Hong Kong Court Provides Novel And Influential Analysis Of The Quincecare Duty

• Published date: 18 April 2023
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Debt Capital Markets, Financial Services, Trials & Appeals & Compensation, Professional Negligence
• Law Firm: Herbert Smith Freehills
• Author: Mr Chris Bushell, Ceri Morgan, Gareth Thomas, Jojo Fan and Timothy Shaw
• topic: Contracts,Banking and Finance Law,Civil Procedure

A judgment handed down by the Hong Kong Court of Final Appeal (CFA) provides some important analysis of the so-called Quincecare duty of care: PT Asuransi Tugu Pratama Indonesia TBK (formerly known as PT Tugu Pratama Indonesia) v Citibank N.A. [2023] HKCFA 3. While not binding on the courts of England and Wales, the leading judgment was delivered by Lord Sumption (a former Justice of the UK Supreme Court who was sitting as a Non-Permanent Judge of the CFA) and is likely to have influence within this jurisdiction.

The most important observations in the judgment relate to the scope of the Quincecare duty, the question of limitation in claims of this type and the availability of a claim for contributory negligence to reduce the sum payable by a bank, where it has been found liable.

1. Scope of the Quincecare duty. Lord Sumption cast the Quincecare duty as one side of a coin suggesting that there are two juridical sources for a bank's duty in making payments out of its customer's account. The first side of the coin is the classic Quincecare duty where the bank owes all the ordinary duties to be expected from an agent of its customer, including the duty to exercise reasonable skill and care when performing its obligations. The second side of the coin involves the bank's duty only to make payments out of its customer's account when authorised to do (i.e. when the authorised signatory, as the customer's agent, is acting within the parameters of their actual or apparent/ostensible authority) In a novel approach to this area of the law, Lord Sumption suggested that the source of the duty was not critical and that the standard of duty under both is the same. Regardless of whether one looks at: (a) the law relating to the bank's duty of care to exercise reasonable skill and care (i.e. the Quincecare duty); or (b) whether the bank can rely upon the ostensible authority of the authorised signatories on an account; the critical question is what constitutes notice so as to require a bank to make inquiries before paying out in accordance with the mandate. Framing Quincecare in this way strongly suggests that the duty will be limited to where instructions to a bank have been given by an agent of its customer. It will be interesting to see if the Supreme Court agrees with this proposition in the appeal of Philipp v Barclays Bank UK plc [2022] EWCA Civ 318, given that this agency requirement was rejected by the Court of Appeal.
2. Limitation. Lord Sumption suggested that, if a bank has debited an account without authority, the customer is entitled to disregard the debit and require the account to be reconstituted as it should have been. In that case, what is reconstituted is simply the bank's records (i.e. the bank's liability to the customer remains unaffected by the unauthorised debits). The customer will have a claim in debt for the full reconstituted balance of the account, which is payable on demand In Lord Sumption's view, the clock will not start to tick for the purpose of the limitation period until the customer demands payment from the bank for the reconstituted balance. The potential effect is that Quincecare-type claims could be deferred indefinitely by the customer until the time of making a demand.
3. Contributory negligence. Lord Sumption's analysis of Quincecare-type claims as an action in debt (rather than a claim for damages for breach of a duty of care), has important implications for the availability of a contributory negligence argument, as ordinarily a party cannot claim contributory negligence in response to a debt claim. Interestingly Lord Sumption rejected the suggestion that a claim of this type should be viewed as based on negligence, since the debt arises only because of the bank's failure to make the inquiries that a reasonable and prudent banker would have made, commenting that this did not convert a debt claim into a...