Finance litigation update - July 2022

FINANCE LITIGATION UPDATE – JULY 2022 26 A bank's duty of (Quince)care stops with its customer: RBS V JP SPC 4 In its recent judgment on the scope of the Quincecare duty1, the Court of Appeal held that it was not limited to situations where the bank is instructed by its customer's agent. It can apply whenever a bank is 'on inquiry' of a potential fraud, even when the instruction comes directly from an individual customer. However, in a judgment likely to be welcomed by financial institutions, in Royal Bank of Scotland International Ltd v JP SPC 4 & another [2022] UKPC 18 the Privy Council has refused to extend the scope of the Quincecare duty further to cover third parties (here, beneficiaries of an investment fund managed by a trust). While in Philipp v Barclays the Court of Appeal roundly rejected the contention that applying the Quincecare duty to individual account holders would be unduly burdensome on banks, in RBS v JP SPC 4, the Privy Council held that extending the duty as further argued would place an 'unacceptable burden on banks going outside their contractual relationship with their customers'. The judgment is also of interest for its consideration of the circumstances in which it may be appropriate to incrementally extend the duty of care for pure economic loss. 1 Philipp v Barclays Bank UK Plc [2022] EWCA Civ 318 Background JP SPC 4, a Cayman Island based investment fund (the Fund) was set up as an investment vehicle for a scheme to lend money to solicitors to finance highvolume, low-value litigation. The Fund lent to Synergy (Isle of Man) Ltd, (SIOM), which held accounts with RBS. The investors in the Fund alleged that of the approximate £110 million lent to SIOM, only £65 million went to law firms and the rest was fraudulently misappropriated by SIOM and individuals connected to it. The Fund claimed that RBS owed it (as the beneficial owner of the account) a tortious duty to exercise reasonable skill and care in acting on its customer's instructions. Specifically, it argued that if RBS were on notice of the possibility of the Fund being defrauded, it should have delayed acting on its customer's instructions until it had made reasonable enquiries as to their propriety. In effect, the Fund claimed that despite the fact it had no contractual relationship with the bank, RBS owed it a Quincecare duty to take reasonable care to protect it from fraud. RBS successfully appealed (having failed at first instance) to the High Court of Justice of the Isle of Man to strike out the claim against it on the grounds there was no arguable basis such a duty existed. Permission to appeal was then granted by the Privy Council. The Privy Council's Quincecare analysis Of particular interest in relation to the scope of the Quincecare duty, the Fund argued that Steyn J, in Barclays Bank plc v Quincecare Ltd2, had opened the door to the possibility of claims by third parties when 2 [1992] 4 All ER 363