High Court Limits Bank's Duty To Customer Victim Of APP Fraud

• Published date: 18 February 2021
• Subject Matter: Finance and Banking, Criminal Law, Financial Services, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Walker Morris
• Author: Ms Louise Power and Sandip Singh

Why is this case of interest?

The Quincecare duty ¹, a form of duty of care owed by a bank to its customers, provides that the bank must refrain from executing a payment mandate from an authorised signatory of its customer if the bank has reasonable grounds (although not necessarily proof) for believing that the mandate is an attempt to misappropriate the customer's funds.

Philipp v Barclays Bank UK plc ² is a welcome decision of interest to financial services firms because it confirms that:

• the Quincecare duty can protect corporate entities but it does not apply to individual customers and
• the duty does not operate in the context of authorised push payment (APP) fraud ³.

What practical advice arises for financial services firms?

Financial services firms will be able to rely on this new authority to defend Quincecare duty claims made against them in the context of individual customers and APP fraud.

The court ordered summary judgment in favour of the bank in this case. It is therefore likely that this relatively quick and cost-effective method of disposing with claims early and without a full trial would be available in other APP fraud Quincecare duty claims.

Firms should note, however, that their fundamental common law duties to adhere to standards of reasonable, honest conduct and to be alive to the possibility of fraud remain. So, too, do regulatory requirements, commitments under the Contingent Reimbursement Model Code for Authorised Push Payment Scams, and any duties as regards fraud prevention and protection which might arise by virtue of contractual terms or representations made to customers within legal and/or marketing material and other communications/interactions with customers.

Any claims made against firms which allege fraud of any kind should, therefore, be fully assessed on their own merits. Strategies for responding to and resolving fraud claims of all types will differ on a case by case basis.

Alongside legal and regulatory obligations, effective fraud detection, prevention and, where appropriate, reimbursement policies are also, of course, an essential part of the customer service and PR policies of responsible lenders today. Being aware of the different types of fraud risk operating in today's market can help lenders and their advisers to spot potential indicators of fraud; and adopting rigorous due diligence and applying suitable Fintech solutions can contribute to effective fraud prevention which, ultimately, is the goal for firms...