BUSINESS & PROPERTY COURTS IN BRISTOL
CIRCUIT COMMERCIAL COURT (QBD)
2 Redcliff Street
Bristol BS1 6GR
B e f o r e :
(Sitting as a Judge of the High Court)
| FIONA LORRAINE PHILIPP
|- and -
|BARCLAYS BANK UK PLC
Alexia Knight (instructed by Dentons UK and Middle East LLP) for the Defendant
Hearing dates: 26th and 27th October 2020
Crown Copyright ©
Covid19 Protocol: this judgment was handed down by the judge remotely by circulation to the parties' representatives by email and its release to BAILII at 10:00am on 18 January 2021.
HHJ Russen QC :
"2.2 Push payments are payments where a customer instructs their bank to transfer money from their account to someone else's account. In contrast to push payments, pull payments are payments where the person who is due to receive the money instructs their bank to collect money from the payer's bank.
2.3 Both push and pull payments can either be authorised or unauthorised. An authorised payment is one where the customer has given their consent for the payment to be made and this can include situations where the customer has been tricked into giving that consent. An unauthorised payment is one made without the customer's consent for example, a payment made due to bank error or one made using a stolen payment card."
The Bank's Application
ii) "A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel  EWCA Civ 472 at "
iv) [The warning against conducting a mini-trial] " . does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at "
vii) [In contrast to those cases which require a fuller investigation of facts against further potential evidence than an application for summary judgment properly permits] " it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd  EWCA Civ 725."
"iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman  2 All ER 91; and
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5)  EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd  FSR 63."
Mrs Philipp's Account of Events
"In order to keep your money safe from fraud and scams, I need to ask you the purpose of this payment and if you have been asked to make this by someone else today? The bank or police would never ask you to transfer money to another account or "safe account". We recommend you check new payee details with someone you trust in person before making a payment. If you are not 100% certain that you want to make this payment then stop, rethink, and talk to someone impartial."
"Kirsty always asks customers when making a payment where the money is going and what it is for, and although Kirsty cannot remember exact details of the customer's response, she is 100% confident that this conversation took place. Kirsty also discussed with the customer, as per the ID&V Tool instructions, about whether the customer is aware that sometimes they can be asked to make payments as part of a scam, Kirsty had no reason, based on the answers the customer gave, to believe this was a scam and therefore proceeded with the payment."
"Kirsty discussed with the customer, as prompted by the ID&V Tool, if they were completely happy with this payment and if they would like to proceed, alongside confirming that the customer did not have any suspicions or feel forced into making the payment. Kirsty was completing the transaction in a private office, and would have had to leave the room to retrieve the paperwork for the transaction, providing the customer with time alone to think about what they were doing. Additionally, when Kirsty needed an override to complete the payment, she would have again had to leave the customer alone in a private office for a period of time."
"I remember asking if happy payment was a genuine one and that the details were ok and correct and if customer was happy to proceed with payment as I usually would."
"As above, asked the customer if happy payment was genuine . ID&V tool stated only record scams conversation if transaction was suspicious but customer was local with no fraud markers and someone had come in the day before claiming to be husband asking what details were needed to make payment so I was expecting her to come in. This payment was back in March and colleague has served countless people since."
The Legal Issue
"When executing the customer's instruction to make a funds transfer the bank acts as its customer's agent. Acting as agent the bank owes the customer a duty to observe reasonable care and skill in and about executing the customer's orders. The duty arises both at common law and under statute."
[The authorities cited for the common law position include the decision of Steyn J in Barclays Bank plc v Quincecare Ltd  4 All ER 363. The basis of the statutory duty is section 13 of the Supply of Goods and Services Act 1982.]
i) to act in accordance with Mrs Philipp's mandate, and to execute reasonable care and skill in executing her instructions. Ms Knight said this duty is concerned with following the instructions (not transposing digits and so forth) and does not include a requirement to exercise a degree of care in deciding whether or not to execute an instruction which the mandate required Barclays to pay; and
ii) to execute the transfers unless an ordinary prudent banker would have had reasonable grounds for believing that the transactions were an attempt to misappropriate Mrs Philipp's funds (i.e. what is now known as the Quincecare duty).
"61. In the premises, in order to discharge its duties of reasonable skill and care as pleaded above, [the Bank] should have had the following policies and procedures in place by March 2018 which included:
(a) For the purpose of detecting potential APP fraud:
(i) Transactional data and customer behaviour analytics incorporating, where appropriate, the use of fraud data and typologies to identify payments that are at higher risk of being affected by an APP fraud;
(ii) Training employees on how to identify indicators of circumstances around and leading to transactions that are at higher risk of facilitating APP fraud;
(b) For the purpose of preventing potential APP fraud:
(i) Measures to identify people who were vulnerable to APP fraud;
(ii) Where an APP fraud or scam risk has been identified, reasonable steps to gather in further information in order to assess the risk, and provide their customers with impactful warnings, including additional measures whether the customer may be considered to be vulnerable;
(c) For the purpose of stopping potential APP fraud:
(i) Where there is or should be concern that a payment may be affected an APP fraud, take action to delay the payment while the matter is investigated;
(ii) Appropriate investigative steps include, where appropriate, seeking written confirmation as to the rationale for the transaction, including from any third party professionals involved, and invoking protocols which it is inferred are in place with the Police to enable further information to be gained from the Police, and investigating recent account activity; and
(d) For the purpose of stopping or reversing or reclaiming monies the subject of a potential APP fraud:
(i) Where there is or should be concern that a payment may be affected by an APP fraud, take action to delay the payment while the matter is investigated;
(ii) Communicating and/or writing to the recipient bank seeking assurances from them that monies will be held or frozen pending any review."
"The law should not impose too burdensome an obligation on bankers, which hampers the effective transacting of banking business unnecessarily. On the other hand, the law should guard against the facilitation of fraud, and exact a reasonable standard of care in order to combat fraud and to protect bank customers and innocent third parties. To hold that a bank is only liable when it has displayed a lack of probity would be much too restrictive an approach. On the other hand, to impose liability whenever speculation might suggest dishonesty would impose wholly impractical standards on bankers. In my judgment the sensible compromise, which strikes a fair balance between competing considerations, is simply to say that a banker must refrain from executing an order if and for so long as the banker is "put on inquiry" in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate funds of the company (see proposition (3) in Lipkin Gorman v Karpnale Ltd (1986)  4 All ER 331 at 349.  1 WLR 987 at 1006). And the external standard of the likely perception of the ordinary prudent banker is the governing one."
"For my part I would hesitate to try to lay down any detailed rules in this context. In the simple case of a current account in credit the basic obligation on the banker is to pay his customer's cheques in accordance with his mandate. Having in mind the vast numbers of cheques which are presented for payment every day in this country, whether over the bank counter or through the clearing bank, it is, in my opinion, only when the circumstances are such that any reasonable cashier would hesitate to authorise payment without inquiry, that a cheque should not be paid immediately on presentation and such inquiry made."
" . it was an implied term of the contract between a bank and its customer that the bank would use reasonable skill and care in and about executing the customer's orders; this was subject to the conflicting duty to execute those orders promptly so as to avoid causing financial loss to the customer; but there would be liability if the bank executed the order knowing it to be dishonestly given, or shut its eyes to the obvious fact of the dishonesty, or acted recklessly in failing to make such inquiries as an honest and reasonable man would make; and the bank should refrain from executing an order if and for so long as it was put on inquiry by having reasonable grounds for believing that the order was an attempt to misappropriate funds."
" . the purpose of the Quincecare duty is to protect a bank's customers from the harm caused by people for whom the customer is, one way or another, responsible."
And later in her judgment (dealing with the argument that the fraudulent conduct of the director should be attributed to the company) she said, at :
"The context of this case is the breach by the company's investment bank and broker of its Quincecare duty of care towards the company. The purpose of that duty is to protect the company against just the sort of misappropriation of funds as took place here. By definition, this is done by a trusted agent of the company who is authorised to withdraw its money from the account."
The Bank's Argument
Mrs Philipp's Argument
i) the Bank's admission of the duty to act with reasonable skill and care when acting upon Mrs Philipp's payment instructions (subject to the Bank's T&Cs); and
ii) the Bank's admission of the Quincecare duty pleaded in paragraph 58 of the PoC "in so far as the test is whether an ordinary and reasonable banker would have had reasonable grounds for believing that the order was an attempt to misappropriate Mrs Philipp's funds. It is denied, if it is alleged, that there was an absolute obligation, even in those circumstances not to execute the Transfers." (per para. 49 of the Defence).
i) the routing of the payments through the Account (of Mrs Philipp) when the £950,000 had come from Dr Philipp and, in relation to the payment to Lambi, that he (as a third party to the banker-customer relationship) had volunteered the information about previous dealings with that payee;
ii) the speed of the transaction relative to the recent substantial crediting of £950,000 to the Account;
iii) the sums of money involved when compared with the routine credits and debits to the Account which reflected Mrs Philipp's modest income and lifestyle;
iv) the fact that Lambi and Bonito were new payees with whom Mrs Philipp's bank records revealed no connection; and
v) the use by Mrs Philipp of branches that were not local to her address.
"Transactions induced by undue influence may be set aside in circumstances where the bank is on constructive notice of such undue influence. This may lead to nothing more than a restatement of the Quincecare duty, as already articulated above. But this is nevertheless illuminating, since it shows the Bank cannot always simply state it has to follow the instructions of the customer, and there may be certain circumstances, where it is put on notice of fraud or undue influence, where it may be required to take further steps in order to free itself from notice."
Analysis and Conclusions
i) The PSR proceeded on the basis that a PSP's obligation to act upon the customer's mandate meant that there was no liability where the payment was authorised, as did the Which? Super-Complaint. Which? noted that the Financial Ombudsman Service ("FOS"), which of course is less legally rigid in its approach that the courts, was unlikely to suggest compensation where the customer had been tricked into authorising the payment, even if he had acted sensibly. The Bank's T&C's (paragraph 89 above) also said the same.
ii) As Ms Knight submitted, the published materials from the PSR only serve to demonstrate that, as at March 2018, the industry had yet to settle upon an appropriate response to the growing problem of APP. The PSR's Consultation Paper of November 2017 addressed both prevention of APP fraud and the question of reimbursement where it had taken place. It addressed the former in fairly high-level terms which made it clear that progress within the industry was ongoing and to be the subject of half-yearly reports to the PSR beginning in June 2018: see paragraph 1.8 to 1.11. The PSR's February 2018 paper anticipated the issue of reimbursement being addressed by a voluntary code in place in early 2019. The CRM Code itself says (at DS2(2) in relation to its definition and scope) that it "does not apply to any payments completed before the coming into force of this Code." I can therefore see no justification for treating this voluntary code as indicative of the terms of the common law duty as at March 2018 in relation to either domestic or international payments.
iii) The CRM Code addresses the issue of reimbursement of the customer where he has fallen victim to an APP Scam. In relation to the industry-wide model for reimbursement (as opposed to prevention) the February 2018 response expressed the PSR's view (at paras. 3.77 and 4.5) that the bank's adherence or otherwise to the CRM Code would be a matter to be taken into account by the FOS in determining customer complaints. That the CRM Code is persuasive but not binding in the context of the informal alternative route to compensation which the FOS offers to civil litigation shows, in my view, that the Code cannot really influence the circumstances in which a bank should be held liable in such litigation. By addressing the issue of reimbursement in a situation where an APP fraud has been perpetrated, it has no bearing upon the common law duty of care to be exercised by a bank in seeking to prevent such fraud in the first place. Like the independent adjudication of the FOS, it can only operate to reduce the prospect of litigation.
iv) The reference in the PSR's Response of December 2016 to the steps required to combat money laundering, upon which Mr Sims relied to justify the need for the Bank to have raised safeguarding questions of Mrs Philipp, in my view has no bearing upon the payments to Lambi and Bonito. Firstly, the existence of the Money Laundering Regulations 2007 to which the PSR referred (since replaced by regulations of 2017) only highlights the need for a legal duty to be set by reference to industry-wide standards which are known and certain. Secondly, money laundering is a quite different kind of problem to APP fraud and one which belies the context in which the established procedures for combatting it are invoked by Mr Sims QC. Whether or not a money-launderer is the kind of person likely to fall victim to an APP scam, there is no reason to suspect that an instruction to pay illegally laundered money is not a genuine one. The PSR made the point in its Response (at para. 6.17 and by reference to authority) that the payment of "clean" monies to a fraudster, in consequence of an APP fraud, does not mean that initial payment constitutes money laundering on the basis that the monies then represent (in the fraudster's hands) the benefit of criminal conduct. The moneys which came from Tilney were undoubtedly untainted by any suspicion of money laundering.