This is a landmark decision which confirms the legal position concerning the ambit of banking duties owed to a non-customer when a bank’s customer is acting as trustee or fiduciary. It is the latest judgment in relation to the various different attempts that have been made to push the boundaries of the duties owed by Banks by seeking to widen the scope of the Quincecare duty.
Proceedings were commenced in the Isle of Man High Court against the bank. The Claimants were Cayman Islands investment funds which engaged in providing litigation finance to UK law firms by way of loan. The loans were handled by an Isle of Man company called Synergy (IOM) Ltd. Synergy held an account in its own name at RBSI for this purpose.
It was alleged that two individuals with authority to operate Synergy’s account fraudulently removed approximately £45 million from the account. They did so by writing cheques on the account which the bank honored in the usual way.
Unusually, the Claimants were not the account holder (which was Synergy) but the funds which were in liquidation, as beneficial owners of the misappropriated money. The Claimants alleged that the Bank breached a duty of care “in tort to exercise reasonable care and skill” said to be owed to them as beneficial owners in relation to the operation of the account. The effect of the alleged duty that the Claimants sought to establish was that the Bank was under a duty to take reasonable care to protect the funds from losses caused by the fraudulent misappropriate of funds from the bank accounts. There was no allegation that the Bank was party or otherwise responsible for the fraud.
The bank denied the allegations and applied to strike out the claim before trial, alternatively for summary judgment in its favour. The bank argued that the claim was bound to fail as a matter of law because there was no arguable pleaded basis on which the funds can establish that the Bank owed it the alleged duty of care.
At first instance, Deemster Wild refused to strike out the claim, deciding that the claimants had a realistic argument that a duty of care might be owed to them (either on the existing state of law or by its incremental development) and therefore the case should proceed to trial. The Deemster found some support in Quincecare and other decisions for the claimants’ proposition that the bank’s duties could extend to third parties.
On the bank’s appeal to the Staff of Government Division, Judge of Appeal Storey QC and Deemster Collas disagreed, holding that the bank owed third parties no duty of care, referring to a number of cases including the UK Supreme Court’s decision in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd  UKSC 50, to the effect that the Quincecare duty protects only a bank’s customers and not third parties. The Quincecare decision could be distinguished for the claimants in that case did in fact have a contractual relationship with the bank.
The Staff of the Government Division did recognise in its judgment that there could be liability in an exceptional case where a bank had assumed a particular responsibility towards a non-customer (e.g. beneficial owner), but confirmed that this was not one of those cases. Here the Claimants did not allege any dealings or communications between them and the Bank, let alone any assumption of responsibility e.g. to safeguard their affairs. On the contrary, “the bank was simply acting in the normal and ordinary course of business of a banker honouring the cheques drawn on its customer’s account”.
Further, the Staff of Government Division held that it would be wrong to allow the case to go to trial in the hope of an incremental development or extension of the law. To extend their duty of care to the beneficial owners in this could in no sense be said to be “incremental”, rather it would represent “a massive sea change” in the law forcing a revolution in banking practice which was not justified.
The Bank’s appeal was therefore allowed and the whole of the claim was struck out. Permission to appeal to the Privy Council was subsequently granted.
The Privy Council judgment handed down this week unequivocally concludes that, on the present state of the law, there is nothing in Quincecare itself or the cases subsequently applying it (including notably in the recently published decision of Philipp v Barclays Bank UK Plc  EWCA Civ 318) to support the argument that the tortious duty of care extends beyond being a duty owed to the bank’s customer which arises as an aspect of the bank’s implied contractual duty of care and co-extensive tortious duty of care.
The Privy Council also could not see any basis for an alleged duty of care based on existing authorities or an incremental extension of them and it robustly rejected each argument presented by the funds in this regard.
The Privy Council confirmed that since the judgment in Royal Brunei v Tan, it was well-established that banks and other parties who are alleged to be assisting a breach of fiduciary duty are liable only if they are dishonest and not if they are merely negligent.
Ultimately, in this case, the Bank did not create the fraud nor were they a party to it. It had no special level of control over the arrangements and had not assumed any responsibility to protect the fund from the fraud. As the Privy Council has stated in its judgment “the Quincecare duty of care, even though owed only to the customer, protects not only the customer against fraud but also innocent third parties”.
This decision will be extremely welcome to all banks, providing significant clarity and comfort in restating the well-established legal position in relation to their responsibilities to their customers and third parties.
The team for The Royal Bank of Scotland International as the successful bank was led by Caren Pegg (Partner) and Claire Corkish (Counsel) in the dispute resolution team of Appleby (Isle of Man) LLC which conducted the hearings before the Isle of Man Courts supported by Giles Wheeler QC who conducted the hearing before the Privy Council.
To read the full judgment see: https://www.jcpc.uk/cases/docs/jcpc-2020-0044-judgment.pdf