In Federal Republic of Nigeria v JP Morgan Chase Bank, N.A. [2019] EWCA Civ 1641, the Court of Appeal of England and Wales held that the terms of a bespoke ‘Depository Agreement’ did not exclude the “Quincecare” duty.

This case relates to the infamous “OPL245” oilfield in Nigeria. After a series of disputed transactions over several years, rights to the oilfield were settled “Resolution Agreements” in 2011, according to which a consortium of oil companies led by Shell bought the rights to OPL 245 from the Nigerian Government for some $1bn, which sum was to be paid on to Malabu in settlement of its claims to OPL 245. A Depository Account was set up with JP Morgan Chase to hold the sums for payment on. The transactions were executed, and in August 2011 the bank paid out some $800m to Malabu, on receipt of payment instructions from authorised signatories.

The Republic alleges that the Resolution Agreements were part of a fraudulent and corrupt scheme perpetrated by then-ministers in the Nigerian Government, and that the bank was or ought to have been aware of this fact and should not have acted on the payment instructions. It alleges that the bank acted, in breach of its Quincecare duty, which arose as an implied term of the banking relationship.

The bank applied for summary judgment on the grounds that the terms of the Depository Agreement prevented the implication of the Quincecare duty. The bank pointed to several terms said to be inconsistent with the Quincecare duty, including an entire agreement clause and an exclusion clause. Each was rejected by the Court of Appeal (Rose LJ giving the sole judgment).

Of most general interest was a clause providing that the bank had “no duty to enquire into or investigate the validity, accuracy or content of any instruction or other communication.” The bank argued that the essence of the Quincecare duty is to investigate any payment instructions which would put a reasonable banker on inquiry of a fraud on the account-holder. By contrast, the Republic argued that the duty was simply to refrain from acting on the instructions, without more. Rose LJ held (at [20]) that “the question of what a bank should do when it is put on inquiry that a payment instruction ought not to be executed will vary according to the particular facts of the case.” The “no investigations” clause was not sufficient to exclude this fact-sensitive duty.

This case is one of two of recent cases discussing the Quincecare duty. In Singularis Holdings v Daiwa Capital Markets Europe Ltd [2019] UKSC 50, the Supreme Court upheld the only finding of a breach of Quincecare duty to date (a decision of Rose J, as she then was). The attention given to the nature of the duty in these cases is very welcome. However, the very high threshold set in the Federal Republic of Nigeria case for excluding the Quincecare duty will be a matter of concern for financial institutions.