The Court of Appeal pushes back against Barclays on payment fraud

Bank customers increasingly do the work that bank staff used to do by instructing the bank’s IT systems to make payments.  People in business increasingly rely on email or other messaging systems as a form of communication – to the exclusion of other forms.

Fraudsters have recognised an opportunity in this combination of factors. 

Several of our clients have received emails purporting to be from creditors who suddenly change their payment details – some of these emails are entirely credible because they reply to existing and genuine email chains.  Some have unfortunately been taken in by those emails and lost significant sums of money.

This kind of fraud is now common enough to have acquired the name of “authorised push payment” – even an acronym, “APP”.  It means a fraudulent payment where the victim instructs the bank to make the payment to the fraudster.

The victims of such frauds always have the right to sue the fraudster.  But that right is often more illusory than real, since the fraudster (whose real identity is usually unknown) and the money which has been taken will almost certainly be long gone before the fraud is discovered.  The bank which handled the payment is a far more attractive defendant. 

A recent decision of the Court of Appeal (Philipp v. Barclays [2022] EWCA Civ 318) raises the prospect of far more litigation arising from APP fraud.

The facts of the case were that Fiona Philipp and her husband were persuaded by a shadowy figure known only as “JW” (and some other unnamed associates of his) that they were assisting the National Crime Agency and the Financial Conduct Authority by moving their life savings of £700,000 to accounts in the United Arab Emirates.  They also appear to have been persuaded not to trust the police or any banks in the UK.  Barclays Banks made those payments on instructions from Mrs Philipp.  By the time the fraud was discovered, the money was gone.

Mrs Philipp sued Barclays Bank.  She claimed the bank owed her a duty to make enquiries when faced with a request to make such a large payment overseas rather than simply follow her orders.  The bank denied it could owe Mrs Philipp a duty in these circumstances and that it would be unworkable if it did.  The first instance judge dismissed her claim without trial on the basis that, as a matter of law, the bank could not owe her a duty in these circumstances.  She appealed.

The Court of Appeal rejected the bank’s contention that the duty was unworkable and the case will be sent back for trial.  What is likely to be relevant to clients and practitioners, however, is that the Court went further than that in two important respects.

First, the Court of Appeal held that the duty established by Barclays Bank v Quincecare [1992] 4 All ER 363 does not only apply to cases where agents of the victims make fraudulent payments.  Many of the reported cases concern rogue company directors diverting money to their own pockets or other businesses they own and the bank had argued (in summary) that this meant the duty owed to the customer was limited to cases where agents were involved but the authority to make the payment was vitiated by the agent’s dishonest conduct – because the customer had not really consented to the payment at all.  That would not help Mrs Philipp, who gave the relevant instruction herself.  The Court of Appeal ruled that the duty was broader than that and applied irrespective of whether some third party was involved.

Second, and potentially even more helpful to claimants in this kind of case, the Court of Appeal suggested that summary judgment (meaning determining the claim without the usual evidence-gathering process and a trial) may not be available in this kind of case.  This will mean that banks cannot apply to strike out cases like Mrs Philipp’s and will be committed to trials involving analysis of the actions of bank staff and (the Court of Appeal suggests) expert evidence of good banking practice at the time the relevant payment is made.  The implications in terms of cost alone for the banking sector are significant and may mean that banks are quicker to settle such claims in future.

We have significant experience of this and similar issues.  For practical advice and guidance, please contact us.