Banking Litigation Update -Will the "Retrieval Duty" become the next Quincecare Duty?

The High Court has considered the so-called "retrieval duty" on banks following the Supreme Court decision in Philipp v Barclays Bank

In Philipp v Barclays Bank, the Supreme Court provided welcome clarity on the scope of the Quincecare duty (see our previous briefing), holding that the duty does not apply where an individual customer directly instructs their bank to make a payment which is subsequently found to be prompted by fraud.

However, the Supreme Court allowed one aspect of Mrs Philipp's claim to survive that ruling: her alternative claim that the bank had breached its duty to take prompt steps to recover the stolen funds – the so-called retrieval duty.

In CCP Graduate School Ltd v National Westminster Bank Plc and Santander UK Plc, on a summary judgment application, the High Court has considered the retrieval duty for the first time following the decision in Philipp.

The APP fraud

Authorised push payment (APP) fraud occurs when the victim is tricked into making bank transfers to an account posing as a legitimate payee. 

In this case, CCP (a customer of Natwest) claimed that it had been tricked by a fraudster into making 15 payments totalling £415,000 from its Natwest account to a Santander account controlled by the fraudsters in 2016. The director of CCP had given the payment instructions directly to Natwest. The criminals dissipated the funds upon receipt - only £14,000 was recovered. 

CCP's original claim

For reasons that are unclear, CCP waited until 2022 to lodge claims against NatWest and Santander. In its original claim (issued after the Court of Appeal decision in Philipp but prior to the Supreme Court decision), CCP alleged that:

• NatWest had breached its Quincecare duty by allowing the payments to be made where Natwest ought to be have been on notice of the fraud; and
• That by allowing the sums to be removed by the fraudsters, Santander had breached its duty to take reasonable care to prevent Santander accounts from being used as instruments of fraud.

Natwest and Santander applied for summary dismissal of the claims by way of reverse summary judgment and/or strike out of the Claim Form and Particulars of Claim. 

The alleged breach of the retrieval duty 

After the applications were issued, but before they were heard, the Supreme Court made its ruling in Philipp. CCP therefore cross-applied for permission to amend its claim to allege that both banks had breached their retrieval duty. In particular, CCP argued that Santander had some measure of control over the movement of the funds from the Santander account held by the fraudsters, and was therefore in a special position to take steps to recover the funds.

The High Court's decision 

CCP's original claim against Natwest was struck out by Master Brown due to being time-barred (however the Court noted, obiter, that the outcome in Philipp now prevented such a claim in any event). The amendment application against Natwest on the basis of the retrieval duty also failed - as CCP had not claimed a breach of the retrieval duty against NatWest in its original claim, the Master found that the amended claim did not arise out of the same or substantially the same facts as the original claim, and was therefore also time-barred. 

However, on balance, Master Brown rejected the application to summarily dismiss the retrieval duty claim against Santander. Although Santander had no contractual relationship with CCP, could not owe a strict Quincecare duty to CCP, and likely did not know or assume responsibility to CCP, it was at least arguable (for the purposes of preventing summary judgment) that Santander still owed a retrieval duty in tort to CCP and that claim had already been pleaded originally. There was some money remaining in the Santander account within six years of the date on which CPP issued its claim, which meant at least a part of the claim was not time-barred.  

The Master noted that there was some basis for arguing that if the retrieval duty is effective it is because the bank of the victim (the customer bank) could promptly provide an indemnity to the first bank that receives the funds (the first generation bank) against any liability arising from the first generation bank freezing the funds, and that indemnity could then in turn be passed on to further receiving banks (second generation banks) until the funds are located and frozen. 

The Master considered that there might be some basis for arguing that the retrieval duty requires, or is at least consistent with, a duty on the first generation and later generation banks to pass on this chain of indemnities. 

The retrieval duty takes centre stage?

This decision is an important reminder that the scope and nature of the so-called retrieval duty remains a live area of uncertainty for financial institutions. 

Although the Mandatory Reimbursement Rules for APP Fraud come into effect on 7 October 2024 (requiring payment service providers to reimburse in-scope customers who are victims of APP fraud), that regime has several significant exceptions (see our previous briefing) - for example, it only applies to domestic transactions, the maximum level of reimbursement is capped at £415,000 and significantly, it would not apply here to CCP (as CCP is not an individual, microbusiness or a charity).

Given the continually rising tide of APP fraud - the latest figures show £239.3m was lost to APP scams in the first half of 2023 alone - we expect customer victims of APP fraud that fall outside of the mandatory reimbursement regime increasingly to look to the retrieval duty when making claims against their payment services providers and perhaps (as with Santander here) those providers downstream that may process the misappropriated funds.

Until CCP and/or Philipp proceed to a full trial to shine a spotlight on this issue, it remains to be seen if the retrieval duty will become a viable route of recovery for victims of APP fraud alongside the traditional Quincecare Duty. 

Authors: Philip Linton, Partner, Eleanor Robinson, Senior Expertise Lawyer, Fraser Collingham, Associate