The Quincecare duty of care was established in the case of Barclays Bank Plc v Quincecare back in 1992, but the authority has only recently received renewed headline attention following the Supreme Court decision in Singularis v Daiwa Capital in 2019.

What is the Quincecare duty of care?

The Quincecare duty of care is an implied negative duty imposed on the bank to refrain from making or executing a customer payment when the bank is “

put on inquiry

” when there are reasonable grounds to believe that instructions may be an attempt to misappropriate funds.

When a bank is put on inquiry, it has a positive duty to take action and investigate the instruction and any other suspicious/unusual circumstances surrounding the account.

If the bank fails to make these inquiries then it will be liable for a breach of the Quincecare duty and, as a consequence, this cause of action gives the customer the right to a claim in negligence against the bank.

There are certain pre-emptive conditions for the Quincecare duty to exist:

  • The duty is currently only owed to the bank’s business customers, which have a separate legal entity. Consequently, the duty exists to protect a company from the misappropriation of funds by its trusted agent, such as a company director who is normally authorised to withdraw the company’s money;
  • The existence of fraud is also a precondition for a Quincecare duty claim, and so it provides a helpful and an alternative remedy to recover the misappropriated funds.

What sort of activity should put a bank on inquiry?

The objective test is of a reasonable banker and it is fact dependent. A bank will be expected to have sophisticated systems in place to detect the fraud, which might take many forms and can be disguised by some unusual transaction patterns or simply take an obvious form of some questionable payment details.

These transactional triggers, as well as other obvious signs, should put the bank on inquiry and drive further internal investigations while delaying the payment or ensuring that a receiving bank withholds the payment pending the outcome of these enquiries.

What about a sole director/owner who controls the company?

These types of companies are particularly vulnerable to being defrauded by its directors and therefore, banks must monitor these entities and their transactions much more carefully.

In the particular case of

Singularis Holdings Ltd (In Liquidation) v Daiwa Capital Markets Europe Ltd

[2019] UKSC, the sole shareholder, chairman and president of the company instructed the bank to transfer $200m to unconnected third parties, which turned out to be unauthorised by the company. The fraud perpetrated by the company director stripped the company of its assets and deprived the creditors of a legitimate claim against the company.

The Supreme Court decided that despite the fact that the perpetrator of the fraud was the beneficial owner of the company, there was no principle of law to prevent the company from suing a third party, such as a bank for breach of a duty owed to the company. Consequently, the liquidators’ claim succeeded and the company was able to claim its misappropriated funds from Daiwa Capital.

Can the company’s creditors bring a claim against a bank?

The short answer is – no. However, administrators and liquidators can bring a claim on behalf of the company, which provides an alternative remedy for the company’s creditors.

Are there any defences to a Quincecare duty claim?

Yes, although they are limited. The Quincecare duty can be expressly excluded by a contractual agreement, albeit we are not aware of any successful exclusion defences that have succeeded in the courts so far.

Alternatively, if it was impossible for a bank to detect the fraud, and the operation of the bank account did not raise any suspicions that would require the bank to perform further investigations/enquiries, that is likely to be a sufficient defence for the bank.

How realistic is it to expect the banks to be liable when there are millions of banking transactions performed every day?

It is a matter of public policy and banks are expected to play an active role in reducing and uncovering financial crime. They are expected to have sophisticated systems in place to monitor suspicious transactions and to train their staff to challenge their customers when there are reasonable grounds to do so. If banks fail to investigate suspicious activities, which later lead to the financial losses for the companies, then banks will be held liable for their breach of the duty of care that they owe to their customers.

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Catherine advises on all aspects of commercial litigation and alternative dispute resolution. She acts for a diverse range of clients in high value and complex cases, ranging from contractual disputes, fraud and investigations, financial and banking disputes, negligence claims and insolvency-related litigation.

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Published: 4th May 2022
Area: Litigation & Dispute Resolution

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