Case Overview
Mr and Mrs Hamblin were victims of Authorised Push Payment (APP) fraud, having transferred £160,000 to an account held with Moorwand Ltd in the name of RND Global Ltd. Unknown to them, RND’s director had been a victim of identify fraud which subsequently led to accounts being opened in the name of the company with Moorwand Ltd, a Payment Services Provider (PSP) and electronic money institution that is regulated by the Financial Conduct Authority (FCA).
Moorwand permitted the accounts to be opened by the company, providing the fraudsters with an electronic wallet to make and receive payments in sterling, euros and bitcoin.
The Hamblins sought to recover their funds by bringing a derivative action on behalf of RND Global Ltd, arguing that Moorwand breached both the Quincecare Duty and Regulation 55 of the Payment Services Regulations 2009 (PSRs).
What Is the Quincecare Duty?
The leading case on Quincecare Duty is the Supreme Court judgement in Philipp v Barclays Bank UK plc,
The Quincecare Duty requires Banks and PSPs to refrain from executing payment instructions when they have been 'put on inquiry" without first making inquiries into the validity of the instructions they have received. Banks/PSPs are 'put on inquiry' if there are reasonable grounds to suspect fraud. This duty applies through agency, to instructions received from an agent of the customer who is acting either dishonestly or negligently, as opposed to from the customer directly.
A more thorough explanation of the Quincecare Duty can be found in my colleague Ross Caldwell's article.
Payment Services Regulations
The Hamblins argued that Moorwand breached Regulation 55 of the 2009 PSRs, which states that a payment transaction is authorised if the payer consents to the payment order before, or if agreed, after execution of the transaction. If a PSP executes an unauthorised transaction, it must refund the customer in full.
Although the 2009 PSRs have since been revoked, the 2017 regulations contain similar provisions.
Initial Court Decision
At first instance, the Court found that Moorwand had not been put on inquiry and therefore had not breached either the Quincecare Duty or the PSRs. The Hamblins subsequently sought permission to appeal to the High Court.
High Court Findings
Relaying the Supreme Court's comments in the Philipp case, the Court highlighted that if circumstances raise questions of dishonesty which would cause a reasonable banker to make inquiries into the authority of the agent, the Bank/PSP has a duty to exercise reasonable skill and care in making inquiries to determine whether or not a payment instruction is validly authorised by its customer before executing the instruction. In the event that the Bank/PSP fails to inquire and validate the instruction and executes the instruction, they will be in breach of both the Quincecare Duty and its customer's mandate.
The High Court ultimately disagreed with the earlier ruling and found that Moorwand had indeed been put on inquiry. It concluded that Moorwand breached its Quincecare Duty by failing to satisfying itself that the payment instructions it received were not fraudulent.
The court identified two key findings that put Moorwand on inquiry:
- Business Discrepancies: RND’s stated nature of business did not align with its transactions, for example, the electronic wallet was used to purchase a watch.
- Onboarding Irregularities: The fraudsters provided incorrect information during the account setup, including an inaccurate date of birth for RND’s director. These inconsistencies raised internal concerns that were not adequately followed up.
Despite this, the High Court rejected the Hamblins' claim that Regulation 55 had been breached.
Comment
This case marks the first time a derivative action has been used by APP fraud victims seeking to recover sums.
While Moorwand did not challenge the court’s permission to bring the derivative action—meaning its validity wasn’t tested on appeal—the case opens the door for similar claims in the future. It also reflects a shift in judicial thinking around APP fraud, suggesting that courts may be more willing to scrutinise the conduct of PSPs when fraud is suspected.
This article was written by Rose Williams, Trainee Solicitor.
