In a widely awaited ruling that lawyers think may prevent a wave of lawsuits, Barclays (BARC.L) prevailed in a UK Supreme Court appeal on Wednesday that focused on the extent of banks’ obligations to shield consumers from fraudsters.
In 2020, Fiona Philipp, a longtime client and music teacher, filed a lawsuit against the bank after she fell victim to a sophisticated “authorised push payment” (APP) scam that duped her into sending 700,000 pounds ($906,000) to accounts in the United Arab Emirates (UAE).
According to the Payment Systems Regulator (PSR) watchdog, such scams have grown to be the most common form of payment fraud in Britain and will cost consumers 583 million pounds ($752 million) in 2021, a 39% increase from 2020. As a result, authorities are working to make banks a key component of fraud prevention.
According to Phillip, Barclays owed her a responsibility to disregard her requests if the bank had cause to believe she was being cheated.
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.
Reporting by Sam Tobin and Kirstin Ridley, Editing by Louise Heavens, Barbara Lewis and Jane Merriman
