The Supreme Court weighs in on bank liability for APP fraud

The Supreme Court has handed down its judgement in Philipp v Barclays Bank UK plc [2023] UKSC 25, an important case in relation to the ongoing fight against authorised push payment fraud.

Background

Mrs Philipp and her husband were victims of APP fraud in 2018. They were deceived into instructing Barclays to transfer £700,000 in two payments from Mrs Philipp's current account to bank accounts in the United Arab Emirates. The instructions were carried out and the money was lost.

Mrs Philipp claimed that the bank was responsible for the loss and contended that the bank owed her a duty under its contract with her or at common law not to carry out her payment instructions if - as was alleged - the bank had reasonable grounds for believing that she was being defrauded.

The bank applied to have the claim summarily dismissed and the High Court initially found in favour of the bank. The Court of Appeal, however, accepted Mrs Philipp’s argument that, in principle, a bank owes a duty not to carry out her payment instructions if it has reasonable grounds for believing that she is being defrauded. Now the Supreme Court has disagreed, holding that the bank did not owe such a duty to Mrs Philipp.

What does this mean for banks?

This is very welcome news for banks and other firms which feared an extension of the so-called Quincecare duty. The view taken in Quincecare was that a bank which receives an instruction from an agent of the customer to make a payment owes a duty to its customer not to carry out the instruction if the bank has reasonable grounds for believing that the agent is defrauding the customer by using the money for the agent's own purposes. A key distinction drawn between Quincecare and this case is that in this case there was no agent involved. Mrs Philipp instructed the bank and there is no question that the payments she requested were properly authorised.

It is still not the end of the road for this particular case because the Supreme Court allows Mrs Phillip to bring an alternative claim that the bank was in breach of duty in not acting promptly to try to recall the payments made to the UAE after being notified of the fraud. Banks should keep an eye on how this develops.

It is also important for banks to bear in mind that the Payment Systems Regulator will be introducing new requirements for reimbursing victims of APP fraud within the Faster Payments System. The PSR expects the payments industry to start work now to implement the new reimbursement requirement which will come into force in 2024. The specific start date will be included in a consultation in early Q3 2023. So while the Philipps case does not impose a duty on banks, there will be regulatory requirements coming down the track which mean that reimbursement will be mandatory in some situations.

Extract from the judgement

'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 type of fraud which occurred here is a growing social problem and can undoubtedly cause great hardship to its victims, as the sad facts of this case make all too clear. 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... But it is not a question for the courts.'

Further reading

Read our client note for a more detailed analysis of the case.