The United Kingdom’s Supreme Court has delivered an important judgement holding that where a customer has unequivocally authorised and instructed its bank to make a payment, the bank must do so and is not under any obligation to make further enquiries.   This article from Bell Gully shares how they expect this judgment to be influential on New Zealand courts.

Sophie East and Jack Worthington

The United Kingdom’s Supreme Court has delivered an important judgment holding that where a customer has unequivocally authorised and instructed its bank to make a payment, the bank must do so and is not under any obligation to make further inquiries¹.

This provides a refinement of what was previously referred to as the ‘Quincecare’ duty. In making this finding, the Supreme Court provides a helpful analysis of the agency relationship between a bank and a customer, and makes special mention of the scholarship of New Zealand academic, Professor Peter Watts.  We expect the judgment to be influential on New Zealand courts.

Facts

The case concerned a couple, Dr and Mrs Philipp, who fell victim to a type of fraud known as “authorised push-payment” (APP) fraud. This is when an individual authorises their bank to send a payment of monies to a bank account that is controlled by a fraudster. In this case, Dr and Mrs Philipp were contacted by an individual claiming to working for the Financial Conduct Authority in conjunction with the National Crime Agency. Through a series of communications, Dr and Mrs Philipp were led to believe that they needed to move their money to a “safe account” to protect their funds. Acting on the advice of the fraudster, the Philipps went to a branch of Barclays Bank where they gave instructions for an international payment to be made from their bank account to an account in the United Arab Emirates. As a result of the fraud, a total of GBP700,000 in two payments were made to the fraudster’s bank account, and was unable to be recovered by the bank.

Mrs Philipp brought proceedings against Barclays for what she claimed was a breach of the duty of care that the bank owed her as a customer. In reliance on what is known as the Quincecare duty of care, Mrs Philipp argued that the bank was under an implied common law duty to refrain from executing her instructions as it had reasonable grounds for believing that the order was an attempt to misappropriate her funds. In reply, Barclays applied for summary judgment that the claim be dismissed on the basis that the bank did not owe Mrs Philipp such a duty.

The High Court agreed with the bank, and summary judgment was awarded in favour of Barclays. This decision was then successfully appealed by Mrs Philipp to the Court of Appeal. The Court of Appeal found that the bank does owe a contractual duty to its customers, as outlined in Quincecare, and whether such a duty exists on the facts in this case was to be decided at trial. In turn, Barclays appealed this decision to the Supreme Court.

What is the Quincecare duty?

The Quincecare duty, from the judgment of Steyn J in Barclays Bank plc v Quincecare Ltd², requires a bank to make inquiries about the validity of a customer’s instruction if it has reasonable grounds for believing that the instruction is induced by fraud and would result in the misappropriation of the customer’s funds. This duty, which has been cited positively by New Zealand courts³, had previously only applied to cases where agents were engaging with the bank purportedly on the instructions of a customer. However, the English Court of Appeal in the Philipp case found that the duty also extended to circumstances where the bank has received instructions from the customer directly. That was the issue on appeal to the UK Supreme Court.

UK Supreme Court judgment

The Supreme Court rejected the argument that the Quincecare duty should extend to cases where a customer has given direct instructions to the bank to make a payment. On behalf of the Court, Lord Leggatt highlighted the basic and strict duty of a bank under its contract with a customer to make payments from the customer’s account in compliance with the customer’s instructions. In other words, “it is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions.”⁴ In emphasising the strict nature of this duty conferred on banks, the Court cited Westpac New Zealand Ltd v MAP & Associated Ltd where the New Zealand Supreme Court found that even when a bank has reasonable concerns that it might incur legal liability by carrying out a customer’s payment instructions, this is not enough to afford the bank a defence to a refusal to carry out instructions (rather, the bank must show it would have actually incurred liability)⁵. For Dr and Mrs Philipp, because they gave direct instructions to the bank to make the two payments totalling GBP700,000, there is no question as to the validity of the instruction that was given to Barclays.  Any refusal by the bank to carry out this instruction would be a breach of duty by the bank.

Thus, the UK Supreme Court in Philipp confined the Quincecare duty on banks to make inquiries to a specific type of situation (where instructions are made via an agent and give grounds for suspicion), but held this does not apply to direct instructions from a client itself (which the bank is obligated to carry out).

What is particularly interesting about the Supreme Court judgment is its discussion of the role of the court versus the legislature. The Supreme Court acknowledges that the type of fraud that Dr and Mrs Philipp fell victim to is a growing social problem. However, it states that “whether victims of such frauds should be left to bear the loss themselves or whether losses should be redistributed by requiring banks which have made or received the payments on behalf of customers to reimburse victims of such crimes is a question of social policy for regulators, government and ultimately for Parliament to consider.”⁶

Comment

In New Zealand, our Supreme Court has already held in Westpac v MAP that banks are under a strict duty to comply with legitimate payment directions made by their customers. Absent a provision in the bank’s terms that permits some other approach, banks generally do not have a discretion as to whether or not to make a payment. This gives customers confidence that their directions will be followed, and allocates responsibility firmly with the customer that gives the instruction. The Philipp case is likely to be a further barrier to claims in New Zealand against banks by customers (or others) seeking to recover losses arising from the execution of legitimate payment directions.

If you have any questions about the matters raised in this article, please get in touch with the contacts listed at the start of this article or your usual Bell Gully adviser.

^{[1] Philipp v Barclays Bank UK PLC [2023] UKSC 25.[2] Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 36.[3] See, e.g., Tandem Group Limited v ASB Bank Limited [2021] NZHC 51 at [31] to [37].[4] Philipp at [3].[5] Westpac New Zealand Ltd v MAP & Associated Ltd [2011] NZSC 89, [2011] 3 NZLR 751.[6] Philipp at [6].}

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