Strike out application refused in breach of Quincecare duty claim against payment services provider

The decision in Hamblin and another v World First Ltd and another [2020] EWHC 2383 (Comm) is the first to follow the Supreme Court decision in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd, which upheld a negligence claim for breach of the Quincecare duty of care (see our earlier post). The Quincecare duty requires a bank or deposit taking financial institution to refrain from executing a customer’s payment instructions if and for as long as it was ‘put on enquiry’ that a payment may be fraudulent.

In Hamblin, the High Court considered whether the Quincecare duty could extend to a payment service provider (PSP) providing current account style banking facilities. The PSP innocently processed a payment from a customer who was a shell company, without any directors, and in circumstances where the company was controlled by fraudsters. In a sophisticated investment fraud, the fraudsters had persuaded the claimants to pay £140,000 into the customer’s account before quickly dissipating the money. The claimants sought to bring a derivative action on behalf of the company against the PSP.

The High Court considered that a Quincecare claim was arguable and the PSP’s application for strikeout and/or summary judgment was dismissed. The Court held that the Quincecare duty is owed to a company and not to those in control of it and that the purpose of the duty is to protect a legally distinct company against misappropriation of the assets. It was therefore possible for the shell company itself to be the victim of the fraud. The Court held that to attribute knowledge of fraudsters to the company so as to stop company from making a claim would negate the practical impact of the Quincecare duty. It will now proceed to trial if it does not settle.

The decision in Hamblin is one of an increasing number of claims alleging a breach of the Quincecare duty of care and again highlights the potential risks for financial institutions that are processing client payments.