Supreme Court makes a surprising scam fraud decision

In the year to 31 March 2022, fraud became the most committed crime in the United Kingdom, with more than 4.5 million offences in a year. However, there is no evidence that the risk of fraud is being translated into police resources – fraud accounts for 40% of all offences in the UK but receives less than 1% of police resources.

The largest (by value) type of fraud is known as authorised push payment scams – where someone is tricked into sending money to a fraudster rather than a genuine beneficiary. Over the last ten years, solicitor firms have often been going to great lengths to explain to their clients that they must take extreme care when sending funds to solicitor firms so they are not tricked into sending money to fraudsters.

This week, the highest Court in the land, the Supreme Court, gave its judgment in a high-profile case of Philipp -v- Barclays Bank (2023) and, in the unanimous ruling, held that Barclays Bank did not owe a duty of care to its customer who had been defrauded of £700,000 when they made a payment in error to a fraudster. The decision was unanimous, and the Leading Judge, Lord Leggatt, stated:

“When a customer has authorised their bank to make a payment, the bank must promptly carry out the customer’s instructions. It is not for the bank to concern itself with the wisdom or risks of its customers’ payment decisions.”

Here, Mr and Mrs Philipp had transferred £700,000 into what they believed was a legitimate account in the United Arab Emirates. They did so after a fraudster had contacted them stating that they were investigating a fraud into an investment firm in which they happened to hold their substantial savings. The fraudster, who claimed to be phoning them due to working for the Financial Conduct Authority and claiming connections to the National Crime Agency, suggested that they move all the money in their account to a “safe account” that would be beyond the fraud they were investigating. As always, with such calls, there was an indication of urgency in the matter to ensure that funds were kept safe. The funds were transferred from Mrs Philipp’s current account, which she held with Barclays. Subsequently, she and her husband sued Barclays stating that Barclays owed her a duty of care not to complete her payment instructions because the bank had reasonable grounds to believe she was being defrauded.

In the Court of Appeal decision in 2021, the Court agreed that Barclays held a duty of care to Mr and Mrs Philipp, but this was unanimously overturned in the Supreme Court decision and did so because they believed that Mr and Mrs Philipp “unequivocally authorised and instructed Barclays to make the payment.” The fact that the Court accepted that this type of authorised push payment scam was a particularly difficult example, and push payment scams are a common social problem but did not feel that banks should bear the losses. The decision is significant in light of the Financial Services & Markets Act 2023, which seeks to require banks to reimburse domestic users who fall victim to push payment scams. However, critically here, the new Act only covers customers who send money within the UK and not if money is sent abroad, as was the case with Mr and Mrs Philipp.

The case is a little surprising as the general direction of travel in judgments more recently had been requiring banks to address these types of fraud and reimburse customers. Barclays and the other major banks argue that they do devote significant resources to prevent fraud, including push payment scams. The events occurred in 2018, and most bank customers would now recognise this type of call as fraud. Still, criminal gangs are nothing if not innovative, and their methods have evolved since 2018, meaning that we all need to ensure we take care when sending any payments still.

The Financial Conduct Authority, the National Crime Agency, or any of the major banks and solicitor firms do not ring you demanding that you send monies immediately to avoid fraud and send funds to another account as urgent. If you are required to make a payment, you should always use telephone numbers for offices and organisations you have used before and speak to someone you have spoken to before when checking bank details. Never rely upon bank details sent to you by email or given to you over the phone only. Any reputable institution, company or firm will always be happy to talk through secure ways of making payment and will never insist upon transferring funds quickly and urgently, particularly to an account that is abroad.