Who can be held responsible when a rogue actor directs payment from a company’s bank account?  Unless discovered quickly, stolen funds are usually quickly spirited away from easy recovery. Victims of fraud therefore look for other sources of compensation, including the bank itself who executed the instruction. In England, when banks and financial institutions have reasonable grounds to believe that a payment instruction is an attempt to misappropriate a customer’s funds, they owe a duty of care to that customer to refrain from making or executing the order and make necessary inquiries before proceeding.

This duty is known as the “Quincecare duty” after the case that first recognized it, Barclays Bank plc v Quincecare Ltd. It is owed to the bank’s customer and exists in parallel with a bank’s obligations under anti-money laundering and terrorist financing laws, as well as its reporting and record keeping obligations. Indeed, the same “red flags” that would put a bank on alert under these regulatory obligations will be relevant in assessing whether a bank was on notice of the risk of fraud such as to activate the Quincecare duty.

Despite the duty being recognized 30 years ago, there had been limited reliance on it historically. Courts sought to make sure the duty is narrow and confined such that there is only one case in England to date in which the duty has been found to have been owed and breached, Singularis Holdings v Daiwa Capital Markets. Cayman company Singularis held sums on deposit with Daiwa. As an authorized signatory, Mr Al Sanea instructed Daiwa to make payments out of the company’s account. The transfers were approved and completed by Daiwa, despite several signs that Mr. Al Sanea was perpetrating a fraud on Singularis. Singularis brought a claim against Daiwa for breach of the Quincecare duty, which was upheld by the UK’s Supreme Court.

The duty has, however, been pleaded in several recent high-profile cases which have given more clarity about its scope and application.

The significant cases in which the Quincecare duty has been considered have all involved instructions from an agent or authorized signatory of a company or firm, who was acting fraudulently or where a company was in the control of fraudsters. However, the Court of Appeal recently suggested that the Quincecare duty could apply to authorized push payment (APP) fraud cases as well, where an individual customer is deceived by a fraudster into authorizing a payment: see Philipp v Barclays Bank UK plc.

In a recent Hong Kong judgment, PT Asuransi Tugu Pratama Indonesia TBK (formerly known as PT Tugu Pratama Indonesia) v Citibank N.A., Lord Sumption (former UK Supreme Court Justice) doubted that individual customers (such as victims of APP fraud) could be protected by the Quincecare duty, and preferred the view that the duty applied to instruction from rogue agents of customer. While the decision is not binding on English courts, the market is waiting to see if this reasoning influences the UK Supreme Court’s decision in the appeal of Philipp v Barclays, presently awaited after a February 2023 hearing.

Recent data from UK Finance shows that there were ca. 95,000 cases of APP fraud in the first half of 2022 only, resulting in a loss of ca. £249.1 million. The possible extension of the Quincecare duty to cover APP fraud cases would be a significant step in the direction of providing more comprehensive protections to victims of sophisticated (often cyber-)frauds, whether individuals or corporates, and could have a significant impact on preventing such losses, albeit that it would shift a significant gatekeeper burden on to financial institutions.

The increased focus on protecting victims of fraud is a trend that spans other parts of the English legal system, as discussed in our article here in the context of jurisdictional gateways, and in the US as well, discussed here.

By contrast to England, there is no analogous duty or term implied into the customer relationship for US banks. That said, the scheme implemented by regulatory agencies to ensure that banks and financial institutions act with integrity and candour is likely to capture at least some of the equivalent frauds.

For example, the Bank Secrecy Act (BSA), 31 USC 5311 et. seq. establishes program, recordkeeping and reporting requirements for national banks, federal savings associations, federal branches and agencies of foreign banks. Under the BSA, a financial institution is required to file a suspicious activity report no later than 30 calendar days after the date of initial detection of facts that might signal criminal activity (e.g., money laundering, tax evasion). 

Failure to abide by these requirements may result in an enforcement action by the US Department of Treasury’s Financial Crimes Enforcement Network.

It would require a significant policy shift for any US jurisdiction to establish a duty like Quincecare, and even within the UK, this duty may shortly be further circumscribed as courts grapple with the policy question of who should act as a gatekeeper against fraud, and in what circumstances to impose that obligation.

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Photo of Dorothy Murray Dorothy Murray

Dorothy Murray is a partner in the Litigation Department specializing in investment and commercial dispute resolution. She supports clients across a wide range of sectors, including financial services, asset management/private equity, energy, telecoms, and maritime.

Dorothy represents clients in disputes arising from all…

Dorothy Murray is a partner in the Litigation Department specializing in investment and commercial dispute resolution. She supports clients across a wide range of sectors, including financial services, asset management/private equity, energy, telecoms, and maritime.

Dorothy represents clients in disputes arising from all aspects of their business, whether those disputes are post M&A, shareholder, employment, contractual, partnership or JV related.

Dorothy has experience managing litigation in common and civil law jurisdictions, and in commercial and investor state arbitration.  She is fluent with all the key divisions of the English High Courts and major arbitral institutional rules, including LCIA, ICC, LMAA, SCC, ISCID and UNICTRAL.  One of her particular interests is in the enforcement of arbitral awards.

In addition to representation in contentious matters, she uses her disputes experience to support clients at the transaction and pre‑action stages, working with companies and funds to identify, understand and mitigate personal and corporate liabilities and risks.

Photo of Julia Bihary Julia Bihary

Julia Bihary is an associate in the Litigation Department with a focus on complex commercial litigation, arbitration, private wealth, trusts and charities disputes.

Her recent experience includes advising corporate clients, high-net-worth individuals, fund managers and charities in a variety of disputes including international…

Julia Bihary is an associate in the Litigation Department with a focus on complex commercial litigation, arbitration, private wealth, trusts and charities disputes.

Her recent experience includes advising corporate clients, high-net-worth individuals, fund managers and charities in a variety of disputes including international arbitrations, commercial, contractual and professional negligence disputes.

Julia is a solicitor advocate with Higher Rights of Audience.

She is fluent in English, Hungarian and German.

Photo of Hena M. Vora Hena M. Vora

Hena M. Vora is an associate in the Litigation Department and a member of the Asset Management Litigation, Trials, Mass Torts & Product Liability, and Consumer Litigation practices, as well as the Real Estate Litigation group. Her practice encompasses a range of complex…

Hena M. Vora is an associate in the Litigation Department and a member of the Asset Management Litigation, Trials, Mass Torts & Product Liability, and Consumer Litigation practices, as well as the Real Estate Litigation group. Her practice encompasses a range of complex civil and commercial litigation matters, including securities litigation, partnership disputes, and consumer products.

Hena has experience with various stages of litigation, including pitching clients, coordinating discovery, drafting dispositive motions and trial memoranda, handling court conferences, taking and defending depositions, and preparing witnesses for depositions and trial. She also has experience conducting highly sensitive and confidential internal investigations. Hena was part of two trial teams that secured complete defense verdicts on behalf of Monsanto in high-profile product liability actions. She also helped secure a complete dismissal at the trial court and appellate levels on behalf of a prominent private fund client, defending against claims of breach of fiduciary duty, aiding and abetting, and unjust enrichment.

Hena serves as the president of the South Asian Bar Association of New York (SABANY). She also maintains an active pro bono practice and has been awarded for creating a partnership between Proskauer’s Boston office and Minds Matter Boston, through which she helps high school students from low-income backgrounds achieve college readiness and success.

Hena earned her J.D. from Emory University School of Law, where she received the Pro Bono Publico honor and a Transactional Law Certificate. In addition, she was a national competitor on the Moot Court Society and served as president of Emory’s South Asian Law Students Association. While at Emory, Hena served as judicial intern for Judge Denny Chin at the U.S. Court of Appeals for the Second Circuit.