A simple guide to the Quincecare duty in banking claims – What is it and how to bring a claim?

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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. 

Get In Contact

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 services disputes, negligence claims and insolvency-related litigation.

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Guides & Advice

Director's duties and insolvency in a post global pandemic

Many businesses are continuing to struggle as a result of the ongoing pandemic and while many will bounce back, unfortunately others may struggle. If your company’s solvency is at risk or could be in the future, as a director there are various legal issues and responsibilities you need to be aware of.

Here we take a look at directors duties.

What are director’s duties?

Generally, its directors owe the following duties to a company:

• to act bona fide in its interests
• not to act for any personal or collateral purpose
• to take steps to avoid loss to its creditors
• not to enter transactions at an undervalue or make preferences; and
• to act in the normal manner of a director such as keeping proper accounts, disclosing interest(s) in transactions with a company, not to make a secret profit, etc.

All such duties fall equally on executive and non-executive directors.

CBILS and other government coronavirus support

Many companies benefitted from government support through the global pandemic. What happens now, and do the directors of a company have personal liability, if the company does not come through the global pandemic, or if it does, regardless?

In the case of a CBILS loan (or other financial support) such personal liability might arise if inaccurate information was provided on the application or if the CBIL was used for personal purposes rather than for the economic benefit of the company. This liability could arise regardless of whether a company is in financial difficulties.

Recently the government announced proposals for various extensions of support whereby the global effect is the prohibition of enforcing non-payment of commercial rent against tenants (until March 2022!).

Many reports are stating that the extensions in this regard are ‘good news’ for commercial tenants, and while that may be the case for some, directors of tenant companies need to take a serious look at their finances and consider whether accruing further debt is in the best interest of their business.

Directors need to ask themselves; is this sustainable and is this a viable model for their business?

If not, they could be acting in contravention of their duties and could be facing serious consequences as a result of misfeasance and breaching the Insolvency Act.

It’s important that directors remember that this debt (whether it be a CBIL loan or commercial rent) will have to be paid back at some point and they take action now to protect their businesses as well as protecting themselves from the personal liability of their business going under.

Moreover, when a company is liquidated (or enters a formal insolvency process), the limited liability structure typically means that directors are not generally liable for the debts of the company.

That said, exceptions to this rule do exist, and one is when directors have not fulfilled their statutory duties. In that scenario, directors can face personal liability for debts incurred by the company.

Directors’ potential personal liabilities

Again, in the general of terms, the directors of a company, if found to have failed in the duties they owe to a company, could have personal liability under the following various sections of the Insolvency Act 1986:

• Misfeasance (section 212)
• Fraudulent trading (section 213)
• Wrongful trading (section 214)

The government suspended liability under the wrongful trading provisions (section 214) however that “suspension” has yet to be fully tested in the courts and the personal liability provisions under misfeasance (section 212) and fraudulent trading (section 213) remain in full force.

Practical guidance for directors

As a director steps can be taken to limit any personal responsibility. It is essential that any steps taken are properly documented, since the actions of the directors will be carefully scrutinised by any future insolvency office holder of a company.

• Consider the tests for solvency in the context of a company
• Seek professional advice
• Take advice individually at some point in view of the personal risks involved in management of a company approaching insolvency
• Monitor the financial position of a company
• Continue to scrutinise transactions and ensure all are legitimate and for the benefit of the company
• Formulate a viable strategy
• Hold regular meetings
• Seek valuation(s)
• Keep major creditors informed
• Review financial obligations

Contact us 

Should you require specific legal advice on any of the issues raised in this bulletin (or generally in terms of director’s duties and insolvency please contact Catherine Moss or Gareth Hegarty or another member of the insolvency team in your local office.

Get in touch with our corporate team to see how we can unlock the potential in your business.

Our corporate team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your organisation out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

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