THE FEDERAL REPUBLIC OF NIGERIA V JPMORGAN CHASE BANK, N.A  EWHC 1447 (COMM)
In the latest in the recent series of Quincecare cases, on 14 June 2022 the High Court dismissed the Federal Republic of Nigeria (the FRN)'s $1.7bn Quincecare claim against JPMorgan (the Bank), finding that the Quincecare duty did not arise and, even if it had, the Bank would not have breached it.
The decision is a reminder that general money laundering concerns about a customer or a transaction are insufficient in and of themselves to engage the Quincecare duty; there needs to be a suspicion that the specific payment instruction itself is an attempt to defraud the customer.
The FRN's claim centred around payments which the Bank made in 2011 and 2013 totalling around $1bn to accounts held by a Nigerian company called Malabu Oil and Gas Ltd (Malabu), a company which had been closely associated with a disgraced former oil minister of the FRN previously convicted of money-laundering and bribery. These payments were made out of an account held by the FRN at the Bank on instructions by FRN authorised officers and were paid pursuant to various settlement agreements relating to a disputed oilfield deal (the Resolution Agreements).
The FRN alleged that there were a number of "red flags", including various press reports and investigations relating to Malabu’s past and historic allegations that certain members of the Nigerian government were involved in a fraudulent and corrupt scheme surrounding the disputed oilfield deal and subsequent events. The Bank had duly filed a number of suspicious activity reports (SARs) with the UK authorities (including the Serious Organised Crime Agency), who consented to all of the payments to Malabu.
However, the FRN argued that these "red flags" would have put a reasonable and honest banker on inquiry that the payment instructions were an attempt to misappropriate it’s the FRN's funds, and that the Bank was therefore in breach of its Quincecare duty by making the payments.
The FRN had to meet the higher threshold of proving gross negligence in this case (rather than simply negligence as is typical in most Quincecare-related cases) because this was the contractual standard that had to be met under the applicable terms of the parties' contract. This meant that the FRN had to prove that the Bank had a shown a serious disregard for an obvious risk that the payment instructions were fraudulent attempts to misappropriate its customer's funds.
The High Court dismissed the FRN's claim against the Bank, finding that the Quincecare duty did not arise and, even if it had, the Bank would not have breached it.
In dismissing the claim, Cockerill J agreed with the Bank that "unless [a] bank is on notice that the instruction in question may be vitiated by fraud", i.e. that the payment instruction itself is an attempt to misappropriate the customer’s funds, then "the [Quincecare] duty does not arise" (paragraph ). The Judge stressed that this "has to be […] the focus" and "not any different or wider potential concern" (paragraph ).
Although the FRN could point to a number of "red flags" and "unattractive features" about the underlying transactions which were "plainly high-risk features for the purposes of AML and financial crime and corruption generally", the Judge refused to extrapolate this as evidence that there was a "serious and obvious risk" that the Resolution Agreements and the specific payment instructions arising under them were themselves fraudulent attempts to misappropriate funds from the FRN (paragraphs  to ).
A key focus of the judgment was the "danger of the elision of different obligations" (paragraph ), between regulatory obligations of best practice in financial crime prevention and AML on the one hand, and the Quincecare duty on the other hand. Although the Judge acknowledged that the Bank may have fallen "below best practice standards or even in some respects below the standards of the reasonable and honest banker as regards money laundering risk […] that does not trigger a Quincecare duty" (paragraph ). The Judge went on to say that the Bank's approach to compliance or AML or generalised fraud risk, and even shortcomings identified by the FRN in the Bank's systems, were "not relevant" (paragraph ) to the question of whether the Quincecare duty is triggered and breached.
The Judge also dismissed arguments advanced by the FRN that the Bank should have taken various positive steps in its enquiries before making the payments (such as enhanced due diligence on Malabu, or payment to a different account altogether). Although the Court recognised that there were alternative courses of action available to the Bank as a matter of best practice, and that with the benefit of hindsight the Bank might have done things differently, "none of these things individually or collectively amount to triggering and then breaching the Quincecare duty".
The "red flags" which the FRN had identified in relation to potential money laundering and financial crime risks did not themselves point to "a serious or real possibility that in relation to this transaction [the] FRN might be being defrauded" (paragraph ). Indeed, the Judge accepted the Bank's evidence that it had believed that the Resolution Agreements, and the payments arising under them, were bona fide and intentional acts by the Nigerian government (paragraph ).
As with all Quincecare cases the judgment turns on its particular facts, but a couple of features stand out:
- First, the judgment is an important reminder that the Quincecare duty is a limited one and will not readily be engaged or breached (see paragraphs  to  of this judgment) despite the recent potential expansion of the duty discussed by the Court of Appeal in Philipp v Barclays Bank UK plc  EWCA Civ 318.
- Second, it highlights the key distinction in Quincecare cases between, on the one hand, general concerns a Bank might have about money laundering in relation to its customer and, on the other, particular and specific concerns about the payment instruction itself and whether that instruction is an attempt misappropriate the customer's funds. It is the latter category of concern that is most pertinent for Quincecare cases.
Partner, Head of Finance Disputes, Dispute Resolution London, UKView profile
Legal Director, Finance Litigation