The Privy Council rejects extending Quincecare duty to third parties

In Royal Bank of Scotland International Ltd (Respondent) v JP SPC 4 and another (Appellants), the Privy Council has held that a bank's Quincecare duty does not extend to anyone who is not a customer of the bank, albeit having beneficial ownership of the monies concerned.

What is the Quincecare duty?

The Quincecare duty requires banks to refrain from executing a customer's instructions if the bank has reasonable grounds for believing that those instructions may be an attempt to misappropriate the customer's funds.

The Fund's claim

The claimant investment fund (the Fund) established a scheme by which investors could make a profit by lending money to solicitors to fund litigation. The loans were processed through bank accounts held by an entity called Synergy (Isle of Man) Ltd (Synergy). The Fund alleged that two individuals controlling Synergy had fraudulently misappropriated funds from those accounts.

The Fund argued that the bank owed them (as the beneficial owners of the monies in the Synergy accounts) a duty of care in tort to exercise reasonable care and skill, relying on Barclays Bank plc v Quincecare.

The Decision

In its decision, which is not binding but has strong persuasive authority in England, the Privy Council held that there was nothing in principle, nor in the original Quincecare case itself or subsequent cases applying it, which supported the argument that the Quincecare duty could extend across to a third party with whom the bank has no contractual relationship, even if the bank knew or ought to have known that the third party was the beneficial owner of the moneys in the customer's account.

The bank therefore did not owe such a duty to the Fund as beneficial owners of the monies in the Synergy accounts.

The Privy Council noted the following specific points:

• Lord Steyn's comment in Quincecare 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[emphasis added]" did not mean that the duty was owed to third parties. It simply meant that combating fraud committed against customers protected not only those customers, but also other victims of fraud.
• Lady Hale in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd stressed that the purpose of the Quincecare duty was to protect the bank's customer and there was no hint that it might be owed to anyone other than a customer.
• The relevant Court of Appeal in the present case was right to draw attention to the radical implications of recognising such a duty of care would have in these circumstances:
  
  “This is not … [an] exceptional case. Bank accounts in which funds are held not for the account holder (the bank’s customer) but for other persons and are designated as such, to the knowledge of the banker, are not at all uncommon. To extend the Alleged Duty of Care to the [Fund] would be more than an incremental development of existing case law; it would be a massive extension with significant consequences for banking law.[emphasis added]”
• They considered the recent judgment of the Court of Appeal in Philipp v Barclays Bank UK (see our previous briefing here) but did not consider that it changed the conclusion reached in this case.

Significance and implications

This decision will be welcomed by banks, as it puts a significant brake on the expansion of the Quincecare duty that we have seen recently, limiting any potential claimants alleging a breach of the duty to a bank's own customers. However, this remains a rapidly evolving area of law. We expect that claimants will continue to seek to expand the amorphic boundaries of the Quincecare duty.

Authors: Lynn Dunne, David Capps and Fraser Collingham