Court of Appeal upholds first instance decision on excluding the Quincecare duty of care

Earlier this month, on 8 October 2019, the Court of Appeal (Lord Justice Baker, Lady Justice Rose and Sir Bernard Rix) unanimously upheld the first instance decision of Professor Andrew Burrows QC in Federal Republic of Nigeria v JP Morgan Chase Bank, NA [2019] EWHC 347 (Comm), in which he dismissed an application by the defendant, JP Morgan Chase Bank (“JP Morgan”), for reverse summary judgment.

The claim of the Federal Republic of Nigeria (“Nigeria”) concerns three payments totalling US$875,740,000 which were transferred from a depositary account held with JP Morgan by Nigeria. Nigeria claims that these payments were part of a fraudulent scheme and that JP Morgan had acted in breach of the Quincecare duty of care in processing these payments, as it should have realised that it could not trust the senior Nigerian officials from whom it took instructions in relation to the payments in question.

The Quincecare duty of care, which was first set out in the case of Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363, requires a bank to refrain from making a payment if, and for as long as, it is put ‘on inquiry’ that the payments may be fraudulent.

JP Morgan had applied for reverse summary judgment on the grounds that Nigeria had no real prospect of succeeding with its claim. JP Morgan argued that this was because the Quincecare duty did not necessarily apply to the depositary account, given that it was a single purpose account with detailed and narrow release conditions, and, in any case, the duty was excluded through various terms and indemnities in the depositary agreement.

The Court of Appeal agreed with the first instance judge that the Quincecare duty could be applied to the depositary account and that none of the terms, exclusions and indemnities in the agreement between Nigeria and JP Morgan had the effect of excluding the Quincecare duty. Therefore, the Court of Appeal agreed that Professor Andrew Burrows QC had been right to refuse JP Morgan’s application for reverse summary judgment on these grounds.

The issue of whether there had been a breach of the Quincecare duty, and whether this caused Nigeria’s loss, therefore needs to go to trial.

Significantly, the Court of Appeal recognised that “It is not, of course, impossible for a bank and its client to agree that the Quincecare duty would not arise and that the bank should be entitled to pay out on instruction of the authorised signatory even if it suspects the payment is in furtherance of a fraud which that signatory is seeking to perpetrate on its client.” However, the Court analysed the wording of the depositary agreement in detail and agreed with the first instance decision that, in this case, it was “nowhere near clear enough” to indicate that the parties intended that to be the case.

Therefore, it seems likely that any attempt at excluding the Quincecare duty would need to make express reference to the Quincecare duty itself. However, even this might not be enough in certain circumstances. Other factors such as the requirement for fair treatment of customers, legislation on unfair contract terms, and also consumer rights are also likely to come into play, depending on the relationship between the parties.

For more detail on the Quincecare duty of care and the first instance decision, see our previous Law Now on this case, which can be found here.

The full judgment of the Court of Appeal can be found here.