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Half year review of our predictions for litigation in 2022: Recent developments in fraud

11th July 2022

At the beginning of the year, we made a number of predictions for litigation in 2022.

With 2022 now more than half way through it is a natural time to take stock. Some key trends relating to fraud and a financial institution’s duty to protect account holders from fraud have, as anticipated, already emerged. We consider two of these key developments below.

Fraud claims

As expected, following COVID-19, director decisions and conduct has continued to be put under the microscope from the Insolvency Service.

It is no coincidence that the Insolvency Service has reported a significant increase this year in company directors disqualified for misconduct surrounding applications for government backed COVID-19 loans. Such misconduct included directors inflating revenues so that a company could increase the size of the loan it obtained during the pandemic.

Naturally, these are serious issues and if proved can at best can lead to fines and disqualification for directors and at worst can lead to a prison sentence.  

We anticipate that such claims will continue to be brought against directors throughout 2022 and beyond.

Whether you are a director accused of fraud or a creditor / shareholder of a company who suspects fraudulent activity from a director the response is key. How an investigation from the Insolvency Service, HMRC or other regulatory body is handled at the beginning is vital. Likewise, if it is suspected that assets are at risk of dissipation then it is key to act quickly and take the necessary steps to protect and preserve assets. Rosenblatt is experienced in providing advice to directors, shareholders, creditors, and insolvency practitioners in these highly challenging circumstances.

Quincecare

Another prediction was that the “Quincecare” duty would be subject to further judicial consideration. As a reminder, the “Quincecare” duty provides that a bank owes an account holder a duty to exercise reasonable care and skill when executing instructions which includes not executing payment instructions where there are reasonable grounds for believing they are an attempt to misappropriate funds.

Two key Judgments in 2022 have been handed down.

The Court of Appeal in March 2022 held in Philipp v Barclays Bank UK Plc that the “Quincecare” duty could arise when instructions were given to the bank to make a transfer by the account holder and was not limited to circumstances where an account holder was being de-frauded by an agent, such as a company director. Here, an individual was duped into making a payment of £700,000 to accounts held in the UAE.

In June 2022, the Commercial Court decided the matter of The Federal Republic of Nigeria v JPMorgan Chase Bank, N.A. Here the Court held that the Bank was not in breach of the “Quincecare” duty relating to payments of over $1bn as (amongst other things) the Claimant did not make out the case that there was fraud. For such “Quincecare” claims to succeed there must be an identifiable risk that fraud is present. In other words, there needs to be as a serious or real possibility that an account holder is being defrauded through the transaction.

Further claims are expected to continue.

Our specialist disputes team has recent experience of bringing “Quincecare” duty claims against financial institutions. Individuals, directors, and creditors should all be alive to this duty that a bank owes its customers (corporate or individual) where fraud is suspected. Specialist financial litigation advice should be sought at an early stage to maximise the chance of potential recoveries.

This article was written by Chris Louth (Senior Associate in the Disputes department).


We at RBG Holdings/Rosenblatt support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors of articles published on our website/s do not necessarily reflect the opinions, views, practices, and policies of RBG Holdings/Rosenblatt.

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