Moorwand v Hamblin: Court of Appeal restores payment provider's win over Quincecare duty in APP fraud case

The Court of Appeal has overturned a High Court ruling that electronic money institution Moorwand breached its Quincecare duty when processing payments linked to an authorised push payment fraud, restoring the original trial judge's finding in the payment provider's favour.

Lord Justice Foxton, giving the leading judgement, allowed Moorwand's appeal against a decision of Mr Justice Marcus Smith, who had earlier overturned His Honour Judge Raeside KC's dismissal of a derivative claim brought by Gareth and Marilyn Hamblin. The Hamblins had been defrauded of £160,000 by a fraudster posing as a foreign exchange trading representative, who directed the payment into an account held with Moorwand by RND Global Ltd, a shell company fraudulently incorporated using the stolen identity of an unconnected individual, John Stanfield. Within days, most of the funds were dissipated through cryptocurrency purchases and payments to third parties. Because RND had been dissolved, the Hamblins obtained its restoration to the register specifically to pursue a derivative claim against Moorwand on the company's behalf, on the basis that RND held the misappropriated funds on constructive trust for them.

The case turned on the so called Quincecare duty, under which a bank or payment provider owes its customer a duty to refrain from executing an instruction if it has reasonable grounds to believe the instruction is an attempt to misappropriate funds. HHJ Raeside had found, based partly on his interpretation of a single joint expert's ambivalent report, that Moorwand was never put on such enquiry, notwithstanding acknowledged shortcomings in its anti-money laundering checks when the account was opened. Marcus Smith J disagreed, holding that the trial judge had wrongly treated the fraudster's conduct as indistinguishable from that of RND itself, contrary to established principles on attribution of an agent's dishonesty to an innocent corporate principal, and had wrongly discounted the account opening failures as irrelevant to the separate question of whether Moorwand was later put on enquiry over the transfers.

The Court of Appeal rejected both criticisms. Lord Justice Foxton held that the trial judge's references to the fraudster's dealings being treated, for practical purposes, as RND's own conduct were properly understood as findings about how matters would reasonably have appeared to Moorwand at the time, rather than an erroneous legal conflation of principal and dishonest agent. He was similarly unpersuaded that the trial judge had treated the earlier regulatory failings as automatically irrelevant to the later question of enquiry, noting that the trial judge had repeatedly stated his conclusion in terms of there being no reason to suspect misappropriation "despite" or "notwithstanding" those failings, a formulation consistent with the joint expert's own evidence. Given that neither identified error of law had in fact been made, the Court of Appeal held that the high threshold for disturbing a trial judge's evaluative findings of fact had not been met, and restored the original dismissal of the claim.

The court also set aside an award of statutory interest that had been made on the basis the funds constituted a debt owed to RND, finding that no demand for payment had been established as necessary to trigger the accrual of such a claim. Lord Justice Peter Jackson, concurring, noted with concern that the parties' combined costs across the trial and two appeals had reached roughly £1 million, some seven times the sum originally in dispute.