When must a bank refuse instructions to pay?

22 July 2022

In New Zealand, the default rule is that a bank must follow instructions to pay except where doing so would involve dishonestly assisting a breach of trust. 

Several recent cases in the UK, however, have sought to require banks to refuse to execute an order to pay if they are “on inquiry” in a potentially wide range of circumstances. 

We review this trend and the parallel push for banks to owe a duty of care to third parties.

The New Zealand position

The law of dishonest assistance provides a relatively clear and high baseline for liability, resting on:1

  • the actual state of the defendant’s knowledge or belief as to the facts (a subjective test), and
  • whether the conduct of the defendant with that knowledge or belief is dishonest by standards of ordinary decent people (an objective test).

A reasonable apprehension or suspicion of wrongdoing is not enough.2

So it is safest to follow instructions, unless there is clear evidence of dishonesty or a legislative prohibition on payment (such as sanctions).

UK developments

The Quincecare duty

Under UK law, a bank must not execute an order to pay “if and for so long as the banker is “put on inquiry” in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate funds of the company.”3

The scope of this duty is narrow, a bank owes a duty to protect its customers from losing funds held in a bank account, where the circumstances (of the transaction) put the banker on inquiry.4 This applies in the case of corporate accounts even where the agent may be closely connected with the customer (such as directors or controlling shareholders).

The obligations of the duty put banks in a difficult spot. If the bank is “on inquiry” in relation to a closely-held customer, with whom does the bank raise its concerns? How does it investigate?

As with other duties, this duty can be modified by contract. 

The English and Wales High Court recently found that JPMorgan Chase had not breached its Quincecare duty in following the instructions of the former Nigerian Attorney-General and the Oil Minister in paying out US$1.7b across two payments. Nigeria alleged the bank should have known the transaction was fraudulent because the two Ministers were engaged with corporate agents who had a shady past.

The Court noted that in order to establish gross negligence (a higher test required by the bank’s depositor agreement), there was a need by the applicant to show that the bank had a “serious disregard of or indifference to an obvious risk” in relation to the particular transaction. It was not sufficient to show that there was merely “a risk” of fraud or that the parties involved had a questionable past.

Extending the duty?

The English and Wales Court of Appeal recently refused to strike out a claim that the Quincecare duty should extend to personal customers as well as corporate customers.5 

The appellant, Mrs Philipp, was the victim of an authorised push payment fraud, having transferred approximately GB£700,000 to fraudsters who had convinced her the money was needed for a UK National Crime Agency investigation. These payments were made despite the family, the local police and the bank all raising concerns with Mrs Philipp.

The Court found that the Quincecare duty is part of the bank’s duty as agent to perform instructions with reasonable care and skill and that the bank was under a public policy obligation not to “sit back and do nothing” in instances of fraud. 

However, it was not prepared to determine whether such a duty exists in a strike-out application and referred the matter to a full trial.

So far the courts have not extended this reasoning to the creditors of insolvent companies or investors.

  • The Privy Council recently held that a bank does not owe the beneficial owner of account monies any duty in negligence, including any Quincecare duty.6 The context in this case was the misappropriation by the fund manager (in whose name the bank accounts were held) of funds raised for a plaintiff class action.
  • The English Court of Appeal rejected the argument that a Quincecare duty was owed by a bank to creditors of a corporate customer,7 finding instead that the scope of the duty was “narrow and well-defined” and as such, did not extend to beyond the banker-customer relationship. The liquidators appealed to the UK Supreme Court and we are currently awaiting the judgment.

Wider duty of care to non-parties?

While the Quincecare duty is unlikely to make immediate in-roads in New Zealand, the arguments for a wider duty of care to non-customers are likely to continue. 

In the claim brought by Ross Asset Management (RAM) investors against ANZ bank, the High Court was unwilling to strike out the investors’ claim that they were owed a duty of care by ANZ in relation to the funds held on their behalf by RAM. 

The Court considered the duty question unresolved in New Zealand and so left the matter for a full hearing.8 Because the case settled, the door remains open for investors and the victims of Ponzi schemes to run the same argument again.

With defrauded customers or investors left in the lurch, banks will continue to field claims seeking to recover losses. In uncertain times, the best protection remains having clear written terms in the banker-customer relationship regarding instructions to pay.


1 Sandman v McKay [2019] NZSC 41; [2019] 1 NZLR 519.
2 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89; [2011] 3 NZLR 751.
3 Barclays Bank v Quincecare [1992] 4 All ER 363.
4 Singularis Holdings Ltd (in liq) v Daiwa Capital Markets Europe Ltd [2018] EWCA Civ 84.
Phillip v Barclay Bank UK plc [2022] EWCA Civ 318.
6 Bank of Scotland International v JP SPC4 [2022] UKPC 18.
Stanford International Bank Ltd (in liq) v HSBC Bank plc [2021] EWCA Civ 535.
Scott v ANZ Bank New Zealand Ltd [2020] NZHC 906.

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