The question of the application of the Quincecare duty, has once again come before the English courts. As well as building on the existing case law in this area, the recent case of Hamblin and another v Moorwand Ltd and another [2025] EWHC 817 (Ch), is of interest because of the use of a derivative action to enable the victim of authorised push payment fraud (APP fraud) to seek recovery.
The Quincecare duty and APP fraud
The 'Quincecare duty' (so called after the case which established the duty[1]) requires that where a bank has reasonable grounds to believe that a payment instruction given by an agent of its customer is an attempt to defraud the customer, it must make inquiries to verify the customer authorisation.
The leading decision on the Quincecare duty in the context of APP fraud is the Supreme Court decision in Philipp v Barclays Bank UK plc[2]. See our previous article Where now for victims of APP fraud: the Supreme Court's decision in Philipp. In short, the Supreme Court was required to decide (1) whether or not Quincecare had any application in a case where the relevant payment instruction was not issued to the bank by an agent of the bank’s customer and (2), if not, whether or not the Quincecare duty could be extended so as to include the obligations contended for by the claimant in relation to APP fraud.
The Supreme Court held that the bank did not owe the alleged duty. The Court restored the order of the first instance judge granting the bank summary judgment, but varied the order to permit the claimant to maintain an alternative claim based on the Bank's alleged failure to act promptly to try to recall the payments after the fraud was discovered. The key to this decision was the court's view that that the Quincecare duty should not be viewed as a special or idiosyncratic rule of law, but that: "Properly understood, it is simply an application of the general duty of care owed by a bank to interpret, ascertain and act in accordance with its customer’s instructions."
The facts of Hamblin
In Hamblin proceedings were brought by victims of an APP fraud, Mr and Mrs Hamblin. The fraudsters had used the identity of a director at a company named RND Global Ltd to open accounts with Moorwand Ltd, a payment service provider (PSP) and electronic money institution regulated by the FCA. These accounts permitted RND to operate an electronic wallet through which it could make and receive payments.
The APP fraud involved Mr and Mrs Hamblin making a payment of £160,000 to RND with the sum being held for a time in RND's electronic wallet. The money was then transferred out of the wallet by Moorwand following payment instructions provided by the fraudsters, who purported to act for RND.
The Hamblins commenced proceedings against Moorwand and RND (now in administration) seeking recovery of the funds. They argued that that Moorwand owed a duty of care (in contract and/or tort and/or agency) to take reasonable skill and care not to execute payment instructions from the fraudsters in circumstances when it was put on inquiry that those payments were not duly authorised by RND.
First instance
At first instance, the Hamblins were permitted to pursue a derivative action against Moorwand on behalf of RND but it was found that Moorwand had not been put on inquiry. The Hamblins sought permission to appeal.
The decision
Quincecare duty
The court held that Moorwand had been on inquiry for the purposes of the Quincecare duty. Moorwand should not therefore have followed the payment instructions it had received without satisfying itself that they were not fraudulent.
In reaching its decision, the court followed the approach in Philipp, confirming and reiterating key principles from the decision. In particular, where there are circumstances apparent to the bank suggesting potential dishonesty that would prompt a reasonable banker to verify an agent's authority before executing a payment instruction, the bank's duty to its customer to exercise reasonable skill and care requires the bank to make inquiries to confirm that the instruction is genuinely authorised by the customer. Failing to do so and executing the payment without verification will constitute a breach of this duty and the bank will be acting outside of its mandate.
The court considered that the first instance judge wrongly discounted a number of factors which went to the question of whether Moorwand had been put on inquiry. Issues such as whether RND's trading was consistent with that described on the opening of the account and whether an authorised agent was acting for RND at all, were central to the essential Quincecare question of whether Moorwand had been put on inquiry.
Payment Service Regulations
The Hamblins had also argued that the payments out of the account RND held with Moorwand were unauthorised within the meaning of regulation 55 of the Payment Services Regulations 2009 (PSRs). These rules were applicable at the relevant time but have since been revoked and replaced.
Under regulation 55 of the PSRs, a payment transaction is authorised if the payer has consented to the payment order either before, or if agreed, after the execution of the transaction. Where an unauthorised payment transaction takes place, the PSP is obliged to refund the full amount to the customer, and where applicable, put the customer back in the position he would have been in if the payment had not taken place.
The court stated that the regulation imposed "a purely mechanical requirement" on the PSP to observe the procedures agreed between it and its customer.
Use of derivative actions
An interesting aspect to this decision is the Hamblins' use of a derivative action to seek recovery. In a derivative action a claim vesting in a company is brought by a claimant other than the company whose claim it is. The court's permission is required to proceed with a derivative action and the company is joined as a defendant in order that it will be bound by any judgment.
At first instance, permission was granted to the Hamblins to pursue the derivative claim. As Moorwand did not seek to appeal this, the grant of permission and the viability of this route for others was not considered any further by the appeal judge. It will therefore be interesting to see how this approach to recovery develops.
[1] Barclays Bank plc v. Quincecare, [1992] 4 All ER 363
[2] Philipp v Barclays Bank UK plc [2023] UKSC 25
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