show a bank had a degree of knowledge of the circumstances of the fraud before the fraudulent event causing the loss in question occurred.
From the cases set out above, it appears that following a long period of dormancy, the Quincecare duty is seeing a renewed interest. This approach will bring hope to victims of fraud (both individual and corporate) who for many years have been without any form of redress. However, as evident from the case of Philipp v Barclays Bank, it is yet to be seen whether Singluaris marks a new dawn for the Quincecare duty. However, these early tentative steps do signify a recognition by the courts of England and Wales that banks and financial institutions play a vital role in the fight against fraud and financial crime.
But how do banks and other financial institutions navigate the very fine balance between carrying out the instructions of its customers resulting in timely and prompt payments/transfers, and refraining from doing so in circumstances where the bank is “put on enquiry” that such payments may be fraudulent? If a bank falls too far either side of this line, it is likely to be the target of complaint.
In the first instance decision of JP Morgan Chase Bank NA v Federal Republic of Nigeria Professor Burrows stated that the trilogy of cases Quincecare, Lipkin and Singularis:
“… make clear that the core of the Quincecare duty of care is the negative duty on a bank to refrain from making a payment (despite an instruction on behalf of its customer to do so) where it has reasonable grounds for believing that that payment is part of a scheme to defraud the customer.” He goes on to say that it is not entirely clear whether a bank also has a duty to make reasonable enquiries so as to ascertain whether or not there is substance to those reasonable grounds, although Professor Burrows suggested that he was strongly inclined to the view that there did exist such additional duty.
At paragraph 22 of the leading judgment of Lady Justice Rose at Court of Appeal she stated: “I do not see that it is useful to describe some parts of the Quincecare duty as being core and some parts of it as being separate or subsidiary or additional. Nor do I think it is helpful for this court to give an indication as to what factors are likely to be relevant to the trial judge’s overall assessment of what the Bank should have done. That will become clear once the findings of fact in the case are made.” However, at paragraph 21 she also said: “In most cases, the reconciliation of the conflicting duties owed by the bank to which Steyn J referred in Quincecare will require something more from the bank than simply deciding not to comply with a payment instruction. The bank will usually be anxious to resolve its concerns, not least so as to minimise the risk of incurring a liability to its client for any loss arising from the non-payment.”
In the most recent judgment of Philipp v Barclays Bank HHJ Russen QC pointed out that there was “…no clear framework of rules by reference to which the duty, as extended, might sensibly operate.” He went on to say that: “…where the duty is said to involve second-guessing the customer’s own outwardly genuine instruction, the raising of the suggested safeguarding questions would in my judgment have to be supported by some form of clearly recognised banking code defining the circumstances in which the need for such questions would be triggered.”
It remains to be seen whether the courts hearing these cases will specify the steps that banks and other financial institutions should be taking in order to comply with its Quincecare duty, but as highlighted by Lady Justice Rose in her judgment, “…the question of what a bank should do when it is put on inquiry that a payment instruction ought not to be executed will vary according to the particular facts of the case…”, therefore it is unlikely that the courts will be able to stipulate a fixed set of factors to consider or steps to undertake. Furthermore, it is also unlikely that the banking industry itself will take steps to prescribe what measures a bank or other financial institution must take and at what point such action will be triggered. On the contrary, it is likely that banks and other financial institutions will be required to continue to make a risk-based assessment of the circumstances, and if necessary, to seek guidance or notify external agencies before making a decision. Although, depending on the outcome of any appeal brought against the decision in Philipps v Barclays Bank the circumstances in which banks need to consider such issues may now be much narrower.
Should you need advice on issues relating to the Quincecare duty or other matters concerning financial crime compliance / financial crime litigation, please do not hesitate to get in touch with us at firstname.lastname@example.org.