Barclays Bank, represented by TLT and barristers from Fountain Court, has won a major UK Supreme Court case against a customer who fell victim to bank transfer fraud.

The ruling stated that banks cannot be held responsible for authorised push payment (APP) fraud where an individual customer directly instructs their bank to make a payment which is subsequently found to be prompted by fraud.

Lord Leggatt handed down a unanimous judgment which provided a definitive analysis of the basis and limits of banks’ duty of care, in the case of Philipp v Barclays Bank UK PLC (2023)

Leggatt SCJ wrote: “It is a basic duty of a bank under its contract with a customer who has a current account in credit to make payments from the account in compliance with the customer’s instructions. This duty is strict. Where the customer has authorised and instructed the bank to make a payment, the bank must carry out the instruction promptly. It is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions.”

The case attracted interventions from both the Consumer Association and UK Finance, the official trade body for the UK’s banking industry. APP fraud is a significant problem, with UK Finance estimating more than £485m of APP fraud losses occurred in the UK during 2022 alone. 

Ashurst dispute resolution partner James Levy underlined the significance of the result: “With the prevalence of APP fraud, this decision will be welcome news for financial institutions. It closes the significant risk of what might otherwise have been a flood of litigation against the nation's banks brought by customers who have been victims of APP fraud.” 

Ceri Morgan, a professional support consultant at Herbert Smith Freehills, speaking for the London Solicitors Litigation Association (LSLA), explained: : “The Supreme Court has used the platform provided on this appeal to re-cast the so-called Quincecare duty, clarifying that what has become known as the Quincecare duty relates solely to the validity of a customer’s payment instruction. 

“Only where the validity or content of an instruction is unclear, will the bank have a duty of reasonable skill and care to check that the order is valid.” 

White & Case partner Lawson Caisley, who led the team representing UK Finance, said the Quincecare duty had no application in Philipp because it did not involve dishonesty to defraud the customer by the customer’s agent. 

More broadly, Caisley said, the court’s decision also included welcome analysis and clarification about the law. Sonia Tolaney KC, of One Essex Court, who represented UK Finance in court, agreed, saying the decision “reaffirms a number of fundamental principles of banking law, most significantly that a customer’s authorised payment instruction must generally be followed.”

She added: “While the court acknowledged the obvious harm caused by APP fraud, its decision provides a stark reminder of limits on the courts’ ability to address issues of social policy. Such matters are ones for the legislature.” 

Morgan said: “It is up to the government to decide whether losses flowing from such frauds should be borne by victims, or the banks.”

Duran Ross, a commercial litigation partner at Hausfeld, said while the decision ended recent expansions of the Quincecare duty to include cases where the customer had authorised payment, all was not lost for victims of fraud, arguing that implied terms in the contract between banks and customers to use reasonable skill and care when executing the customer’s instructions could still apply.

While there is currently a voluntary code for banks to reimburse victims of APP fraud in certain circumstances, a mandatory scheme is included in The Financial Services and Markets Act 2023, which received Royal Assent on 29 June. However, the case in question would not have applied as the transfers were made overseas.

Michael Brown, a litigation partner at Penningtons Manches Cooper, who acted on behalf of the Consumers Association said: “Payment service providers have avoided the flood of litigation they feared. If greater protection is to be provided to prospective victims of APP fraud, the courts will not be a driving force for this reform. All PSP and consumer eyes will, therefore, be on the regulators and Parliament. The good news for consumers is that these changes seem to be in motion; the good news for the banks is that this appears to be slow-motion.”

Meanwhile, the Supreme Court did allow part of the Philipp claim to proceed on the separate but connected issue of whether the bank acted promptly in attempting to recover the funds after being notified of the fraud.