For unsuspecting victims, incidents of fraud can be difficult to bear, as they result in serious emotional and financial hardship, with life savings wiped out and often never recovered.
In some cases, the amounts lost reach six and seven figures, and as such, victims often question their bank’s safety checks, arguing their duty of care towards customers means they should intervene if they detect suspicious activity.
Unfortunately, this isn’t always the case as some types of fraud require the victim’s authorisation, which banks are expected to act on.
In 2018, Mrs Fiona Philipp and her husband Dr Robin Philipp fell victim to authorised push payment (APP) fraud, as they were deceived by criminals into instructing Barclays Bank to transfer £700,000 in two payments to bank accounts in the United Arab Emirates.
Upon realising they had fallen victim to fraud, Mrs Philipp contested that the Bank was responsible for this loss as they owed her a duty under its contract with her or under common law not to carry out payment instructions if they had reasonable grounds for believing she was being defrauded.
The Bank had the claim summarily dismissed by the High Court on the grounds that, as a matter of law, it did not owe such a duty. However, the Court of Appeal accepted Mrs Philipp’s legal argument that the Bank should have protected her in such a scenario – this then prompted Barclays Bank to take their appeals to the Supreme Court.
Who should take responsibility?
APP fraud occurs when the victim is induced by fraudulent means to authorise their bank to send a payment to an account controlled by the fraudster.
In recent times, there has been extensive debate around who should take responsibility for the loss of monies – should banks be expected to reimburse victims or is it the fault of those authorising the payments?
Whilst this question of social policy is for regulators, government and Parliament to consider, it is now the subject of legislation, as section 72 of the Financial Services and Markets Act 2023, provides for a mandatory reimbursement scheme.
Unfortunately for the victims in this case, this scheme does not extend to international payments and therefore could not be used.
Is there a duty of care?
The key argument made by Mrs Philipp centred around her contract with Barclays Bank. Well-established in its nature, certain obligations are recognised by the common law as those implied by law in contracts.
Seeing as these can be altered or added to by express arrangement, it would be possible for the bank to agree that it won’t carry out payment instructions if it has reasonable grounds for believing the customer has been tricked by a third party.
Whilst Barclays had no express term of this kind, it was the contention of Mrs Philipp that one was not required as such a duty is already recognised by common law or can and should be recognised by a principled extension of the existing law, as well as a term of the contract.
It’s an argument that relies heavily on the case of Barclays Bank plc v Quincecare Ltd [1992], whereby the courts held 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.
However, this reasoning does not apply to these kinds of cases where this is no agent involved and the customer has given a payment instruction to the bank. The instruction given by Mrs Philipp was clear, and therefore, the bank’s duty is to execute it without refusal.
The ruling
Upon reviewing all of the evidence, the Supreme Court unanimously allowed the Bank’s appeal, holding that it did not owe the alleged duty to Mrs Philipp.
In this case, each of the two payments were made after Mrs Philipp and her husband had visited a branch in person, giving instructions they wrongly believed would transfer the money to ‘safe accounts’.
On the first occasion, the husband also falsely told the cashier that he had previously dealt with the company whose account the payment was being sent to. The Bank also telephoned Mrs Philipp on each occasion to seek her confirmation before proceeding with the transfer requests.
In these circumstances, it was impossible to say that the Bank owed her a duty not to comply with her instructions, given her persistent reassurances and authorisations. It’s a case that serves as a harsh but important reminder to other potential victims, to always check the details of a transaction before proceeding.
If there is any uncertainty surrounding the legitimacy of a transaction, then contact an experienced legal team for support and guidance.
