In a decision that will be welcomed by banks, the Privy Council has held that a bank’s Quincecare duty does not extend beyond being a duty owed to the bank’s customer. The Privy Council’s decision in Royal Bank of Scotland International Ltd (Respondent) v JP SPC 4 and another (Appellants)  UKPC 18 has persuasive authority in England and Wales.
The Quincecare duty
The Quincecare duty requires a bank to refrain from executing its customer’s order if, and for so long as, the bank is “put on inquiry” that the order is an attempt to defraud the customer. The bank is “put on inquiry” if it has reasonable grounds for believing the order is such an attempt, assessed according to the standards of an ordinary prudent banker.
The Question for the Privy Council
The claimants were investment funds (the Funds) which provided litigation funding to UK law firms. They advanced this funding through Synergy (Isle of Man) Ltd (Synergy), which held bank accounts with Royal Bank of Scotland International Ltd (the Bank).
The Funds brought proceedings against the Bank in the Isle of Man. They alleged that Synergy (and two of the individuals behind it) had misappropriated moneys from Synergy’s accounts with the Bank. The Bank was not implicated.
The Funds alleged that the Bank owed them a duty of care in tort to exercise reasonable care and skill and that it had breached that duty. The duty of care was described in materially the same terms as the Quincecare duty. They argued this duty arose by reason of the Bank’s knowledge that the moneys held in Synergy’s accounts were beneficially owned by the Funds (alternatively, that the moneys were not beneficially owned by Synergy).
The Bank applied to strike out the claim. Its application was dismissed at first instance then allowed by the High Court of Justice of the Isle of Man Staff of Government. The Privy Council gave the Funds permission to appeal. The question for the Privy Council was whether the Bank owed the Funds a duty of care.
Consideration of Quincecare
The Funds relied on Barclays Bank plc v Quincecare Ltd  All ER 363 in arguing that the Bank owed an already established duty of care to the Funds. The Privy Council robustly rejected this.
The Privy Council found there was nothing in Quincecare to support the Funds’ argument. It highlighted the following points from Steyn J’s judgment in that case:
- The Quincecare duty is an aspect of a bank’s duty of reasonable skill and care in and about exercising its customer’s orders. It is implied into the contractual relationship between a bank and its customer and under a co-extensive duty of care in the tort of negligence.
- The Quincecare duty runs counter to a bank’s standard contractual duty to execute its customer’s orders. Steyn J was at pains to make clear that the standard of care imposed on banks should not place too onerous a burden on them.
- Steyn J’s statement that “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” must be read in the context of his judgment. The relevant parties in that case were the bank and the customer; there was no question on the facts of any duty of care being owed by the bank to innocent third parties. It is clear Steyn J’s statement was to the effect that combatting fraud by recognising a duty owed to the customer protects not only the customer but also other victims of a fraud.
Further, the Privy Council found there was nothing in the cases that have applied Quincecare to support the Funds’ argument:
- There was “no hint” in Lady Hale’s leading judgment in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd  UKSC 50 that the Quincecare duty might be owed to anyone other than a bank’s customer.
- In his leading judgment in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd  EWCA Civ 84, Sir Geoffrey Vos C drew a distinction between the limited Quincecare duty and the potentially more wide-ranging duty of care owed by an auditor in reporting on a company’s financial statements. This contrast could be drawn because the Quincecare duty is limited to claims by a customer only.
- Rose J framed her leading judgment in JP Morgan Chase Bank NA v Federal Republic of Nigeria  EWCA Civ 1641 entirely in terms of the Quincecare duty being owed by a bank to its customer. She gave no indication it could be owed to others.
- The Privy Council considered the recent case of Philipp v Barclays Bank UK  EWCA Civ 318 in reaching its decision.
Consideration of other matters
The Privy Council could not see any basis for the alleged duty of care based on other existing authorities or an incremental extension of them. For example, it considered and rejected the Funds’ arguments around assumption of responsibility and accessory liability.
Helpfully, the Privy Council clarified that whereas Peter Gibson J had accepted in Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA  1 WLR 509 that a duty of care was owed by the defendant bank to third party beneficiaries in a situation where the bank knew that accounts were held by its customer as fiduciary for known beneficiaries, this could not stand as good law in light of subsequent developments in the tort of negligence.
Quincecare is one of the hottest topics in banking law. A high-profile series of cases has explored the boundaries of the Quincecare duty in recent years. We have tracked these cases in our LawNows and are waiting with interest for the Supreme Court’s upcoming decision in Stanford International Bank Ltd (in liquidation) (Appellant) v HSBC Bank PLC (Respondent) and the High Court’s upcoming judgment in The Federal Republic of Nigeria v JP Morgan Chase Bank, N.A.
As the law in this area has expanded incrementally through case law, banks will be as aware of the issues the courts have not determined as well as those they have. There is still considerable uncertainty, for example, around what banks are expected to do in practice to discharge their Quincecare obligations and about whether banks will be liable for losses if they suspect fraud and refuse a transaction which subsequently turns out to be genuine. Banks will welcome decisions which clarify how the duty applies to them in practice and what, practically, they must do when it is engaged.
The decision in Royal Bank of Scotland International is helpful in clarifying the ambit of the Quincecare duty. Banks will welcome the certainty that it is not owed to parties other than their customers.