Factual and Procedural Background
The Appellants were victims of a "push" fraud, whereby they were induced to make a payment of £160,000, which was transferred to the Defendant Company B (RND Global Ltd), operating an electronic wallet account with the First Defendant (Moorwand Ltd), a payment service provider regulated by the Financial Conduct Authority. The Appellants sought to recover the funds paid away to Company B through legal proceedings against both Defendants.
The Appellants initially brought a direct claim for repayment of the £160,000, which was dismissed by the trial judge and is not subject to appeal. Subsequently, the Appellants obtained permission to bring a derivative claim on behalf of Company B against the First Defendant, challenging the First Defendant's conduct in debiting Company B's account pursuant to payment instructions. The First Defendant was found not liable by the trial judge, and the Appellants seek permission to appeal this dismissal. Additionally, the Appellants challenged the trial judge's conclusion that Company B had consented to the withdrawals under the Payment Services Regulations 2009, also brought derivatively.
The appeal was heard on a "rolled up" basis, considering both the application for permission to appeal and the substantive appeal itself.
Legal Issues Presented
- Whether the trial judge was correct to dismiss the derivative claim brought on behalf of Company B against the First Defendant.
- Whether an exclusion clause in the terms of business between Company B and the First Defendant precludes the derivative claim.
- Whether the trial judge was correct to dismiss the claim under the Payment Services Regulations 2009 concerning the alleged lack of consent for the withdrawals from Company B's account.
Arguments of the Parties
Appellants' Arguments
- The First Defendant breached its mandate by debiting Company B's account despite being put on inquiry that the payment instructions might not have been authorised by Company B.
- The First Defendant acted in breach of contract or duty in debiting Company B's account without proper inquiry.
- The trial judge erred in attributing the fraudulent agent's knowledge to Company B, thereby failing to recognise that the First Defendant was on inquiry and owed a duty of care to verify payment instructions.
- The exclusion clause in the contract between Company B and the First Defendant does not exclude claims requiring reinstatement of the account balance, only claims for damages.
- The trial judge wrongly dismissed the claim under the Payment Services Regulations 2009 concerning unauthorised payment transactions.
First Defendant's Arguments
- The allegation that the First Defendant was not entitled to debit Company B's account was not properly pleaded and was not before the trial judge.
- The trial judge's findings of fact should be respected, and the appeal should not interfere unless the findings are unsupported by evidence or no reasonable judge could have reached them.
- The exclusion clause applies to all claims, including those for breach of mandate, and bars the derivative claim.
- The claim under the Payment Services Regulations fails because the First Defendant complied punctiliously with the agreed procedures for payment instructions.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Philipp v. Barclays Bank plc [2023] UKSC 25 |
Clarification of the "Quincecare duty" of banks/payment service providers to exercise reasonable skill and care when put on inquiry about the validity of payment instructions from an agent acting fraudulently. |
The court applied Philipp to confirm that the First Defendant owed a duty of care to Company B and that the trial judge erred in failing to recognise that the First Defendant was put on inquiry and thus breached its duty by debiting the account without proper investigation. |
| Barclays Bank plc v. Quincecare [1992] 4 All ER 363 |
Established the duty of a bank not to execute payment instructions if put on inquiry that the instructions may be fraudulent. |
Referenced as the foundational case for the Quincecare duty, guiding the court's analysis of the First Defendant's obligations under similar circumstances. |
| Haringey LBC v Ahmed & Ahmed [2017] EWCA Civ 1861 |
Standard for appellate review of findings of fact; appellate courts should only interfere if findings are unsupported by evidence or no reasonable judge could reach them. |
The court applied this standard to affirm respect for the trial judge's factual findings unless legal errors were identified. |
| Re Hampshire Land Co [1896] 2 Ch 743 |
Knowledge of a fraudulent director is not attributed to the company for purposes of limiting claims against third parties. |
The court relied on this principle to reject the trial judge's error of equating the fraudulent agent's knowledge with that of Company B. |
| Bilta (UK) Ltd v. Nazir [2015] UKSC 23 |
Reaffirmed that a company's knowledge does not include that of a fraudulent agent or director. |
Supported the court's conclusion that the First Defendant could not rely on the fraudulent agent's knowledge to defeat the derivative claim. |
| Singularis Holdings Ltd v. Daiwa Capital Markets Europe Ltd [2019] UKSC 50 |
Confirmed principles regarding attribution of knowledge and duties owed by third parties to companies. |
Further authority supporting the non-attribution of fraudulent agent's knowledge to the company, reinforcing the court's reasoning. |
| Sagicor Bank Jamaica Ltd v. Seaton [2022] UKPC 48 |
Clarified remedies in cases where a third party has wrongfully debited a company's account, emphasizing restoration rather than damages. |
Guided the court's determination that the derivative claim obliges the First Defendant to restore the improperly paid funds. |
| Re Sprintroom, Prescott v. Potamianos [2019] EWCA Civ 932 |
Clarified appellate review of evaluative decisions of trial judges, emphasizing the need for identifiable flaws to justify interference. |
Applied to ensure the court reviewed the trial judge's reasoning carefully but only overturned findings where legal errors were present. |
Court's Reasoning and Analysis
The court began by examining the trial judge's factual findings, which were detailed and made ex tempore. The judge found no reason to suspect the First Defendant should have been put on inquiry regarding the payment instructions from Company B's agent. However, the appellate court identified critical legal errors in the trial judge's approach.
Central to the court's reasoning was the proper application of the Supreme Court's decision in Philipp v. Barclays Bank plc, which clarified the scope of the Quincecare duty. The court emphasized that the First Defendant, as a payment service provider, owed a duty of reasonable skill and care when put on inquiry that payment instructions might be unauthorised due to the agent's fraud.
The trial judge erred in attributing the fraudulent agent's knowledge and conduct to Company B itself, thereby failing to view Company B as an innocent principal victimised by its agent. This contravened established legal principles on attribution of knowledge, as affirmed in Re Hampshire Land Co and subsequent Supreme Court authorities.
Furthermore, the trial judge incorrectly separated facts relevant to regulatory breaches from those relevant to the Quincecare duty, excluding evidence that should have been considered in assessing whether the First Defendant was put on inquiry.
On the exclusion clause, the court found that it applied only to claims for damages and did not exclude the First Defendant's primary obligation to comply with its mandate and reinstate the account balance if debited improperly. The exclusion clause could not be read to nullify this fundamental contractual duty.
Regarding the claim under the Payment Services Regulations 2009, the court held that the First Defendant complied strictly with the agreed procedures for payment instructions. The Regulations impose a mechanical requirement for consent and procedural compliance, which was met. The Quincecare duty and regulatory requirements serve different purposes, and the claim under the Regulations was rightly dismissed.
Holding and Implications
The court granted permission to appeal and allowed the appeal in respect of the derivative claim. The First Defendant is required to restore the monies improperly paid away from Company B's account, amounting to just under £160,000.
The exclusion clause in the contract does not preclude this obligation. The claim under the Payment Services Regulations 2009 was dismissed, and permission to appeal on that ground was refused.
The decision directly affects the parties by requiring the First Defendant to reinstate the funds to Company B's account. No new precedent was established beyond the application of existing authorities to the facts of this case.