Banks breathe ‘sigh of relief’ as Supreme Court backs Barclays in APP fraud case
Banks will not face extensive new duties to prevent authorised push payment (APP) fraud after the Supreme Court sided with Barclays in a closely watched case.
The ruling means banks will not be held liable for fraudulent transactions requested by customers, avoiding a potential wave of fraud litigation.
“There will definitely have been some deep sighs of relief this morning,” Mike LaCorte, chief executive of Conflict International, a private investigations firm, said.
“The Court could have ratcheted up banks’ duty to protect consumers against potential fraud, possibly exposing them to a mountain of liability,”
Back in 2020 Barclays was sued by Fiona Philipp after Philipp was tricked into transferring £700,000 into two bank accounts based in the UAE.
She claimed Barclays owed customers a duty of care – under the Quincecare Duty – to not carry out a payment instruction if they believed those instructions were a result of fraud.
The Quincecare Duty had previously only applied to instructions from a customer’s agent, rather than the customer itself. Philipp claimed it also applied in her case, even though she had directly requested the payment.
“This reasoning does not apply to cases like this one where there is no agent involved and the customer herself gives a payment instruction to the bank. In this situation the validity of the instruction is not in doubt,” the judgement said.
The Supreme Court noted that Barclays had contacted Philipp to ensure she wanted to make the payment.
“It is beyond dispute, therefore, that she unequivocally authorised and instructed the bank to make the payments and, in these circumstances, it is impossible to say that the bank owed her a duty not to comply with her instructions,” the judgement stated.
White & Case partner Lawson Caisley, who led the team representing UK Finance, an intervener in the case, said the decision provided “much needed clarity for the banking industry and consumers alike.”
However, the ruling maintained an alternative claim that Barclays could be liable for its “alleged failure to act promptly” to recall the payments.
A Barclays spokesperson said: “We welcome the Supreme Court’s decision in this case which provides certainty and clarity on an important issue of law and public importance regarding the obligation banks have to act on customers’ instructions.”
Despite the ruling, many experts pointed out that banks will still face a range of new requirements under incoming regulations.
Michael Brown, a litigation partner at Penningtons Manches Cooper, who acted on behalf of the Consumers Association, an intervening party in the case, noted the courts will “not be a driving force for this reform” but that attention would now turn to the regulators.
“The good news for consumers is that these changes seem to be in motion; the good news for the banks is that that this appears to be slow-motion,” Brown continued.
The Payment System Regulator is currently consulting on proposals which would force banks to reimburse victims of fraud. At a recent Treasury Committee, the regulator said that the new rules would likely not be finalised until March next year.
Gerard Heyes, partner at Farrer & Co said: “Whilst this is unwelcome news for victims of APP fraud who fall outside the scope of the current protections, it will not deter ongoing efforts by Government and regulators to see that the banks play a central role in the prevention of APP fraud and the reimbursement of victims.”