The High Court has supported victims of an APP scam who brought a “derivative” action for reimbursement against a PSP in place of the PSP’s customer company, which the victims had been duped into sending money to.
Moorwand, an EMI, had set up an account in the name of RND Global Ltd. During the onboarding process, it had been told that RND Global was a marketing consultancy with expected turnover of £100,000 per month. RND had provided documentation for a Mr Stanfield as its Director and the person authorised to give instructions on its behalf.
Mr and Mrs Hamblin were duped into paying RND Global £160,000 which, for a time, sat in RND’s electronic wallet with Moorland until it paid the funds away on RND’s instructions.
RND subsequently went into administration. The Hamblins brought proceedings:
- in their own right for repayment of the moneys they paid to RMD. This claim was dismissed and not appealed;
- as a derivative action on behalf of RND against Moorwand, which they were given permission to do. This derivative claim was dismissed, and the Hamblins applied to appeal that decision; and
- to contend that the judge had wrongly held that RND had consented to the withdrawals for the purposes of Reg 61 PSRs.
The key point at issue was that the Hamblins said Moorwand had breached its mandate to RND by debiting the account when it was on enquiry that the instructions might be unauthorised as they were being given by RND’s agent in breach of their duty to RND, and/or that Moorwand had breached contract or other duty by debiting the account. The original judge had concluded Moorwand was not on inquiry.
During the appeal hearing, the judge discussed that there were a number of possible red flags during the account opening process that Moorwand should have looked further into, not least that (as it transpired), the real Mr Stanfield had been the victim of identity fraud. It appeared that despite serious concerns being raised within Moorwand at that stage, the account was nevertheless opened. The amounts then paid into the account by the Hamblins were paid out in the main over a couple of weeks, with some payments in bitcoin and including a payment for a luxury watch. Overall, the nature and size of payments being made from the account were not in line with that Moorwands had initially been told to expect. An expert opinion before the original court did not draw conclusions on whether a reasonable PSP might have had grounds for suspecting misappropriation or have had any suspicion of money laundering, but said that neither of these mattered for the purpose of any civil or contractual claim.
The 2023 Supreme Court decision in Philipp v Barclays Bank plc which clarified the limited nature of banks’ duties in processing customer payments and effectively meant that the duty can’t arise in an APP scam context, was handed down after the pleadings had closed.
At the appeal, the court found that:
- the judge had incorrectly equated RND’s agent with RND itself, so did not see that RND was a victim of its agent’s fraud;
- also as a result, the judge did not appreciate the significance of the tension between the business RND said it did when it set up the account and the business Mr “Stanfield” was instructing or the flags that the person instructing was not the real Mr Stanfield;
- all this meant the judge disregarded several flags that were relevant to the question of whether Moorwand was on inquiry;
- the judge was also wrong in that he completely dissociated any potential regulatory breaches by Moorwand with whether it should have been put on inquiry;
- overall, in fact, Moorwand was on inquiry – inevitably on the facts as the judge should have seen them;
- on this basis, the appeal had to be allowed and had to succeed: Moorwand should not have debited RND’s account without satisfying itself (as it was on inquiry) that the payment instruction it was receiving was a proper one and was not in fraud of RND;
- the claim in relation to Reg 61 PSRs failed because Reg 61 relates only to failures to meet the mechanical provisions of the PSRs and there was no such failure here.
So, in this case, the High Court said Moorwand had breached its Quincecare duty. The next question, though was whether the resulting requirement that Moorwand should pay the money back to RND was overridden by an exclusion clause in its terms of business with RND – but on the wording of the clause the High Court said it applied only to damages claims, and not to cases like this where a payment had been made in breach of mandate.
Unfortunately for the Hamblins, the judge commented that since the funds had to be returned to RND and not to the Hamblins, whether they would eventually be reimbursed will depend on the insolvency process.