The Supreme Court has given its eagerly awaited decision in the case of Philipp against Barclays Bank UK plc. The litigation involved what is known as an "authorised push payment" (APP) fraud. In this type of dishonesty, the victim is persuaded to authorise their bank to send a payment to an account controlled by a fraudster.

Many bank customers mistakenly think that a bank will always have a legal duty to refund a customer’s account should this happen. However, the court's decision illustrates it will all depend on the circumstances surrounding the transfer.

Facts of the case

Mrs Philipp instructed Barclays to transfer no less than £700,000 from her current account to bank accounts in the United Arab Emirates which were controlled by fraudsters. Attempts to have the funds returned to her were fruitless.

The legal argument

Mrs Philipp argued that her bank was liable for the loss because they owed her a common law duty of care not to carry out her instructions if, as she alleged, the bank had reasonable grounds for believing that she was being defrauded.

The Court of Appeal held that, in principle, Barclays did owe their customer a duty of care. Whether such a duty existed would depend upon the particular circumstances of the case which could only be determined if evidence was led. Reversing the Court of Appeal’s decision, the Supreme Court held that even if the facts as stated were proved, the bank did not owe such a duty.

Mrs Philipp also advanced a contractual argument by focusing on the bank’s current account written terms and conditions as well as conditions implied by the common law. As far as the bank’s written terms were concerned, the Supreme Court held there was nothing in them to the effect that instructions should not be implemented where the bank had reasonable grounds for believing that their customer was being tricked into making such a transfer request.

The court rejected her argument that no express term was needed. They did not agree that the bank’s duty was either recognised by common law or was contractually implied. In the court’s opinion, such a duty would be beyond a bank’s usual obligation to its customer. In effect, the court held that if a customer instructed a bank to make a payment transfer in the circumstances presented to them by Mrs Philipp, then they would have a duty to implement the order. In so doing, Barclays would be acting as Mrs Philipp’s agent and would not have a duty to assess the transaction’s risk.

The court differentiated Mrs Philipp's position with the seminal 1992 Appeal Court decision in “Quincecare”. In Quincecare, the bank’s branch had received instructions from the customer’s agent to make the transfer in circumstances where the bank had reasonable grounds for believing that the agent was defrauding their customer for the agent’s own benefit. In these circumstances, the Appeal Court held that the bank should have not have acted on these orders because they would be unable to rely on the agent’s apparent authority to make the transfer. In addition, because no agent was involved in the Philipp litigation – and it was she who had given a clear instruction to transfer the funds – the bank was not obliged to make any enquiry.

In conclusion

The Financial Services and Markets Act 2023 (section 72) stipulates that there should be an operable mandatory reimbursement scheme in circumstances which are similar to the Philipp litigation. However, the scheme will not apply to international payments.

Many bank customers mistakenly believe that a bank will have to refund them should a transfer be fraudulent. Whilst this may be the situation where fraudulent instructions have been given by the customer’s agent (and the bank should have realised that the agent was acting fraudulently), this will not apply where the transfer was directly authorised by the customer. In addition, customers should be aware that the statutory protection will be inapplicable to international transfers.

The moral here is: “gang warily”.