Barclays on Wednesday won a UK Supreme Court appeal that turned on the extent of banks’ duties to protect customers from fraudsters in a closely watched decision lawyers say could stem a flood of litigation.
Fiona Philipp, a music teacher and long-time customer, sued the bank in 2020 after she was tricked into transferring 700,000 pounds ($906,000) to accounts in the United Arab Emirates (UAE) in an elaborate so-called authorised push payment (APP) fraud.
Such scams have become Britain’s largest type of payment fraud and cost customers 583 million pounds ($752 million) in 2021, the Payment Systems Regulator (PSR) watchdog has said, as authorities seek to make lenders pivotal in fraud prevention.
Phillip alleged Barclays owed her a duty to ignore her instructions if the bank had reasonable grounds to suspect she was being defrauded.
But in a unanimous judgment, Supreme Court Judge George Leggatt said this would be “inconsistent with first principles of banking law” as he overturned a 2021 Court of Appeal ruling that allowed the case to proceed to trial.
“Where the customer has authorised and instructed the bank to make a payment, the bank must carry out the instruction promptly,” he said.
“It is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions.”
Barclays said it welcomed a decision that provided “certainty and clarity” on an issue of law of public importance.
James Levy, a partner at law firm Ashurst, said the onus was back on customers to ensure that payment instructions were bona fide, but noted the PSR plans to introduce mandatory reimbursement for victims of domestic APP fraud next year.
“It closes 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,” he said.
The Supreme Court, however, allowed Philipp to pursue an alternative case against Barclays on the grounds that the bank breached its duty by failing to take adequate steps to recover the money transferred to the UAE.
