APP scam: It's customer's decision, no onus on banks, rules UK top court

A music teacher sued Barclays in 2020 after she was duped of £700,000 in an authorised push payment fraud

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 ($906,000) to accounts in the United Arab Emirates  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 ($752 million) in 2021, a rise of 39 per cent on 2020, the Payment Systems Regulator (PSR) watchdog has said — and authorities are seeking to make banks 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 that lawyers said would be of “enormous relief” to the financial industry, 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.” The court conceded such frauds caused great hardship for victims but said it was a matter ultimately for parliament to consider who should bear the losses, noting that the new Financial Services and Markets Act provided for a mandatory reimbursement scheme in some cases of domestic fraud.
 

Overseas payments will not be covered by the proposed scheme, however. Barclays said it welcomed a decision that provided “certainty and clarity” on an important issue of law.
 

James Levy, a partner at law firm Ashurst, said the onus was on customers to ensure payment instructions were bona fide.

“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.

On Record

• It is not for the bank to concern itself with the wisdom or risks of its customer’s payment decisions, says SC
• The court, however, allowed 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