Section 1
It is 35 years since the Quincecare duty was formulated in the case of that name: Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 (the judgment was handed down on 24 February 1988). But for most of that time the duty simply gathered dust. Look hard enough and you will find some fleeting references across the years, but the main story is that very few customers were seeking to hold a bank liable for acting on an authorised instruction.
Perhaps there was a good reason for that. It is not an easy claim to make stick—a bank’s primary duty is to follow the mandate and the Quincecare duty flips that duty on its head to require the bank to refrain from acting on an instruction which on its face complies with the customer’s mandate. It therefore needs to be finely balanced and carefully calibrated.
The lack of authority is also sometimes self-fulfilling: claims are not attempted (or perhaps not even considered) without a reported judgment to encourage the view that such claims can be successful. From that perspective, it is striking that it took nearly three decades for a defendant to be held liable in damages: Singularis Holdings v Daiwa Capital Markets Europe Ltd [2017] EWHC 257 (Ch).
The decision of Rose J (as she then was) has sparked a renaissance. Quincecare is now firmly on the radar of all banking lawyers with an ever-increasing number of new matters going through the courts and being advised on behind the scenes.
These next few years will be the crucible in which the boundaries of the duty will be set. Some cases go to the heart of what underpins the duty—such as Philipp v Barclays Bank UK plc [2022] EWCA Civ 318 and the question whether Quincecare covers external frauds where a customer is duped into making a transaction by a third-party fraudster or whether it is limited to frauds in the instruction itself (such as the rogue director misappropriating the company’s funds). Other cases, such as Stanford International Bank Ltd (in liquidation) v HSBC Plc [2022] UKSC 34 (see here) raise questions as to whether the duty can operate in large scale frauds carried out by the customer itself.
An overarching issue that the courts will have to grapple with is how the duty can operate in the modern banking world when there are hundreds of thousands of electronic payments being processed every day. Finance has changed since 1988; the duty is still catching up.
Section 2
The Supreme Court’s judgment in Stanford International Bank Ltd (in liquidation) v HSBC Plc [2022] UKSC 34 can be summed up quite simply:
Where a payment is made by a bank in (alleged) breach of the Quincecare duty, but that payment has discharged a debt of the customer in an equal amount, the customer suffers no net loss.
So how did such a seemingly straightforward issue find its way to the Supreme Court?
The complexity was that at the time the payments were made Stanford International Bank (SIB) was hopelessly insolvent. SIB was being run by Sir Allen Stanford as one of the world’s largest Ponzi schemes and had a multi-billion-dollar shortfall in its assets.
Although there were some twists and turns in SIB’s argument along the way, the proposition put to the Supreme Court was that SIB had suffered a loss notwithstanding that its debts had been discharged because it had lost the chance to discharge those debts for a lower amount in the subsequent liquidation process.
The majority of the Supreme Court was not convinced. Lady Rose held that if the payments had not been made SIB might have had an extra £116 million in assets, but SIB would also have had the same amount of liabilities. They balanced each other out and the fact that the company was trading whilst heavily insolvent made no difference.
As Lord Leggatt observed in his concurring judgment, if discharging a debt through the liquidation process by paying only a fraction of the amount due is regarded as a saving to the company, then by the same token paying more to discharge a debt through the liquidation process must be regarded as a cost. Either the entire liquidation is ignored completely, or it is taken into account as a whole. As Lord Leggatt put it: “the liquidators cannot have their cake and eat it on this point”.
Lord Sales dissented. He considered the interests of a company which is hopelessly insolvent to be fully aligned with those of its creditors as a general body and so when funds are diverted from the general creditors the interests of the creditors (and with them the interests of the company) were prejudiced such that the company suffered a loss. For those interested in how this fits with the principle of separate corporate personality and the cases on directors’ duties, it is well worth reading the judgment of Lord Sales alongside Lord Leggatt’s riposte.
There is still some way to go before the final shape of the Quincecare duty is clarified, not least because HSBC continues to deny that any duty arose in this case. As a result of the Supreme Court’s judgment, that argument will now play out against the backdrop of a single payment of $3 million (some 2% of the value of the original claim) that went to the England and Wales Cricket Board.
All of that is for another day. But for now, banks will welcome the news that this particular avenue to damages has been closed down.
Our podcast episode on Quincecare can be listed to here.
