The recent case of CCP v NatWest & Another1 is one of a number of recent cases of claims by an APP fraud victim against a bank. You can read our overview here.
Background
The sole director of the Claimant company gave instructions to the First Defendant (the paying bank) to make fifteen payments, totalling just over £415,000, from a bank account with the First Defendant to a bank account with the Second Defendant (the receiving bank) believing that the money would be used for investment purposes. However, unbeknown to him, the account held by the Second Defendant was controlled by a criminal gang and, once the funds reached this account, most of the money was dissipated. The Claimant was therefore, unfortunately, the victim of an APP fraud.
The Claimant brought a claim against the First Defendant for breach of the contractual and/or tortious duty not to carry out payment instructions where the bank has reasonable grounds to believe that the instructions are an attempt to defraud the customer (the Quincecare duty). It also brought a claim against both Defendants for breach of the alleged duty to retrieve the misappropriated funds once they were on notice of the fraud.
The Defendants sought summary dismissal of the claims by way of reverse summary judgment and/or strike out. The case was heard before Master Brown in the High Court, who struck out the claims against the First Defendant, but allowed the claim against the Second Defendant to proceed.
The claims against the First Defendant
The Claimant accepted that a cause of action against the First Defendant accrued on the date of each payment to the Second Defendant. The last of the fifteen payments was on 12 October 2016, more than six years before the claim was issued (on 18 October 2022). The First Defendant contended that the claim was time-barred under sections 2 and/or 5 of the Limitation Act 1980. Master Brown agreed and struck out the claim on this basis.
The Master nevertheless went on to consider the First Defendant’s alternative basis for striking out the claim, that following the July 2023 decision of the Supreme Court in Philipp v Barclays Bank UK PLC [2023] UKSC 25 the Quincecare duty did not apply to situations of APP fraud. The Master accepted this was the position, and held that he would have struck out the claim on this basis.
The Claimant sought to amend its case against the First Defendant to plead an alternative claim, that at the point in time that the First Defendant was on notice that the payments were induced by fraud, it was under a duty to retrieve the sums paid out as a result of the fraud by contacting the Second Defendant and seeking a recall of the payments. The Claimant found support for this so-called “retrieval duty” claim in the Philipp judgment, where Lord Leggatt considered it arguable that, when the APP fraud victim in that case informed her bank that she had been fraudulently induced to make payments, the bank should have promptly taken steps to retrieve the funds.
The Master was of the view that the Claimant’s proposed amendment introduced a new claim against the First Defendant. Under CPR Rule 17.4 the Court has the discretion to allow an amendment to a claim after expiry of the limitation period only if the new claim arises out of the same, or substantially the same, facts as the existing claim. The Master concluded, however, that there was little overlap between the new and existing claims, finding that the alleged breaches were temporally different and involved largely different acts and omissions: one to take steps to retrieve (the new claim), and one to stop money paid out (the existing claim). Accordingly, he concluded that he had no power to allow the amendment. That said, he conceded that if he had had the power to do so, he would have exercised his discretion in the Claimant’s favour on the basis that he could not rule that the new retrieval duty claim had no prospect of success.
The claim against the Second Defendant
The Second Defendant tried to argue that the relevant date for ascertaining the beginning of the limitation period was the date on which the money came into the account held by it, but the Master disagreed. He was of the view that the cause of action against the Second Defendant accrued when the money left the account held by it since, at any time up to this point, steps could have been taken to prevent any payment out. Hence, the claim was not statute-barred.
The Second Defendant also contended that it had no legal liability to the Claimant. The Claimant was not its customer; it was, rather, a third party with whom the Second Defendant had no contractual relationship. Further, the Second Defendant had not assumed responsibility to the Claimant, and, hence, no tortious duty of care arose either.
The Master accepted that there could be no Quincecare-type duty falling on the Second Defendant and that such a duty would be inconsistent with the contractual duty to effect any mandate by its customer. That said, he was sympathetic to the Claimant’s case for a retrieval duty, founded on the judgment of the Supreme Court in Philipp where the Lords recognised that such a duty might exist in relation to the paying bank (see above). The Claimant contended that, if such a duty applied to the paying bank, it was at least arguable that it would be anomalous if the receiving bank was not under a similar duty.
The Master was persuaded by this argument and added that it was not necessarily fatal to the claim that there was no assumption of responsibility by the Second Defendant to the Claimant. He cited HXA v Surrey CC [2024] WLR 335, in which Lord Burrows set out four principles as to when a tortious duty may arise: in a situation where person A is not under a duty to take care to prevent harm occurring to person B through a source of danger not created by A, a duty may nevertheless arise where (i) A has assumed a responsibility to protect B from that danger, (ii) A has done something which prevents another from protecting B from that danger, (iii) A has a special level of control over that source of danger, or (iv) A’s status creates an obligation to protect B from that danger.
The Master considered that (iii) and (iv) had some particular relevance to the instant case on the basis that the Second Defendant had at least some measure of control over the payments, and was in a special position to take steps to recover the sums. The Second Defendant, however, disagreed with the notion that it had special control over its account-holders; rather, it was required to effect all instructions in accordance with its customer’s mandate. But the Master countered this by saying that a paying bank could offer an indemnity to a receiving bank against any liability which the receiving bank might incur to its customer when preventing any payment out of its customer’s account - and the indemnity could be said to permit a bank to take steps which might countermand its own customer’s instructions. He recognised that this meant that the retrieval duty depended, in practice, on the prompt provision of an indemnity by the paying bank to the receiving bank, which is passed on to all banks down the chain of payments until the money is located.
Ultimately, the Master was not persuaded that the matter was sufficiently clear for him to strike out the retrieval duty claim against the Second Defendant, and he rejected the Second Defendant’s application.
Commentary
This case has significant implications for banks, both paying and receiving, and victims of APP fraud. It introduces the novel concept of a retrieval duty on banks, which arises at the point in time they know of the fraud. For APP fraud victims, the case potentially offers a new route of redress after the Supreme Court closed the door to claims against the paying bank based on the Quincecare duty. That said, APP fraud victims will have the potential to be reimbursed for their loss through the Payment Systems Regulator’s APP Mandatory Reimbursement Scheme, which comes into force in October 2024, so the risk of retrieval duty claims against banks needs to be assessed with this in mind - but in situations where victims cannot be reimbursed through the scheme, say because their case does not fit the scheme’s criteria, this case offers a possible alternative avenue.
We understand that this case is being appealed. We can therefore expect further clarification of the law in relation to the retrieval duty on receiving banks in the relatively near future.
If you would like to discuss any of the issues raised in this article, please get in touch with any of the contacts listed.
Authored by Daniela Vella and Arwen Handley.
References
1 [2024] EWHC 581 (KB) (14 March 2024)
A version of this article first appeared in the June 2024 edition of Butterworths Journal of International Banking and Financial Law
