JPMorgan subject to the banker’s Quincecare duty of care in $875m corruption case

21/02/19

In a judgment handed down today, Andrew Burrows QC sitting as a judge of the High Court refused an application by JPMorgan for strike out / reverse summary judgment on a claim by the Federal Republic of Nigeria that JPM had breached the banker’s Quinceare duty of care (named after the case of Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363). That duty requires a bank to refrain from making a payment (despite an instruction on behalf of its customer to do so) where it has reasonable grounds for believing that that payment is part of a scheme to defraud the customer. 

The FRN claims $875,740,000 paid away in three tranches by JPM in 2011 and 2013 in circumstances in which it alleges JPM was on notice that the payment instructions were part of a fraudulent and corrupt purchase of an oil production licence. The FRN alleges that the purchasing companies (being part of the Shell and Eni SpA groups) dealt with corrupt Nigerian officials, former officials and intermediaries and that the funds paid out of the  Depository Account administered by JPM were used to pay off corrupt former and contemporary Nigerian government officials and/or their proxies as well as being channeled back to make corrupt payments to senior executives at Shell and Eni (or at least was intended to be so used). Separate proceedings are being brought against Shell and Eni and other entities alleged to be involved in the scheme. 

JPM applied to strike out the claim on the basis that the terms of the Depository Agreement excluded liability for, or were otherwise inconsistent with, the Quincecare duty arising. JPM relied on a number of terms of the Depository Agreement, including entire agreement clauses, exclusion clauses, warranties and indemnities.  JPM also alleged that the FRN’s case that it had been caused loss was fanciful, because any inquiries that the bank would have made would not have prevented the funds being paid out, in circumstances in which the FRN alleged the the corrupt scheme went all the way to the top of the then Nigerian government.  

In rejecting the bank’s application, the Judge explained the basis of the Quincecare duty, and clarified that the core duty was the duty to refrain from paying while on notice of a possible fraud on the customer. He left open the question as to whether there was an additional positive duty of enquiry/investigation that arose after a bank became on notice. The Judge considered each of the clauses relied upon by JPM, applying the modern approach to contractual construction in the context of the agreement as a whole, and rejected the contention that the duty had been excluded.  In this respect, the Judge ‘grasped the nettle’ and found that not only did JPM not have a knockout blow on construction but that he could now decide the issues against it: thus the Judge has found that the bank did owe a Quincecare duty, and that this was not inconsistent with or excluded by the terms of the Depository Agreement and JPM cannot rely on its exclusion clauses or indemnities in its favour. 

The Judge also rejected the bank’s attempt to strike out the claim on causation grounds. This was a classic issue for trial and that was a fortiori in the case of the complex fraud alleged by the FRN.  

The judgment can be found here.