2022: a good year for the banks
Nicola Allsop reflects on key banking law updates
Early each year, members of Quadrant Chambers reflect on key banking cases from the previous year and pose the question, “has it been a good year for the banks?” In this article, Nicola Allsop considers the important cases on the scope and operation of the Quincecare duty in 2022 and answers with a qualified “Yes.”
2022 saw four important decisions on the scope of the Quincecare duty. The duty hails from the decision of Mr Justice Steyn in Barclays Bank plc v Quincecare  4 All ER 363, in which the Court held that a bank was under a duty to act with reasonable care and skill in carrying out its customer’s payment instructions and to refrain from making a customer payment where the bank was “put on inquiry” by reason of there being reasonable grounds to believe that the instruction may be an attempt to misappropriate funds. Quincecare itself concerned a corporate customer and the instruction was given by the company’s director in an attempt to misappropriate company funds. It was widely believed (until the Court of Appeal’s decision in Philipp v Barclays Bank UK Plc  QB 578, discussed immediately below) that the Quincecare duty was limited to so-called “agency cases.”
Philipp v Barclays Bank UK Plc  QB 578
On 14 March 2022, the Court of Appeal handed down judgment in Philipp v Barclays Bank UK Plc  QB 578. Mrs Philipp, having been persuaded by a fraudster, instructed her bank, the defendant, to make two authorised push payments (APP) to accounts in the UAE. By the time the fraud was discovered, the sums could not be recovered. Mrs Philipp brought proceedings against her bank contending that features of the payments and her situation should have caused the bank to stop or delay the payments. At first instance, the court granted the bank’s application for summary judgment, holding that although a bank was under a duty not to execute a payment instruction where the bank was on notice that its customer’s agent was attempting to misappropriate funds, such a duty did not arise where the instruction had been given by the customer herself.
The Court of Appeal allowed Mrs Philipp’s appeal, holding that it was reasonably arguable that the Quincecare duty was not limited to agency cases but could arise in any case when a bank was on inquiry that the order was an attempt to misappropriate funds.
The Court of Appeal’s decision will be very unwelcome for banks because the extension of the Quincecare duty to “non-agency” cases has the potential to significantly expand the scope of the banks’ liability where a customer has been the victim of an APP fraud. The problem is compounded by the increasingly sophisticated methods adopted by fraudsters.
On its face, therefore, this decision hardly represents a positive outcome for the banks. However, it is important to bear in mind that the Court of Appeal did not make a final decision as to whether the Quincecare duty extended to all non-agency cases. Philipp is not authority for the proposition that a duty of care will arise in the case of a customer instructing their bank to make a payment when that customer is the victim of APP fraud, simply that it may. As Birss LJ made clear, “the right occasion on which to decide whether such a duty in fact arises in this case is at trial.” The appeal in Philipp was against summary judgment being entered in favour of Barclays Bank. The case remains to be decided on its facts, although the case may not get that far – Barclays Bank has appealed to the Supreme Court on the question of whether the Quincecare duty has any application in a case where the relevant payment instruction was not issued by an agent of the bank’s customer. The appeal was heard by the Supreme Court on 1 and 2 February 2023 and judgment is awaited.
The Federal Republic of Nigeria v JP Morgan Chase Bank N.A.  EWHC 1447 (Comm)
In a 137-page judgment, handed down on 14 June 2022, in The Federal Republic of Nigeria v JP Morgan Chase Bank N.A.  EWHC 1447 (Comm), Mrs Justice Cockerill dismissed Nigeria’s claim that, in making payments out of a depository account, its bank, JP Morgan Chase, had breached its Quincecare duty. Although a decision on the facts of that case, it signals a positive outcome for the banks for two reasons. First, the court noted that the authorities, including Philipp, indicate that the Quincecare duty is narrow and confined, before accepting the submission made on behalf of the bank that unless the bank is on notice that the instruction in question is an attempt to misappropriate the customer’s funds, the duty does not arise. Cockerill J commented that it followed that the focus had to be on notice of the matter that has vitiated the instruction and not on any different or wider potential concern. Secondly, it was common ground that, if the Quincecare duty was engaged, Nigeria had to show that the bank was grossly negligent due to the applicable contractual terms. Gross negligence required something more than standard negligence. This assumption suggests banks will be able to curtail the operation of the Quincecare duty by the use of appropriately worded clauses in standard terms and conditions. However, as the point was common ground in the Nigeria case, banks do not have the benefit of any specific guidance as to the appropriate wording to be used in terms and conditions, alongside any steps that should be taken in order to effectively exclude or limit the operation of the duty.
In Stanford International Bank Ltd (In Liquidation) v HSBC Bank plc  UKSC 34
On 21 December 2022, the Supreme Court handed down judgment in In Stanford International Bank Ltd (In Liquidation) v HSBC Bank plc  UKSC 34. The liquidators of Stanford International Bank (SIB) claimed that HSBC, in providing correspondent banking services for SIB, breached its Quincecare duty to take sufficient care that monies paid out from the accounts under its control were being properly paid out. SIB had operated a Ponzi scheme until its collapse in 2009 and the liquidators argued that the Quincecare duty required HSBC to have reached the conclusion by 1 August 2008 at the latest, that there was something very wrong with SIB’s activities and to have frozen payments out of the accounts. The liquidators claimed the recovery of £116m paid to customers (directly or indirectly) from the Bank’s accounts between 1 August 2008 and 17 February 2009. The Bank applied to strike out the claim or obtain reverse summary judgment under CPR Part 24, on the ground that SIB had suffered no loss. It is noteworthy that, for the purpose of the application, the Bank accepted that there was a sufficiently arguable case of breach of the Quincecare duty. However, the Bank argued that SIB had no claim for damages, because on a net asset basis it was no worse off as a result of the Bank's actions: the payment of £116m reduced SIB's assets by £116m, but it equally discharged SIB's liabilities by the same amount. This was because monies paid out by the Bank went (ultimately) to deposit-holders in satisfaction of their contractual rights against SIB.
The liquidators also brought a claim against the Bank for dishonest assistance in relation to breaches of fiduciary duty owed to SIB by its director Mr Stanford. The dishonest assistance aspect of the case will not be analysed in this article. It is sufficient for present purposes to point out that the Court of Appeal ( EWCA Civ 535) upheld the High Court’s decision to strike out the dishonest assistance claim, highlighting that dishonest and blind-eye knowledge allegations against corporations, regardless of their size, must still be evidenced by the dishonesty of one or more natural persons. Another welcome decision for the Banks.
On the Quincecare aspect, by a majority of 4:1 (Lord Sales dissenting), the Supreme Court dismissed SIB's appeal and upheld the Court of Appeal's decision to strike out the Quincecare claim. The Supreme Court proceeded on the assumption that there had been a breach by the Bank of the Quincecare duty. Further, the liquidators accepted, during the course of the appeal, that the £116m payments out relieved SIB of £116m debt that it owed under contracts with its customers, meaning there was no depletion of the company's net assets. On appeal, SIB pursued an alternative argument – that SIB suffered damage by reason of the loss of a chance. In a nutshell, the chance to treat all creditors more fairly had been lost, because by failing to put a stop to the payments out of £116m, the early investors were able to withdraw their funds in full and escape without loss.
The Supreme Court (in the leading judgment of Lady Rose, with whom Lord Hodge and Lord Kitchin agreed) rejected the loss of a chance argument. Any loss of a chance had no pecuniary value because the ultimate value of SIB’s indebtedness to its customers would have remained the same. Therefore, SIB had not suffered any recoverable loss. The decision marked a victory for HSBC but it was a victory limited to the issue of loss. It remains to be seen whether the concession in that case, and the basis on which the Supreme Court proceeded – that there had been a breach of the Quincecare duty, will have any wider ramifications.
Royal Bank of Scotland International Ltd v JP SPC 4  UKPC 18
Finally, the Privy Council's decision in Royal Bank of Scotland International Ltd v. JP SPC 4  UKPC 18, concerned a fraud committed by the account holder on the beneficial owner of the monies, an investment fund, pursuant to which funds were paid out from bank accounts in contravention of a legitimate investment scheme. The Privy Council declined to extend the Quincecare duty to cover a beneficial owner of monies, rather than the account holder. This represents a positive outcome for the banks, but not a precedent because the decision is not binding on the English courts.
As the foregoing cases demonstrate, and despite one or two blips, 2022 was a good year for the banks insofar as the Quincecare duty was concerned.
Nicola Allsop is a barrister with Quadrant Chambers: quadrantchambers.com