Privy Council Confirms That Quincecare Duty Is Limited To Protecting Customers And Does Not Extend To Protect Third Parties

• Published date: 24 May 2022
• Law Firm: Herbert Smith Freehills
• Author: Mr Chris Bushell, Ceri Morgan and Nihar Lovell

In the latest decision to consider the Quincecare duty, the Board of the Privy Council has confirmed that the duty is limited to protecting the customers of a bank, and does not extend to protecting any third party beneficiaries of its customer's accounts. In doing so, the Board dismissed a claim by an investment fund against a bank for an alleged breach of duty to protect it from losses caused by the fraudulent misappropriation of monies from certain bank accounts which belonged beneficially to the fund: Royal Bank of Scotland International Ltd (Respondent) v JP SPC 4 and another (Appellants) (Isle of Man) [2022] UKPC 18.

Historically, the Quincecare duty has arisen where a bank receives a payment instruction from an authorised signatory of its customer, and executes the order, in circumstances where (allegedly) there were red flags to suggest that the order was an attempt to misappropriate the funds of the customer. The Board rejected firmly the suggestion that the Quincecare duty (as we know it) is owed to anyone except the customer of a bank.

The Board also rejected the suggestion that the duty should be extended beyond its existing boundaries to protect third parties. It could see no good reason in this case for incrementally developing the tort of negligence, beyond the well-established Quincecare duty of care, so as to impose on a bank an equivalent duty of care to a third party who is not a customer of the bank. In the view of the Board, it would not be fair, just and reasonable in this case to impose a duty of care on the bank to the third party beneficiary of the account. The Board said this would place an unacceptable burden on banks, going outside of their contractual relationships with their customers.

The Board placed great emphasis on the purpose of the Quincecare duty, both to define the existing parameters of the duty and in the context of considering whether it would be appropriate make an incremental development from existing case law. In each analysis, the Board circled back repeatedly to the purpose of the existing Quincecare duty found in existing authorities (i.e. to protect customers) and the purpose of the service provided by the bank (to benefit the customer, not to benefit third parties). This analysis provides a stark contrast to the approach taken recently by the Court of Appeal in Philipp v Barclays Bank UK plc [2022] EWCA Civ 318 (see our banking litigation blog post), where the court considered the scope of the existing Quincecare duty by looking at the reasoning behind the duty, rather than focusing on the purpose of the duty established in previous case law.

While decisions of the Privy Council are not binding on English courts, they are regarded as having great weight and persuasive value (unless inconsistent with a decision that would otherwise be binding on the lower court). Given the constitution of the Board of the Privy Council in this case, it is highly likely that the decision will be followed the next time the same issue arises in an English case. Noting the contrast in approach between the present case and Philipp v Barclays, it may also suggest a more cautious and purpose-focused approach to defining the existing boundaries of the Quincecare duty in future cases.

The Board also dismissed an alternative line of argument made by the fund, and in doing so confirmed that the decision in Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 is no longer good law. Under the Baden duty, a bank which knew that an account with it was a trust account, and which was negligent in transacting banking business in relation to the account, could be liable not only in contract to its customer but also in tort to the customer and others. The Board explained that the case relied on in establishing the Baden duty (Anns v Merton London Borough Council [1977] UKHL 4) has been overturned by the House of Lords, and therefore all cases decided subsequently...