Can APP fraud victims seek redress under the Quincecare Duty and Derivative Claims regimes? 

Edwin Coe’s Alex Shirtcliff examines the direction of travel following a recent Court of Appeal decision. 

--

Authorised Push Payment (“APP”) Fraud 

In an APP fraud, the victim is induced to transfer money or other assets to, or at the direction of, a fraudster.

The fraudster might: impersonate a business counter-party to divert payment of a legitimate invoice; set up a shell company to take investments for non-existent products and services; or impersonate regulatory or criminal authorities to persuade victims to transfer money to “safe” accounts. The common theme is that the victim is deceived into deliberately sending money to an account controlled by a fraudster.

This leaves the victim with the perennial challenge in fraud situations: how to recover the funds. Frauds like this are usually well planned and sophisticated rather than opportunistic - meaning that the fraudster will plan to swiftly move the misappropriated assets, making it difficult for the victim to identify the fraudster and locate the misappropriated assets.

Moorwand Ltd v Hamblin & Ors [2026] 

The Court of Appeal recently analysed routes to recovery following an APP fraud in the context of Electronic Money Institutions (“EMIs”). 

An unknown fraudster incorporated a UK company, called RND, by using stolen identity documents. RND subsequently opened business accounts with Moorwand, an EMI authorised by the FCA to provide payment services in fiat and Bitcoin / BTC. The ID provided by the fraudster in applying to open accounts was questionable, but accounts were opened nonetheless.

The fraudster offered the Hamblins access to a foreign exchange service promising large returns. Despite some initial hesitation, the Hamblins transferred £160,000 into RND’s Moorwand account. Within a few days, the money was spent. 

RND was subsequently struck off by Companies House for want of making any statutory filings, and the victims discovered the fraud.

Recovery Building Blocks 

The Hamblins turned their focus on Moorwand. They restored RND to the register and caused it to sue Moorward for breach of the “Quincecare Duty”. 

Quincecare Duty 

The Quincecare Duty is one of the solutions developed in English law to the recovery problem described above. Banks have a duty not to perform a payment instruction if they are “put on enquiry” that their customer’s funds could be misappropriated. If a bank is found to have breached that Duty, it can be ordered to restore the misappropriated funds to the customer’s account.  As such, banks innocent of fraud, but caught up in it, can become responsible for the consequences.

But the Quincecare Duty has limits. Crucially for the victims in this case, the Duty is owed only to the bank’s customers, not third parties – even if a third party has a beneficial interest in funds in the relevant account.

Derivative Claims

Whilst the Quincecare Duty is owed to a bank’s customer only, third parties may still, in theory, benefit from it indirectly through a “Derivative Claim”.  In a Derivative Claim, one party can step in to the shoes of a second party to pursue a claim which the second party has against a third.

Derivative claims are more commonplace where a shareholder wishes a company to pursue a cause of action. Derivative claims are not mainstream but possible where a claimant asserts that a company held assets for them under a trust. A form of trust, known as a “constructive trust” can arise in fraud; where a fraudster becomes the “constructive trustee” of a victim’s misappropriated assets.

This is how the Hamblins pursued Moorwand. They argued that: 

• RND had received their funds under a constructive trust by reason of the fraud; 

• As a beneficiary of that constructive trust, they were entitled to bring a Derivative claim against Moorwand through RND; 

• Moorwand owed the company a Quincecare Duty and breached it; and

• As such, Moorwand should restore the misappropriated funds to the company’s account.

How do these traditional legal concepts interplay with modern transactions? 

The Quincecare Duty arose in a case involving Barclays bank where the chairman of the bank’s corporate customer drew cheques for his personal, dishonest purposes. That case and the cases which have followed have also concerned some level of human interaction between a bank and its customer’s agents. 

The concept that a beneficiary of a constructive trust can cause the corporate trustee to pursue a case via a Derivative Claim has its origins in 19^th century case law.

EMIs are not (necessarily) banks. Modern financial transactions are electronically mediated with a high degree of automation and limited or no human interaction.

Significantly, in this case:

• the EMI (Moorwand) accepted that it owed a Quincecare Duty to RND (but denied breach of that Duty);
• the lower Court found that:
  • RND held misappropriated funds on constructive trust for the Hamblins, 
  • they were entitled to bring a Derivative Claim through RND, and 
  • the questionable account opening procedures did not help the Hamblins’ case that the Quincecare Duty had been breached.

The victims were not successful. At its core, the case went against them because the lower Court did not accept that Moorwand was put on enquiry by the company’s actions; a highly fact-dependant decision which the Court of Appeal concluded it could not overturn. 

APP Fraud, EMIs and Electronic Wallets - Key Take Aways

• The door is open for victims of APP fraud to pursue in similar cases.
• Whilst not decided by the Court, in our view EMIs are liable to owe a Quincecare Duty to their customers. The key battle ground will be whether institutions are “put on enquiry”.
• The argument failed in the Moorwand case; we expect the adequacy of account opening procedures to feature in disputes concerning alleged breach of the Quincecare Duty.
• We expect APP fraud victims will use the Derivative Claim regime to seek recovery of losses.

Edwin Coe Can Help

• For us, this case sits at the core of what we do; at the intersection of complex fraud, financial services regulation, emerging technologies and fintech. 

• We advise on complex fraud and asset tracing, and have a market leading practice in disputes concerning crypto assets.

• We advise institutions on the regulatory perimeter, authorisation and regulatory compliance.