The Federal Republic of Nigeria v JP Morgan Chase Bank, NA

Factual and Procedural Background

This judgment concerns an application by the Defendant, an international bank, for reverse summary judgment against the Plaintiff, a sovereign state, under CPR 24.2 and/or for striking out the Plaintiff's statement of case under CPR 3.4(2). The Plaintiff alleges that the Defendant made three transfers totaling approximately US$875,740,000 from an account held by the Plaintiff, which the Defendant should not have made if exercising reasonable care. The claim is based on an alleged breach of the 'Quincecare duty of care', a duty requiring a bank to refrain from executing payment instructions if it has reasonable grounds to believe the payment is fraudulent.

The claim was initiated on 29 November 2017, with subsequent amended pleadings and a re-amended Particulars of Claim, which narrowed the claim to focus solely on breach of the Quincecare duty of care in contract and tort, abandoning other claims. The application for summary judgment and striking out was made on 31 July 2018, and the court is required to decide the application based on the Re-amended Particulars of Claim.

The factual background involves a depository account governed by a depository agreement dated 20 May 2011 between the Plaintiff and the Defendant. This arose from a settlement of a dispute regarding rights to an offshore oilfield. The Defendant made three transfers from the depository account to accounts in the name of a third party, Malabu Oil and Gas Nigeria Ltd, on instructions from authorised signatories of the Plaintiff. The Plaintiff alleges these payments were made in breach of the Quincecare duty of care, as the Defendant was put on inquiry that the payments were part of a fraudulent and corrupt scheme.

Legal Issues Presented

1. Whether the Defendant owed the Plaintiff a Quincecare duty of care in relation to the depository account, or whether such duty was excluded or inconsistent with the express terms of the depository agreement ('no Quincecare duty of care' issue).
2. Whether the Plaintiff has a realistic prospect of proving causation of loss, i.e., that the loss would have been avoided if the Defendant had complied with the Quincecare duty of care ('causation of loss' issue).
3. Whether the claim fails on the basis of an indemnity clause in the depository agreement that would result in circularity of the claim ('circularity' issue).

Arguments of the Parties

Defendant's Arguments

• No Quincecare Duty of Care: The Defendant argued that the nature and purpose of the depository account, governed by detailed contractual conditions, excluded any Quincecare duty of care. The account was a single-purpose escrow-like account, with strict release conditions, leaving no room for the Defendant to question compliant instructions. Specific clauses (5.1, 5.8, 7.2, 7.4, 8.2(d), 10.1(a), 11.5) were said to exclude or be inconsistent with such a duty, which was described as including a positive duty to investigate.
• Causation of Loss: Even if a duty was owed, the Defendant contended there was no realistic prospect of proving causation because reasonable enquiries would not have uncovered the fraud. The Defendant relied on assurances from the Attorney-General of the Plaintiff's state and the complexity and high-level nature of the alleged fraud to argue that the payments would have been made regardless.
• Circularity: The Defendant submitted that an indemnity clause (clause 10.1(a)) in the depository agreement provided a complete defence, as the Defendant would be indemnified by the Plaintiff for following instructions, making the claim circular and unsustainable.

Plaintiff's Arguments

• No Quincecare Duty of Care: The Plaintiff contended that the Defendant was 'put on inquiry' (had reasonable grounds for believing the payments were fraudulent) and thus owed a Quincecare duty of care, which was not displaced or excluded by the contractual terms. The duty arises by implied term of law and/or tort and requires clear wording to exclude. The Plaintiff argued that the duty applies to the depository account as much as to a current account and that the Defendant's interpretation of the contractual clauses was incorrect.
• Causation of Loss: The Plaintiff submitted that causation was a triable issue involving complex factual and legal questions. The Defendant failed to show no realistic prospect of success on this point. The Plaintiff suggested plausible alternative outcomes if the Defendant had complied with the duty, including the possibility of freezing the account or seeking court directions.
• Circularity: The Plaintiff argued that the indemnity clause was intended to cover claims by third parties, not claims by the Plaintiff itself, and that construing it otherwise would render other contractual provisions meaningless. The Plaintiff also submitted that indemnity clauses should be narrowly construed and that the clause did not explicitly cover negligence or gross negligence.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363	Established the Quincecare duty of care: a bank must refrain from executing a customer's order if put on inquiry that the order is an attempt to defraud the customer.	Used as the foundational authority defining the duty of care owed by banks in such circumstances, including the standard of reasonable grounds and the negative duty not to pay while on inquiry.
Swain v Hillman [2001] 2 All ER 91	Clarified the approach to summary judgment applications, including the requirement of a 'realistic' prospect of success.	Guided the court's approach to deciding the summary judgment application, emphasizing the burden on the Defendant and the scope of factual disputes.
ED & F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472	Further clarified summary judgment principles.	Supported the court's framework for assessing whether a trial was necessary.
Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch)	Reinforced the approach to summary judgment, especially regarding factual disputes.	Supported the principle that courts should not conduct mini-trials on summary judgment applications.
Daniels v Lloyds Bank plc [2018] EWHC 660 (Comm), [2018] IRLR 813	Discussed summary judgment and reverse summary judgment criteria.	Confirmed the burden of proof and the court's approach to assessing prospects of success.
Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340 (Court of Appeal)	Discussed the duty of care owed by a bank and when a bank is 'put on inquiry'.	Applied as supporting authority for the nature of the Quincecare duty and the threshold for a bank being put on inquiry.
Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2018] EWCA Civ 84, [2018] 1 WLR 2777	Confirmed the Quincecare duty applies to protect a customer’s funds from fraudulent disposition and explained the limited scope of the duty.	Used to clarify the scope and purpose of the Quincecare duty, emphasizing its binary nature and who it protects.
Greenhouse v Paysafe Financial Services Ltd [2018] EWHC 3296 (Comm)	Set out the modern approach to contractual interpretation.	Applied in interpreting the depository agreement, especially exemption, indemnity, and entire agreement clauses.
Investments Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL)	Established the modern objective and contextual approach to contractual interpretation.	Guided the court’s interpretation of the contract terms and the requirement for clear wording to exclude implied duties.
Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900	Confirmed principles of contractual interpretation emphasizing business common sense and context.	Assisted in the court’s approach to construing the depository agreement.
Arnold v Britton [2015] UKSC 36, [2015] AC 1619	Further refined the approach to contractual interpretation.	Supported the court’s methodology in interpreting contractual clauses.
Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173	Discussed principles of contractual interpretation and the importance of clear language.	Applied in assessing exemption and indemnity clauses in the agreement.
Canada Steamship Lines Ltd v The King [1952] AC 192	Provided principles for construing exemption clauses, especially relating to negligence.	Used as a flexible guide to interpret indemnity and exemption clauses narrowly, requiring clear words to exclude negligence.
AXA Sun Life Services v Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 2 Lloyd's Rep 1	Addressed whether entire agreement clauses exclude implied terms.	Informed the court’s approach to whether the entire agreement clause excluded the Quincecare duty.
Great Elephant Corp v Trafigura Beheer BV [2012] EWHC 1745 (Comm), [2012] 2 Lloyd's Rep 503	Considered the effect of entire agreement clauses on implied terms.	Referenced in the court’s analysis of contractual interpretation, with caution due to later appellate decisions.
Marks and Spencer plc v BNP Paribas Services Trust Company (Jersey) Ltd [2015] UKSC 72, [2016] AC 742	Clarified the approach to implied terms and entire agreement clauses.	Noted as relevant to interpretation of implied terms by law versus terms implied by fact.
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd's Rep 61	Discussed the status of the contra proferentem rule in exemption clauses.	Supported the modern approach to interpretation without a separate contra proferentem rule.
Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75, [2010] QB 27	Addressed interpretation of exemption clauses and the necessity for clear language.	Applied in assessing the clarity required to exclude liability for negligence.
Capita (Bamstead 2011) Ltd v FRIB Group Ltd [2015] EWCA Civ 1310, [2016] QB 835	Reinforced principles on exemption clauses and interpretation.	Used to support the court’s approach to contractual clauses excluding liability.
Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128, [2016] 1 CLC 573	Discussed exemption clauses and the modern approach to interpretation.	Supported the view that clear language is required to exclude valuable rights.
Liverpool CC v Irwin [1977] AC 239	Established principles for terms implied by law.	Referenced as authority for the implication of the Quincecare duty of care as a term implied by law.
Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988	Addressed the nature of implied terms and their interpretation.	Considered in the context of whether 'express terms' include implied terms, with caution noted.

Court's Reasoning and Analysis

The court approached the application with the established principles governing summary judgment under CPR 24.2, notably that the Defendant bore the burden to show the Plaintiff had no real prospect of success and that the court should not conduct a mini-trial. The court must assume the Plaintiff can prove the facts alleged unless clearly contradicted by evidence.

On the 'no Quincecare duty of care' issue, the court assumed the Plaintiff was 'put on inquiry' and owed a Quincecare duty of care. It found no clear or express contractual exclusion of that duty in the depository agreement. The court applied the modern objective and contextual approach to contractual interpretation, concluding that the duty was an implied term of law or imposed by tort, conferring a valuable right that requires clear wording to exclude. The relevant contractual clauses, including the entire agreement clause (5.1), exclusion clauses (7.2, 7.4, 8.2(d)), and indemnity clause (10.1(a)), either did not exclude or were consistent with the Quincecare duty of care. The court interpreted the clauses as excluding additional positive duties to investigate but not the core negative duty not to pay while on inquiry.

Regarding the 'causation of loss' issue, the court held that this was primarily a factual matter requiring full trial evidence. The Defendant failed to show the Plaintiff had no realistic prospect of proving causation. The court found the Defendant’s submission that reasonable enquiries would not have prevented the payments speculative and noted plausible alternative outcomes, such as freezing the account or seeking court directions.

On the 'circularity' issue, the court interpreted the indemnity clause (10.1(a)) as protecting the Defendant from third-party claims rather than claims by the Plaintiff. The court found no circularity problem and held that the clause did not exclude liability for negligence or breach of the Quincecare duty in the absence of explicit wording.

Overall, the court concluded the Defendant had not established that the Plaintiff had no real prospect of success on any of the grounds advanced for summary judgment or striking out.

Holding and Implications

The court's final decision was to DISPOSE OF the Defendant’s application for reverse summary judgment under CPR 24.2 and the application to strike out under CPR 3.4(2).

The direct effect of this decision is that the Plaintiff’s claim based on breach of the Quincecare duty of care will proceed to trial. No new precedent was set, but the judgment clarifies the application of the Quincecare duty of care in the context of a depository agreement and the interpretation of contractual clauses purporting to exclude such duties.