Fraud Victim Loses Supreme Court Case Against Barclays Over £700,000 Scam

Fraud Victim Loses Supreme Court Case Against Barclays Over £700,000 Scam
Signage on a branch of Barclays Bank in London on March 17, 2023. (Peter Nicholls/Reuters)
Lily Zhou

Barclays can’t be held responsible for a customer’s request to transfer £700,000 to fraudsters, the Supreme Court ruled in a closely watched case.

A lawyer said the landmark ruling may have stopped “a flood of litigation” against banks by victims of Authorised Push Payment (APP) fraud, which has become one of the most significant types of fraud in the UK and globally.

It comes after the Payment Systems Regulator recently introduced a scheme, requiring banks to reimburse APP fraud victims in some domestic cases.
Explaining the judgement (pdf) on Wednesday, Judge George Leggatt said it’s a bank’s basic duty to comply with a customer’s instructions, and the bank shouldn’t “concern itself with whether the customer’s decision to make the payment is wise or foolish.”

And the mandatory reimbursement scheme doesn’t apply in this case, which involved international transfer.

But the judge allowed Fiona Philipp, the fraud victim, to pursue an alternative claim that Barclays had not taken adequate steps to recover the money afterwards.

Duty to Ignore Payment Instructions

Mrs. Philipp, a music teacher, and her husband Robin Philipp were tricked in 2018 by a fraudster who pretended to be working for the Financial Conduct Authority and the National Crime Agency.

Convinced that they had to transfer their money to “safe” accounts, the couple followed the fraudster’s directions and transferred most of their life savings to Mrs. Philipp’s account with Barclays.

Mrs. Philipp then instructed the bank to make a £400,000 payment and a £300,000 payment to two companies in the United Arab Emirates.

At both times, she gave the instructions by visiting a branch, and the bank rang her for confirmation before making the payments, the judge said.

Mrs. Philipp sued Barclays in 2020, arguing the bank owed her a duty to ignore her instructions because it had reasonable grounds for believing that she was being defrauded, and the bank asked the court to dismiss the case, denying it owes Mrs. Philipp the alleged duty.

The High Court previously ruled in favour of the bank, while the Court of Appeal agreed with Mrs. Philipp.

The Supreme Court on Wednesday unanimously ruled that the bank didn’t owe the alleged duty to Mrs. Phillip.

Mr. Leggatt said it’s up to legislators to decide who should be required to reimburse fraud victims. And as the existing mandatory reimbursement scheme doesn’t apply to international payments, Mrs. Phillip’s claim was based on her contract with the bank, which didn’t include terms requiring the bank to stop payments over fraud concerns.

Judges dismissed Mrs. Philipp’s argument that such duties are recognised or should be recognised by the common law as an implied term, saying it contradicts the banks’ ordinary duty to carry out customers’ instructions.

Mr. Leggatt said the claimant’s argument relied heavily on precedents that ruled banks owe customers a duty not to carry out instructions by a customer’s agent if there are reasonable grounds for believing that the agent is defrauding the customer, but it does not apply in Mrs. Philipp’s case as she had given the instructions personally.

James Levy, a partner at law firm Ashurst, told Reuters that the judgment closed “the significant risk of what might otherwise have been a flood of litigation against the nation’s banks brought by customers who have been victims of APP fraud.”

Alternative Claim

The Court allowed Mrs. Philipp to pursue her case against Barclays based on a fallback argument that said the bank didn’t take adequate steps to recover the money.

According to the judgement document, Mrs. Philipp made the payments on March 10 and March 13, 2018. Three days after the second payment, Barclays froze Mrs. Philipp account after receiving a “tip-off” from the police, but didn’t attempt to recall the payments until on or about May 31, 2018.

Mrs. Philipp alleged that if the bank had taken steps to recall the funds sooner, there was “at least a substantial chance that the funds transferred would have been successfully reclaimed from the UAE banks.”

According to UK Finance, British bank users have lost nearly £500 million to APP fraud in 2022, around 40 percent of all losses to fraud (£1.2 billion).
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